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Pensions on the house

Paul Thomas reports on plans that could see borrowers allowed to use their pension for their mortgage

The Treasury is considering plans that could allow first-time buyers who are strugg-ling to raise money for a deposit to access a portion of their pension savings.

Money Marketing revealed last week that the Treasury is looking at the possibility of letting people have early access to up to 25 per cent of their pension fund.

The New Zealand government runs a savings scheme, called KiwiSaver, which allows people to make a “oneoff withdrawal of all contributions and earnings” on the money in the pot, provided they have been contributing to the scheme for at least three years. The Govern-ment also contributes towards deposits for first-time buyers.

As well as being a potential solution to the problem of raising enough money to put a deposit on a home, which borrowers feel is among the main barriers to home-ownership at the moment, the scheme could potentially be used to help those who are struggling to make their mortgage payments.

Abacus Financial director Matthew Fleming-Duffy is wary about the idea of people dipping into their pension pot to fund a deposit for a house and believes advisers could be creating problems for themselves if they advise people to do so.

He says: “This is one of those sticky areas. Pensions should be pensions. A pension is for your retirement. If we are going to open up the ability for people in their 30s to raid their pension pot, I am not sure it is a good idea.

“We live in a litigious society. If you go into an adviser and that adviser tells you at the age of 40 that you can pull money from your retirement fund and you hit 60 and realise your pension is not big enough to give you an adequate income, would there be cause to go back to the adviser and sue them for inappropriate advice? Providing options is great but the problem with that is things are open to abuse.”

First Action Finance head of communications Jonathan Cornell welcomes the idea of a vehicle to help first-time buyers but agrees that a pension should be kept for retirement.

He says: “I think it has its merits but pensions are there to support people in retirement. The idea of creating things to help first-time buyers is a good thing but trying to combine a pension provision and a mortgage failed dismally before and I think it is risky to combine the two.

“If you allow people to take money out to be used for a property, it is a recipe for disaster. Build a good pension system and build a good mortgage system but do not try to fuse the two.”

John Charcol senior technical manager Ray Boulger and London & Country head of communications David Hollingworth believe the idea has potential and think it could be an incentive to get people to save.

Boulger says: “The idea has merits well worth exploring but one needs to see the detail before one can come to a firm judgement. I think it is certainly good news that the coalition Government is looking at ways to encourage people to put money into their pension. In principle, it is a very interesting idea and clearly has potential. It could indeed be a way of helping people out in the short term.”

Hollingworth says: “It might encourage people to start saving earlier. The counter to that is should you be using a fund which is geared for your retire-ment and should you be clawing out a chunk of that earlier in your life?”

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