The recent idea of James Brokenshire, the secretary of state for housing, communities and local government, on how to get more first-time buyers onto the market is certainly radical, although whether it might also be deemed negligent depends a lot on what happens in the future.
Brokenshire suggested that prospective first-time buyers should be able to dip into their pension pots early in order to top up their savings for a house deposit, to help them get to this stage a lot earlier.
He said that given the average 35-44 year old has approximately £35,000 in their pots, they should be allowed to take out a chunk of that in order to specifically fund a house purchase.
As you might anticipate, this has not gone down well with the pensions industry and I can obviously see their point.
We have spent the last decade or so talking about how to get people to save more for their retirement and now we have a government minister advocating a ‘raid’ on those pots in order to fund buying a first home.
Robbing Peter to pay Paul?
The argument might be that taking out such sums now could mean those buyers then having a pension fund shortfall when they come to retire, although I suspect the argument against might suggest that those concerned would be able to access their property equity at that point, in order to supplement their retirement income.
If this comes across looking like a case of ‘robbing Peter to pay Paul’ then you might well be right.
However we should also point out that for those individuals who have to rent during their retirement, their rental payment requirements are likely to add up to hundreds of thousands of pounds. Money that, should they own their home, would not be necessary to pay out.
This is undoubtedly a balancing act policy, one that – for the right individual – could bring forward a first house purchase by a number of years and mean that ultimately they will still be better off in retirement because they own their own home.
For others, it might not work out as well, having a fundamental impact on their retirement savings and ensuring they have nowhere near enough to cover their retirement living expenses, albeit they would still be on the property ladder and could potentially tap into this wealth.
Advice would be crucial
Such a policy would undoubtedly need a significant crunching of the numbers and would of course need professional advice, with mortgage, savings, pension and retirement all impacted.
One would already suggest there has to be a cap on the percentage amount a potential first-time buyer could take out of their pension otherwise we could have the entire pot being used, which would seem to go against government retirement policy of the past 10 years such as auto-enrolment and the pension freedoms.
That said, in terms of thinking outside the box, Brokenshire has certainly gone for broke here.
Whether it makes it to the statute book is another thing entirely and there will be many who might think it’s a disaster waiting to happen. Certainly, from an advice perspective, it’s going to up the ante considerably.