• Pensions minister Guy Opperman has reportedly expressed an interest in allowing people to access their retirement pot early to get on the housing ladder
• The idea of pensions early access was previously investigated and rejected by the Treasury in 2011
• Supporters of early access argue it could encourage people to save more in pensions and boost first-time buyers
• AJ Bell sets out four reasons policymakers should tread carefully
Tom Selby, senior analyst at AJ Bell, comments:
“You can see why pensions early access might appeal to politicians, particularly at the moment – it would cost the Treasury nothing in the short-term and would likely be popular among younger voters.
“However, at its worst this reform risks exacerbating the problem of chronic under saving for retirement in the UK with no guarantee it will actually help would-be property owners.
“It would also inevitably layer extra complexity on an already complex tax system, when really the focus should be on making things simpler so savers find it easier to understand and engage with.
“The idea of a ‘sidecar’ savings vehicle – where perhaps a small amount of money is diverted into a cash product for emergencies – merits consideration, although care would need to be taken in ensuring this is appropriate and is simple for employers and individuals to navigate.”
Four challenges to pensions early access
If people aren’t saving enough for retirement already, won’t this make things worse?
“Automatic enrolment rules currently require employers to pay in at least 8% of band earnings to a workplace pension.
“But even if we discount the earnings band, someone on an average UK salary of £30,000 might take 4 years to save £10,000 in a workplace pension (if they are enrolled at the 8% minimum). If they could then withdraw all that cash for a house deposit, they would face an even more difficult task building a decent retirement pot.
“Equally, if they could only access a small portion of their fund – say, 25% - this might not be enough to materially boost their chances of getting on the housing ladder.”
Couldn’t early access simply stoke house price inflation?
“One obvious issue in giving people access to more money to pay for houses is that it risks simply pushing up house prices, meaning the issue of affordability won’t necessarily be addressed at all.”
Why should pensions early access be limited to property?
“There is probably a stronger argument for allowing those in severe financial difficulty to access a portion of their retirement pot early in order to pay off high-cost debts. While property ownership is clearly a desire for millions of Brits, in most cases it is not an absolute necessity.”
Doesn’t the Government already incentivise house purchase?
“The Lifetime ISA already exists and allows people aged 18-39 to save up to £4,000 a year, topped up by a 25% Government bonus worth up to £1,000 a year. Money saved in a LISA can be withdrawn tax-free if it is used towards a deposit on a first home worth £450,000 or less, or if you reach age 60.
“It makes more sense to boost awareness of this existing product – which could be contributed to alongside an auto-enrolment pension – rather than undermining efforts to boost retirement savings levels across the population.”
