Tapping Pensions For Deposits


There’s been a lot of hot air this week: Yes, you guessed it, its Party conference season. Politicians have taken the week off to engage in their respective annual conferences and as per usual, there have been some crackers. Yesterday, Nick Clegg announced at the Liberal Democrat conference in Brighton of his audacious strategy to give the young a rung on the property ladder.

Rising costs

With the soaring price of property deposits and the average age of first-time-buyers rising to 35, Clegg has advocated releasing parent and grandparent pension funds. By liquidating a portion of their pensions, parents could provide a cash deposit for their children’s mortgage. Clegg claimed that already, the number of young people asking for help from relatives to get onto the property ladder had doubled. If you take into account costs such as landlord insurance and rising utility bills, it is little wonder that we are facing such a social quandary.

Justifiable scepticism

Concerns have been voiced however over pension pot security. Joanne Segars, Chief executive of the National Association for Pension Funds stated that “A pension can only be spent once, and this policy could end up leaving retirees out of pocket.” Others have pointed out that although the average fund is £40,000, the actual average contribution fund is £30,000 leaving only £7500 to go towards a deposit.

What does this mean in practice?

With the proliferation of pension pessimism it is doubtful that this controversial proposal will be implemented. Its risky nature and operational feasibility are likely to raise eyebrows among many, even if necessary safeguards are put in place. Were it to be implemented, it is estimated that only around 12,500 would take part so we would be unlikely to see any substantial shift in the rent-ownership balance. Indeed it seems more likely that landlord rent rates are set to rise, with some predicting the first-time-buyer age to rise to 40 by 2020.

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