Housing secretary: Let young people raid pension pots for housing

But loosening young people’s access to their pension pots could have dangerous consequences, critics say, distorting pension saving while not tackling the root causes of the housing crisis.

Mr Brokenshire called on the next prime minister to allow young people to “make the choice for themselves” in a speech delivered to the think tank Policy Exchange.

"Record numbers of people are putting into their pensions. We should be looking at allowing an individual to use part of their pension pot as a deposit on a first time home purchase."

He continued: “The average 35 to 44-year-old has a pension wealth of approximately £35,000. If a couple could combine their pension wealth, both potentially using a proportion to support a deposit, this would make a huge difference to millions of lives."

The proposal is being sold as freeing young people from unnecessary regulation, but the response has been overwhelmingly negative from commentators on both pensions and housing.

Former pensions minister Steve Webb, now director of policy at Royal London, outlined the proposal’s consequences. Short term, house prices would inflate, helping sellers instead of first-time buyers.

Encouraging young people to wipe out their pension pot and start again in their mid-30s could mean they will be in their 70s before they can afford to retire

Steve Webb, Royal London

“Without an increase in housing supply, schemes of this sort have a knack of simply putting upward pressure on house prices, so most of the benefit tends to go to those who already own homes rather than first-time buyers,” he said.

Long term, it would mean people unable to retire until their 70s after losing out on “compound interest” gained from early years savings.

“Encouraging young people to wipe out their pension pot and start again in their mid-30s could mean they will be in their 70s before they can afford to retire,” he said.

John Healey, Labour’s shadow housing secretary, said the plans amounted to a government admission of failure over its inability to tackle the housing crisis.

“This plea for young people to raid their pension pots is a full-frontal admission of failure from the housing secretary. After nine years there are now nearly 900,000 fewer under-45s owning their home than in 2010. The Conservatives in government are failing a generation with too few new, low-cost homes,” Mr Healey noted.

He said Labour would seek to solve the problem at its root and not mess with pension savings.

“The next Labour government will build a million genuinely affordable homes to rent and buy, and kickstart the biggest council house building programme in more than 40 years,” he said.

Tom Selby, senior analyst at AJ Bell, questioned Mr Brokenshire’s proposal: “[Brokenshire's] idea smacks of dangerous political short-termism.”

“Chronic undersaving for later life is one of the biggest challenges facing society today, so a proposal that encourages people to drain their pension pots risks making this problem even worse,” he said.

Currently, the Lifetime ISA exists to help young people build up a housing deposit and then save for later life in the same account. The Ministry of Housing, Communities & Local Government did not comment on the future of the Lifetime ISA.

Mr Selby said government should first look to improve the Lifetime ISA before wrecking the UK’s retirement savings landscape.

“Any efforts to boost first-time buyers should focus on improving [the Lifetime ISA], for example by lowering the 25 per cent exit penalty and extending the age parameters beyond 18-39, rather than ripping up the pensions rules yet again,” he said.

A spokesperson for the housing secretary said: “James Brokenshire’s idea is quite simply about economic freedom. It is about giving people greater choice over their own money, and no one is forced to take part – people can use their capital in the way they want to.” 

They continued: “The Conservative Party needs to reconnect people to capitalism and this is one of many ideas we should be exploring as the leadership race takes place.”