Should first-time buyers be able to raid their pensions?

With soaring rents making it harder than ever to come up with a deposit and get on the property ladder, many younger savers may welcome the chance to dip into their pensions. But with one in two workers not saving enough for retirement, is this such a good idea? We seek opposing views.
James Barham from the investment firm Schroders
Renting in retirement is becoming more common, but we know that those who own their home have much better financial security. It is why the UK should follow other countries — such as Singapore, the US and Australia — in allowing savers to access their pension pots early to buy their first home.
Over the past ten years home ownership has declined from 71 per cent to 64 per cent as house prices, adjusted for inflation, have gone up more than 50 per cent. We often hear that this is part of a longer-term shift towards a society of renters not owners, but this fails to fully grasp the long-term financial consequences of declining homeownership.
Renting throughout retirement can decimate pension pots, especially if it is not properly planned for. According to our Lifetime Savings Initiative research workers should be saving an additional 9 per cent of their earnings every year from the age of 22 to cover the cost of renting in retirement. Under auto-enrolment rules most employers and employees must contribute a minimum of 8 per cent of earnings into a workplace pension — so the challenge is obvious.
Owning your own home reduces the financial risk in later life. Aside from all the other understandable reasons people want to own their own home, it provides security in later years and is an asset on which additional income can be drawn if needed to boost retirement savings.
However, owning your own home is increasingly out of reach for many. It takes an average of 11 years to save the 10 per cent deposit for a flat in London. At the same time our pension assets are accruing in the background, but we are unable to call upon them.
• How to save for a house deposit
Subject to safeguards — because we want to protect the current minimum contributions — it makes sense to incorporate some flexibility into how pension assets are invested and accessed.
We need to build more houses in the UK and the government has promised to deliver this. However, helping more people on to the housing ladder by allowing them to use pension funds could make an immediate and huge difference to first-time buyers and families.
Nigel Peaple from the Pensions and Lifetime Savings Association, a trade body
Housing affordability is a serious issue for younger people, but there are many reasons why allowing first-time house hunters to raid their pensions for a deposit is not the solution to the problem.
The introduction of auto-enrolment in 2012 has done much to improve pension savings, especially those of younger people. But too many are still not putting away enough to fund a decent retirement.
Without reform as many as 20 per cent will fail to achieve what the Pensions and Lifetime Savings Association calculated you will need for a minimum living standard in retirement — the basic amount to cover life’s essentials. This is £14,400 a year after tax for a single person and £22,400 a year after tax for a couple, neither of which include housing costs.
Emptying a pension pot now and plunging it into the housing market would mean savers having to start again to build a retirement fund. This will result in considerably smaller pots by the time they retire.
The pension system needs to ensure that savers have an adequate retirement, not seek to address wider social policy issues. That is why we have called for minimum pension contributions to be increased to 12 per cent of all earnings, instead of 8 per cent of a qualifying band of earnings today. We want employers to double their contributions from 3 per cent to 6 per cent.
• How much pension should I have in my 20s, 30s, 40s, 50s and 60s?
As we saw from the house-price rises that followed the government’s cut in stamp duty during the pandemic, releasing money into the system may well push first homes even further out of reach.
Increased demand from buyers means higher prices — it’s simple economics. Sellers will be acutely aware of the opportunity to raise asking prices. All those pension savings released for houses will go straight into the pockets of sellers and estate agents, and leave a cohort of aspiring homeowners even further behind.
We need to address supply by building more houses. This is one area where pension funds can provide funding through their investments.
We have a hard enough time engaging people with their pension savings as it is, without adding additional complexity to the system. Pensions exist to provide for people in their retirement. We must not allow them to become a piggy bank for policy problems faced by this government or any future ones.