Alison Hatcher spoke eloquently on Nico and Darren’s podcast in favor of offering early access to pension pots for savers looking to use their pension to put down a deposit to buy a house. She has put her thoughts in writing for Professional Pensions.

As a non-executive director of the Pensions Regulator, she is influential and her thoughts are clearly and concisely martialled with academic rigour.

I am not against this though I think that there are better ways of going about it than taking cash from the plan. Pensions are subject to all kinds of sharing orders , usually relating to divorce and a sharing order with a bank does not seem so improbable. The principle of mortgaging a pension is common enough bother here and abroad but we must consider experience before moving the idea forwards.

As a former banker , Alison will know that bankers and pensioners are not normally expert in each other’s disciplines. When I took out my mortgage with HSBC, the banks rules were that I could not borrow beyond 65. When I asked why this was, I was told that that was when people normally retired. Even then my state pension age was my 67th birthday but banking rules don’t necessarily take into account such matters. I will have to repay my interest only loan two years before my retirement age at 65 or explain that I am intending to work beyond that point and hope I get an extension. Experience tells me that loans against pensions are not understood by bankers.

Banks and other lenders can easily take into account people’s future cashflows when underwriting a loan. But banks have long since abandoned the concept of the pension mortgage. I have asked bankers why this is and it’s down to the legal matter that you can’t take a charge on a pension tax free cash sum. In my very early days in finance, I had to send a copy of a client’s endowment policy to the lender and the insurer was bound to inform the lender of a potential “lapse” so that the bank could take action. This included forfeiture because bankers felt it irresponsible to lend to someone who had not got life insurance or a repayment plan in place.

But this responsible lending fell away in the late 1980s when the house buying frenzy was at its peak (council house sales dominating). Many loans were issued with no assignation and those that were were not followed up on. When interest rates were at 15% the banks first worry was for people missing mortgage not insurance payments

The policies that were assigned to the bank began to be written on a iwth-profits and then unit linked basis. They were not guaranteed to pay off the loan but were typically requiring “profits” over a basic trigger rate, to meet the loan repayment. The trigger became more and  more ambitious , keeping premiums down but making it ever less likely the endowment would repay the loan

When pay-outs proved less than expected, we had an endowment mortgage crisis where mortgagees found they were short to pay off their loan. My point is that many mortgage systems start off well but fall into decline and ultimately end up a scandal.

Here is where we need to be very careful about early access to pensions. Banks do not write off loans unless there’s a guarantor (think student and Covid loans). People who borrow from their pension in theory owe themselves their pension contributions. But there is no assignment of the pension policy and no requirement for the individual to pay any more into the pensions going forward. So the loan to self is unsecured and unenforceable.

Now let’s think about the debt we owe our future selves to meet our retirement needs. Many people feel that they do not have to pay themselves to get a wage in later age and therefore avoid pensions. Like those who self-insure their property they are prepared for the loss of their property but they do not consider themselves a liability to those in other properties ( I speak feelingly as the leaseholder above me floods me and then tells me he is uninsured and cannot recompense me for loss).

People who mortgage their future selves and then make no interest or capital repayments end up being a menace on society. This is the only argument I know of for mandatory pension contributions. If we had mandatory pensions, then lending against them would be easier for banks, few people choose not to work so delinquency rates are low.

But we have instead of a mandatory contribution system, an incentivised system where we – the taxpayers – forsake £80m of tax revenue to encourage pension contributions. We do not incentivise housing deposits (other than in the ISA system). Pension tax relief is to encourage people to save for a future pension.

This is where I end up ultimately disagreeing with Alison. Because the incentive to save into pensions is already in place – it is tax relief and incentives to save where no tax is paid. To start using these incentives to enable people to buy houses is a moral hazard too far for the British tax payer.

I am not a pension nimby arguing that my virgin field never has houses built over it. I am a tax-payer who can see a double subsidy when I see one. The people who will be best able to exploit this double subsidy are the people who tend to win from tax-relief, the higher rate tax payers of the future who end up having their houses bought for them by the deserving poor.

Putting apart the extra administration of allowing people to take a charge on future pensions for a house today , I can see no reason why the British tax-payer will ware double subsidies to allow smart pension savers to use pensions on this basis.

My mind reverts to EPP loan backs – very common in the last century which did allow companies to buy plant , machinery and property with money borrowed from their pension schemes at a pre-agreed rate. The system fell out of use very quickly when it became the subject of abuse. We have been here before, this kind of thing is right in principle but wrong in practice.

It is an academically good idea which fails the test of experience. I would like to say her argument is innovative but I have seen it all before. Cakeism is the theory that you can have your cake and eat it, using pensions to buy houses is cakeist and history proves it does not work.