This is a very helpful comment that can be found on Linked in, responding to a predictable article pouring scorn on Guy Opperman’s proposal that pensions could help the young get on the housing ladder
The MP for Hexham said his “door is open” to helpful suggestions. Here’s one Minister: allow members to use money in their pension pot for a deposit, not by withdrawal of cash from the pension pot but by making the pension pot a co-investor in the property with the member. The member then gets a leg up onto the property ladder but with their pension pot owning a slug of the equity in the property. Of course, HMRC would have to lift barriers to pension investment in residential property, the pension scheme would have headaches over liquidity, potential exposure to negative equity, being a party in subsequent conveyances, trustees’ investment responsibilities, how to manage drawdown and record keeping, but those issues could all be overcome with sufficient political will.
It will surprise many, that the commentator is the former head of DC at TPR – Andrew Warwick-Thompson, it didn’t surprise me. Andrew has always been able to take a contrarian view when he sees the need, he nearly lost his job calling the impending Equitable Life Scandal in 1999 and is someone who has the courage of his convictions.
How can young people save for pensions?
Young people can and do save for their retirement, they represent one of the lowest demographics for auto-enrolment opt-outs and they are amongst the most vocal supporters of the make my money matter campaign. Young people get long-term because they still have that childish faith in making their and others futures better.
But they are beset by headwinds, not least the cost of renting- which is a near universal affliction. IF they are financially successful, they may may face the additional headwind of the repayment of student loans and interest attaching. These are not easy times for young people with unemployment rates for graduates at their highest for some time.
The almost universal condemnation of Guy Opperman’s proposals , including this tweet , quoted in the Pensions Expert article, are from experts happy to pull the property ladder up behind them.
Speaking as a non-homeowner…
What I want: lower house prices.
The last thing I want: demand-push policies that prop prices up.
Any proposal to let 1st-time buyers use pensions for deposits should model effect on wealth gap between them & folk who bought at lower prices.
— David Robbins (@David_J_Robbins) October 12, 2020
But things can and should change
Along with David – two other experts poured scorn on linking housing with pensions. One was Jo Cumbo, the other Martin Lewis and all seem clear that Opperman’s suggestions would unwind pensions and mess with the housing market – both in unhelpful ways.
But there is nothing so unhelpful as the situation young people find themselves in and I hope that innovators like Unmortgage (now trading as Way Home can come to the fore. Way Home is a way for young people to buy their home from a fund which purchases it for them. It reduces the need for upfront capital and gives kids the keys to what will become their own property.
In practice, it is what Andrew imagines, a ,means for a pension to help individuals buy their property and I hope that we will soon see the fund that sits behind Unmortgage, become part of the stock of helpful patient capital ideas, that pension schemes can invest in.
But it’s not quite as radical an idea as Andrew Warwick-Thompson, which envisages the property purchased, directly owned by the investor, with the self invested pension’s asset being subject to the gearing of a mortgage. Normally such an idea would not be entertained, but the risks of lending an individual or couple a multiple of earnings with minimum deposit is a risk that we have become used to taking, whichever side of the loan we are on.
I think Andrew’s idea is simple and has legs. The percentage of a pension pot that could be used as a down payment on a property need not be restricted, the risk of foreclosure and of individual debt falling outside the pension scheme needs to be considered and ruled for, but this risk is present in any market.
The tax situation is interesting but again can be managed because of the tax-free roll up on the capital value of a principal place of residence which mirrors the way a pension grows – there is a tax-neutrality about the proposal that should appeal to the Treasury.
As for arguments that this will inflate the housing market, I find these hard to understand. We would simple observe the transference of housing stock from landlords to (former) tenants and a transference of semi-commercial to retail debt.
Bearing in mind the state of the housing market for youngsters right now, I give Andrew and Guy Opperman’s proposals, a pat on the back, let’s pursue them and see where they take us.
Oh dear.. This would so obviously become a way for wealthy parents to let the tax man buy their kids houses. What we need is for the economy to recover and for worthwhile skilled jobs to be created. In that way young people will have a future that involves worthwhile well paid work. Earning a decent income is what pays for houses. Pensions are for retirement income NOT for buying houses. So many scams involve fake property schemes. Don’t legitimise residential property as a pension asset.
The point of a pension arrangement is to provide an income in retirement. The more we move away from that simple idea, the more we will end up with inadequate incomes in old age. I’ve always despaired at the ease with which policymakers, when faced with a problem, can’t resist the allure of all that money sitting in pension funds, even when the problem they are addressing is nothing to do with providing an income in old age.
But I still like Andrew’s idea. One of big problems we face in providing incomes in old age is that what works best depends on the individual’s housing tenure. Perhaps income and housing need to be looked at more as a package, than as independent issues.
Bryn, thanks. I’m with you on this – I think our current Minister is currently in the business of challenging the pensions industry to come up with his 2021 pensions bill