Pensions minister Guy Opperman is looking at ways the auto-enrolment workplace pension system can be extended so that savers can borrow from their pots for a deposit.
The minister made his comments during a webinar hosted by Prospect Magazine earlier today (October 12), although he stressed that the government was not currently looking into this as an option.
But the industry warned the proposals risked making younger savers worse off in retirement.
Steven Cameron, pensions director at Aegon, said raiding pensions for a deposit would see people having to start all over again on their retirement savings.
He said: “The Lifetime Isa already offers a government top-up provided it’s used for either a first home or retirement but taking this further and allowing individuals to dip into their pension to fund a first house purchase deposit would need very careful consideration, particularly as employers also contribute to workplace pensions.
“Once the money has been spent on the house, it’s no longer there for retirement, meaning many people would have to start again on their retirement savings journey.
“Pension contributions paid in the early years have the longest to grow and make the biggest difference in ultimate retirement income. So any freedom to raid pensions to fund house purchase early on does have longer term consequences.”
Mr Opperman's comments followed an address by the Prime Minister at the Conservative party conference last week in which he spoke of his ambition to create a generation of home buyers, dubbed 'Generation Buy'.
Meanwhile, Phil Brown, director of policy at The People’s Pension, said it was “disappointing” that the government has not closed the door on a policy which would deplete young people’s retirement savings and “transfer that money to older people selling property”.
Mr Brown said: “Pensions are about providing much-needed retirement income for workers, with international evidence suggesting that pension pots are never adequately replenished once they have been accessed early.
“In America, roughly 1.5 per cent of assets are cashed out from US pension pots annually, reducing savings on retirement by a quarter.
“The only answer to getting more people onto the property ladder is to provide much more affordable housing.”
Early access to pensions has been touted as an option before.
In 2010, the Conservative and Liberal Democrat coalition government ran a consultation to explore the options and outcomes of letting people access part of their private pension fund early.
Tom Selby, senior analyst at AJ Bell, said he understood why politicians kept coming back to this idea, as it could be “a bit of a vote winner”.
But he said it also risked creating new issues and undermined efforts to address the long-running issue of people not saving enough for their retirement.
Mr Selby said: “If you divert pension money towards house purchase when retirement provision is already far too low for millions of people, it’s simply pushing one problem onto another.
“If you think of someone earning £30,000 paying in at the auto-enrolment minimum of 8 per cent, if we assume band earnings are scrapped (as the government has proposed) it might take them four years to build up a £10,000 fund.
“If they are then able to drain that to buy a house, they’ll have to start saving for retirement all over again and the challenge of building a decent pot will be that bit harder.
“There’s also a fair chance this would simply pump up house prices, so no guarantee it would actually make property more affordable for anyone.”
He also warned early access would create extra complexity in the pension tax rules, which are “already too complex”.
Mr Selby added: “I’d also argue there are other circumstances, such as someone facing serious financial hardship, that merit early access more than wanting to buy a house.
“I think the ‘sidecar’ idea, where a small pot of emergency cash is built alongside an auto-enrolment pension, merits further investigation provided it can be introduced in a way that is simple and easy to administer, as this could help improve financial resilience without undermining retirement saving in the UK.”
amy.austin@ft.com
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