As Nest Insight research reveals a mixed public view of using pension pots to fund mortgage deposits, Pensions Expert editor Nick Reeve is very much in the ‘no, thanks’ camp.
It can often be tempting to think of pensions as the answer to different problems. Just ask the government, which is intent on using the sector’s capital to jump-start the UK economy.
Every so often, pensions bubble up as a potential solution to the housing affordability problem facing many people in this country. After all, having a pot of money locked away for decades that you can’t use can seem frustrating when you’re trying to get on the housing ladder.
As we look forward to the Pensions Commission’s first report later this year, it seems this issue has emerged again, prompting Nest Insight to explore the issue in depth. Its full report is worth a read, as is to be expected of its research, but this one in particular has lodged itself in my brain this week. You can read Aamina Zafar’s article on the research for Pensions Expert here.
“Borrowing from your DC pot today risks there being even less in it when you come to retire, and there’s no guarantee you’ll have paid off your mortgage by the time you draw your pension.”
Nick Reeve, Pensions Expert
Should people be allowed to borrow from their pension pots to put towards a mortgage deposit? In the US, the 401(k) retirement savings vehicle – roughly equivalent to our defined contribution (DC) arrangements – allows people to withdraw up to $50,000 for a down payment on a house, provided the loan is repaid with interest.
The problem, as highlighted by the Pensions Management Institute (PMI) in its response to Nest Insight’s report, is that introducing such flexibility simply shifts the affordability problem, rather than solving it. Borrowing from your DC pot today risks there being even less in it when you come to retire, and there’s no guarantee you’ll have paid off your mortgage by the time you draw your pension.
In short, I can only see this idea exacerbating the already massive retirement income adequacy problem we face as a society.
The PMI also pointed out: “Today’s system still leaves too many barriers in place – especially the lack of suitable, affordable housing – and any improvements in pension adequacy risk being cancelled out by rising rents.”
The institute suggests targeted support for lower‑income households, single‑earner families, and older renters facing “life shocks” to help improve people’s long‑term financial security. These changes won’t come cheap, however.
It’s just another part of the complex adequacy issue that the Pensions Commission is faced with. The very best of luck to them.
Nick Reeve is editor of Pensions Expert.
