Nest Insight conducted research asking if people should be able to use the money saved for retirement to get onto the property ladder as part of a year-long Housing and Pensions project surveying 4,200 people and using insight from the Office for National Statistics (ONS) Wealth and Assets Survey.
It also included experts across the housing and pensions sectors to compile its report, Using pension savings to support homeownership.
Nest Insight said this concept was becoming more popular, and some responses to the Financial Conduct Authority’s (FCA’s) Mortgage Rule Review suggested the use of pension pots for affordability.
Last year, the regulator’s chief executive speculated on the holistic idea of linking buying a home to building a pension and housing wealth.
The research found that homeownership in the UK had “declined sharply” over the last two decades, mainly driven by the challenge of raising a deposit.
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The share of households privately renting in retirement has more than doubled from 11% to 24% over that period, and if the trend continues, the proportion of retired households privately renting could rise from 6% currently to around 16% by 2040.
Nest Insight said this could put pressure on older people and leave them facing financial hardship if their pension income is not enough to cover their rent.
Currently, more than 80% of employees contribute to a pension, making this potentially the largest asset for people who do not own their home.
Benefits for a small cohort
Nest Insight said the effectiveness of the idea was “complex and nuanced”, noting that some people would benefit from using pension savings for a deposit on a home.
It found that this could lower the barriers to saving for a deposit and bring forward the timeline to get a mortgage for some, which would help to reduce inequality in homeownership and slow the trend of private renting in older age. For some people, this would also offer more financial security.
However, it said the “relative immaturity” of the automatic enrolment system could mean that those who need the most help saving to buy a home would not have enough defined contribution pension savings to make a significant difference to their ability to become a homeowner.
It determined that under the current system, only a small group of people would benefit the most.
Nest Insight said a larger group of people might use their pension savings to buy a home sooner, even if they would be able to afford getting onto the property ladder without doing so.
This could leave them with more complex risks and trade-offs such as mortgage defaults, pension adequacy, and risks if house prices rise due to low supply or pension funds are needed to hold large amounts of liquidity.
Opinions split on using pensions for homeownership
Nest Insight found that public opinion was mixed when it came to using pension access schemes for a deposit, as 29% said it was a fairly good idea and a tenth felt it was a very good idea.
However, a fifth of people said it was not a very good idea, and 13% said it was not a good idea at all.
Respondents who were more likely to benefit showed the most support, but concerns were still raised by those in favour and those who were less sure.
People raised concerns around preserving pension savings for retirement, the likelihood of whether such a scheme would truly address the housing crisis and worries about trading retirement income against housing security.
Some also said they were worried that using pension savings might become an expectation to buy a home, rather than a choice.
Others said raising a deposit was just one barrier to homeownership, pointing out that mortgage affordability was also a challenge.
Will Sandbrook, managing director of Nest Insight, said its research always resulted in the same findings.
He added: “To support the financial security of low- and moderate-income households, we need to take a holistic view of household finances and the products and services people use.
“Viewing ‘pensions’, ‘emergency savings’ and ‘debt’ as unrelated product categories or policy areas doesn’t reflect the realities of people’s lives, especially those dealing with scarcity and financial volatility.”
Sandbrook said there had been proposals over the last few years suggesting the use of pension savings to buy a home, but said there had been a “lack of robust, UK-specific evidence for whether and how approaches could be applied here”.
He said this was why Nest Insight conducted its research and acknowledged that it did not address all angles, nor did it provide a clear answer, but he said this was not the organisation’s aim.
“What emerges is a considerable degree of nuance and a clear set of questions and trade-offs that need addressing before a clearer case for or against could be made.
“We hope this work will help inform the discussion, and contribute to that discussion being truly evidence-based,” Sandbrook said.
