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NAPF ‘uneasy’ about pension for property proposal

The National Association of Pension Funds says it is “uneasy” about Government plans to allow people to use their pension pot as a guarantee to help their children raise a deposit to buy their first home.

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

Deputy prime minister Nick Clegg unveiled the proposal yesterday ahead of the Liberal Democrat party conference.

NAPF chief executive Joanne Segars (pictured) says: “There are housing market tensions which need addressing, but we wonder if this is a good solution. We need to see more detail on how this might work.

“At first glance this idea leaves us feeling slightly uneasy. A pension can only be spent once and this policy could end up leaving retirees out of pocket. The UK already has a serious problem with people saving too little for their old age.

“The Coalition Government has already looked at letting people have early access to their pensions and decided against it. People need to keep their pension for their retirement, especially with rising longevity and the costs of long-term care.”

Association of British Insurers director general Otto Thoreson says: “We would want to look closely at the detail of the ‘pension for property’ scheme announced by Nick Clegg.

“Pensions are designed to mature into a decent retirement income, not for other purposes. Any scheme which uses pensions as a guarantee must ensure that it does not inadvertently make the saver worse off when they retire.”

The Treasury has previously rejected proposals to allow people to access a portion of their pension early due to a lack of evidence that it would have a positive impact on saving levels. Pensions minister Steve Webb was a strong advocate of the policy in opposition.

Aegon regulatory strategy manager Kate Smith says: “This is effectively early access ‘lite’. I can understand why the Government wants to look at this because they want to empower people to get onto the housing ladder but I am not convinced this is the right way to do it.”


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There are 7 comments at the moment, we would love to hear your opinion too.

  1. Setting aside the argument concerning pensions and their purpose, my main concern is that this will place further ‘debt’ into the property market – albeit it’s from the Bank of ‘Mum and Dad’.

    Perhapsm (from the pension saver point of view) it’s less of an issue if it’s on a shared equity basis but essentially it would still appear to be enabling those who currently can’t afford to buy a property to buy one. This is likely to push prices up further whilst also essentially acknowledging there is disparity between affordability and cost.

    Rather than allowing market forces to dictate the value of the asset, it’s essentially creating a synthetic solution to maintain values.

  2. Spot on Paul.

    I have no particular objection to the schemes that are designed to control the rate of decline of property values to a manageable rate but to risk inflating prices again is irresponsible beyond belief.

    Typical show-boating by a man desperate to keep his job

  3. 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?

  4. Why not permit individual pensioners to lend directly to their family on a secured basis? My fund currently lends to the bank @ 0.75% which then relends the money on mortgage to my children @ 4%. It cannot be beyond the wit of the regulators/Govt to design prescribed conditions for the lending. This is surely a win win situation ?

  5. A Sorry, sorry, sorry state 24th September 2012 at 1:34 pm

    Hasn’t anyone told him that tax-free lump sums are such poor value when commuted from DB schemes, especially public sector at 12:1?

    Sorry over the promise of cheap tuition fees
    Sorry over the promise of a £140 a week state pension
    Sorry for failing to fix the economy
    Sorry for encouraging people to use their long-term security to prop up the housing market

  6. Lets see now,

    What about pensions splitting on divorce?

    Suppose the projected TFC does not materialise due to pension contributions stopping or lack of performance and the mortgage liability became due.

    Suppose young Jonny couldn’t keep up the mortgage payments and the sum became due before the parents’ retirement date? Would they be liable for the interest payments until retirement date when the TFC is vested?

    Just a few things that spring to mind without really thinking too hard.

  7. Pensions are non assignable so I fail to see how they could be used to guarantee anything.

    I am sure if this changed there would be serious implications regarding bankruptcy etc.

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