Pension Fund for House Deposit Gains Support

For a long time there have been calls for pension funds to be allowed greater access for people in times of need e.g.  first time buyers or care fees in later life.  The added bonus being that it would encourage more people to save more earlier.

Scottish Widows has confirmed its support for Minister of Housing, Communities and Local Government, James Brokenshire MP’s, earlier (June 2019) proposal to let First Time Buyers access monies from their pension pot to purchase their first home.  He would like to see a more flexible approach to the pension system with the younger generation being able to take out up to half of their retirement fund early to put towards a house deposit.

Scottish Widows agreed it would help younger people understand the value of their pensions and research shows:

• Nearly 3.8 million people aged between 22-29 are saving below the recommended level for retirement.
• 38% of under 30’s would save more into their pension fund if they could use it for a house purchase.

This could be an equivalent of 3.5 million young people raising their long-term savings for a comfortable future.

Scottish Widows has also suggested:

• A reduction in the auto-enrolment age for workplace pensions from 22 to 18.
• Increase the minimum contribution level to 15% by 2030.  (It is currently 3% from employer and 5% from the employee).
• A government top-up of £500 per annum.

Comment

We already have the Lifetime ISA (LISA) where people below the age of 40 get a 25% bonus from the government on their savings either when they withdraw funds to buy a home or leave the savings until after age 55 for retirement pots.  There is therefore no real need to add flexibility when it comes to pension access given that tax break is already there with a LISA.

That said, this is about access.  Most people will now have access to a workplace pension, so the transition from spender to automatic saver as pension payments come out of your wages before you get paid is simple.  Lifetime ISAs rely on knowledge and proactivity when it comes to saving.  Physically, you have to be aware of LISAs before you even think about taking action to research which one and how much to save.  We would take a bet that the greater proportion of under 40s have not even heard of LISAs, or if they have, do not know where to start. 

If asked, we would support the scrapping of LISAs and greater flexibility with higher contributions to workplace pensions.  Sometimes ‘a stick is better than a carrot’ when it comes to pension saving as has been proven with workplace pensions.