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One of the UK’s largest asset managers has called on the government to allow savers to access their pension early if the money is used for a deposit on a home.
Schroders and the Pensions Management Institute, an industry group, have proposed a “national lifetime savings plan”, enabling early access to retirement savings for first-time buyers as part of an overhaul of the way people build and use their wealth.
The move comes as the new Labour government launched a review into pensions adequacy, with plans to explore ways to improve retirement outcomes.
“Even when you take pensions freedoms into account, the UK’s long-term savings system is unusually inflexible,” said Schroders and the PMI in a report published on Tuesday. The report pointed to Singapore, the US and Australia as examples of countries which allowed early access to pensions for housing and financial hardship.
In the US, 40 per cent of members of 401(k)s, the popular workplace pension plans, typically take out a loan against their pensions at some point, according to the research. Meanwhile, in Australia, members can take up to $15,000 out of the First Home Super Saver scheme each year up to a lifetime limit of $50,000.
Currently, savers with defined contribution pension pots must wait until age 55 to access their savings, with this threshold rising to 57 from April 2028. Pension cash taken before the normal access age faces punitive tax charges.
The UK offers a Lifetime Isa to help savers aged between 18 and 40 with home deposits. But Lisa contributions are limited to £4,000 per year. The government applies a 25 per cent bonus instead of tax relief and the funds must be used for a property worth up to £450,000 or a 25 per cent withdrawal charge applies.
The report from Schroders and the PMI argues that while long-term savings should be encouraged, allowing people to access some of their pension early if it goes towards a house deposit or pays off bad debt can make them better off in the longer term.
“The number of people renting in retirement will triple over the next 20 years . . . the financial impact is enormous,” said James Barham, executive chair at Schroders Solutions.
For a renter to achieve the same standard of living in retirement as a homeowner, the Pensions Management Institute estimates that they would need to save an extra 9 per cent per year into their pensions over their working life.
“If you have all your savings in a pension but don’t buy a house, you have no hope of a good retirement,” said Sir Steve Webb, a former pensions minister who is now a partner at actuarial adviser Lane, Clark & Peacock.
The proposal for early pensions access for housing and to pay off bad debt comes as part of a wider plan for savings, which includes calling on employers to provide a facility for employees to contribute to a “rainy day” savings product, perhaps within an individual savings account, if the employee agrees.
Experts said that if people knew they could access their pensions for money to pay for a home deposit, they might be more comfortable increasing their pension contributions.
“This proposal accelerates and evolves the use of the UK’s automatic enrolment [pension] framework to meet the needs of modern society whilst also addressing the lifetime savings challenge,” said Ruston Smith, chair of the Pensions Management Institute.
The intervention comes as the UK continues to face a pension saving crisis.
According to research from Phoenix Group, a pension provider, 17mn adults in the UK aren’t saving enough for the retirement they expect.
Against this backdrop, some experts believe allowing pensions to be accessed early for home deposits could muddy the waters. “Pensions are designed to provide a retirement fund first and foremost and there are other schemes designed to help you buy a house,” said Jason Hollands, managing director at wealth manager Evelyn Partners.
