Call for new product combining mortgages and pensions

Call for new product combining mortgages and pensions

The Association of Consulting Actuaries is calling on the Financial Conduct Authority to allow the creation of a product that would combine savings for retirement and a mortgage, and come with mandatory advice.

The industry body was responding to the regulator’s discussion paper on intergenerational differences, published in May, which looked at the changing financial needs across generations for financial services.

The ACA challenged the notion that a millennial might purchase a house in their early thirties, and only after that start to accumulate pensions wealth.

This is due to the fact that the majority of young people start saving into a pension at 22 years old, due to auto-enrolment, with many devoting “significant additional resources” to this in order to benefit from matching employer contributions.

The actuaries also noted that savings for house deposits currently needed to be kept separately, and when looking to take out a mortgage, lenders often determined affordability by assessing net income, not considering pension contributions.

Due to these challenges, the ACA stated that the development of a truly flexible savings product was needed.

This savings vehicle could facilitate both pension saving - with the ability to benefit from tax relief and employer contributions - with the ability to also save to buy a house without incurring any penalty for withdrawing funds from the pension early.

However, given the overall responsibility that this product would place on individuals, the industry body officials believe that a “robust advice and safeguarding framework” would be required to support it.

This would be similar to what was introduced with pension freedoms, which requires that individuals looking to transfer out their defined benefit pensions over £30,000 need to get a financial adviser.

The ACA also noted that “it appears difficult for financial services firms to provide significantly more flexible savings products without new legislation”.

The actuaries noted that a flexible approach that allows financial services firms to design their own products would be in line with the government's goals of preventing “frivolous use of savings that have received tax advantages,” while at the same time would allow for greater innovation.

ACA’s proposal is similar to the one made by MP James Brokenshire, the previous minister for Housing, Communities and Local Government, who suggested that first-time buyers should be able to use their pension pots to top up their savings for a house deposit.

The proposals caused a stir in the industry, with many experts unhappy about muddying a pension pot with a housing deposit.

The government had already introduced a product that allowed savings to be used for retirement or a house purchase with the Lifetime Isa.

This is for people aged between 18 and 40 and allows savers to put in up to £4,000 each year, until they are 50.

The government will add a 25 per cent bonus to the savings, up to a maximum of £1,000 per year.

However, the product has failed to live up to government expectations, with a mere 166,000 accounts being opened in their first year, of an anticipated 200,000 accounts.