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Govt plans for pension pots to fund mortgage deposits

Nick Clegg WEF Speaking 480

Deputy prime minister Nick Clegg has unveiled plans to allow individuals to use sizable pension pots as a guarantee to help their children raise a deposit to buy their first home.

The plans are currently being investigated by the Department for Work and Pensions and the Treasury and would allow parents to use up to 25 per of their pension pots to guarantee first-time buyer mortgage deposits by setting aside part or all of their future tax-free cash lump sum entitlement.

The policy was initially considered for inclusion in the Government housing strategy in December 2011 but was dropped when it was published.

Yesterday, Clegg told the BBC’s Andrew Marr Show: “This is part and parcel of something which I think most people agree with, which is that as we fill in the black hole in the public finances we have also got to make sure that we do not put Humpty Dumpty back together again and make the same mistakes, that we rewire the British economy and make it fairer and give people more opportunities.”

Treasury chief secretary Danny Alexander told the BBC: “There are an awful lot of parents who don’t have enough cash to help their children get on the housing ladder. In many cases, they might well have built up a substantial pension pot – that’s their only asset – which they will be able, when they reach retirement age, to release a tax-free lump sum.”


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There are 20 comments at the moment, we would love to hear your opinion too.

  1. Have I misread this as surely, if it the 25% lump sum entitlement being used, then parents could use this for this purpose anyway?

  2. I can see that one causing a few problems down the line!

  3. Can this really be best advice from the government? Once the money has gone its gone and tied up in the childrens home is never, ever going to be a good idea. Start building homes now and lots of ’em as this is where your future growth will come from! Oh yes and get rid of the FSA as I’m struggling with the RDR exams which in turn means no job-no tax revenue!!

  4. Never understood why residential property was removed as an allowable sipp investment before A day. It would allow parents to buy property for kids to live in whilst retaining ownership in the pension fund.

  5. Good luck with getting that one through compliance.

  6. Just let pension funds invest in residential property. Simple.

  7. Overvalued house prices 24th September 2012 at 9:44 am

    Gaaza is dead right – you can do this today without any grand Treasury scheme. Parents have been acting as guarantors for children’s mortgages for years.

    The worrying thing about this policy is that they continue to focus on stoking up prices for housing. Housing remains overvalued on long-term measures and in relation to average earnings (6-7 times average wages).

    When house prices then fall to their natural level and children are left in negative equity and start defaulting, what happens to mum and dad’s tax-free lump sum?

    We need policies to help people save more. We are in this mess because politicians and central bankers encouraged borrow and spend. When will they ever learn?

  8. ‘future tax-free cash lump sum entitlement’
    Is this IKEA vouchers?

  9. Well Nick you big headline grabber why not reverse the age to 50 when people can draw their benefits rather than age 55.

    They can then give it to whoever they wish even themselves! or defer drawing benefits.

    The Bank of Mum and Dad is lending unlike the corrupted and failed Banks we have supported as taxpayers.

  10. So, that nice little nest egg that the parents have worked hard for all their working lives is to be used to guarantee a deposit is it? Or is it to be tirned over at the point of retirement? And they are right, for some people it is their only asset, which hopefully they will be able to use and probably need, throughout a long and happy retirement OR are they to be left relying on only their pension? This can surely only relate to the minority who have huge pension pots leading to very large pensions. For most of us that’s not going to happen and we will need on tax free lump sum!!!!!

  11. Another duff proposal from a man who could really do with a lobotomy.
    What research is there to show that people fritter their tax free cash? This proposal makes huge assumptions. With DB that the person will accrue full rights. For DC the taking of PCLS early will impinge on fund growth. If the market rises this amount could be greater if taken at ‘the right time’. If merely applying to DB – well that now only accounts for a very small (and shrinking) section of the population.
    If you want to help youngsters – look to the European example – rent control. This will have two effects. It will ensure affordable rentals and at the same time discourage speculative but to let, thus helping to depress property prices.
    Do these people have any brains at all?

  12. Silly boy.

  13. Who on earth thought this one up!
    As someone else said, if the minimum retirement age had remained at 50, most people who had chidlren after 25 say could then have accessed their tax free cash when their child hit 25. Not bad timing really.
    If it is to be security for a first time buyer, then based on the logic used with flexible drawdown, the individual would have to have pension income in excess of £20k before they are allowed to have flexible drawdown for risk of the pensioner falling back on means tested benefits.
    Taking off state pension £20k – 5587 = £14,412 for which at age 65, a male level pension needs a fund of XXX. How many people have a fund of XXX?
    Headline grabbing drivel.
    What is the point in doing FS exams when we never get consulted on stupid govt policies. This is teh first I’ve heard of this stupid idea.

  14. Age 65 male single life level pension would need over a £400k fund even when added to state pension. Based on average house price of say £200k with a 26% deposit i.e. £50k, that means a pensiion fund in excess of $450k would be needed.
    So what proportion of lib dem voters would this policy actually help? If none, is it just a soundbite…

  15. I recall a lot of issues and claims of wrong advice regarding mortgages linked to pensions.

    And the last time I looked a pension is a non assignable benefit so I fail to see how any part of it can be used as a guarantee.

  16. i am in my mid 30s and finding it hard to save for a deposit for a Morgage. I have my own pension fund with around 20,000 in it. Why cant i cash my own pension fund in for a deposit and when i retire and my 3 children have moved out i could downsize my house and use the money for my pension.

  17. So how is a mortgage avdviser going to be able to advise the client and parent in this example?
    The mortgage adviser is ok to advise on mortgages and protection, but then needs to call in a G60 qualified pension specialist to rip the money out of the pension to fund the mortgage?
    This must surely be completely unpractical for most and who would be culpable then if the homeowner defaults and then also the pension scheme is bailed out by the PPF? Absolutely nuts fair play Nicholas you dig yourself far to many holes to climb out of in my book!

  18. Yes but the lenders are just not interested in people over 75 years of age.

    Lib Dems would strike more credibility if they insisted that the current age discrimination legislation was extended to cover financial services. Problem then solved cf joint mortgage with your daughter or granddaughter.

    Lenders cant have it both ways, lower annuities because people will live 30 years longer but no useful mortgage period after the age of 50.

  19. why does the government that have backed he failing Banks, not just get a back bone and tell the banks what to do,.or the funding given will be taken back just like the banks are doing to small businesses, where busineses can no longer borrow to stay afloat, helping first time buyers get a mortgage by getting more lenders to lend at 95% and allowing them to buy on the open market will surely get things moving again.

  20. This from the party who have suggested that they will remove the ability for those who are considered to be wealthy to have a tax free cash pot at all.

    So I advise a client to let his kids have the pcls as a deposit to then find it does not exist in the future.

    Bend over…assume the position…ouch!!.

    Thanks Mr Politicain for ruining my life once again.


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