Dr Ros Altmann comments on Nick Clegg's pensions for mortages proposition
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Raiding inadequate pensions reduces resources for retirement income and later life care
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Introduce better incentives for saving for a home such as full ISA allowance in cash
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Using the value of a family home makes more sense than using pensions
Nick Clegg's suggestion that parents or grandparents should pledge their pensions to help youngsters get on the housing ladder is a very strange idea.
Need more detail: Of course, we need some more detail, but the idea seems to revolve around using future pension fund lump sums to guarantee a deposit for first-time housebuyers. The money will not actually be paid (because it is illegal to take money out of a pension fund before age 55) but mortgage lenders will be able to call on the money if house values fall and the younger borrower cannot keep up repayments. This may mean that those reaching retirement could not actually take their pension lump sum until their youngsters have repaid, because it has been used as a guarantee.
Better to introduce incentives to help young people to save for house deposit - allow cash ISAs up to full annual limit: Young people need to save for their future and there are currently few incentives to help them do so. If they save in a pension fund, they can't touch the money. And even saving in a tax-free cash ISA only attracts half the annual allowance, whereas if saving for a house deposit, it would not be advisable to gamble on a stocks and shares ISA.
Could also use auto-enrolment to help younger workers save for a house or a pension: Perhaps auto-enrolment should be used to help people save for a first house deposit, instead of a pension. Young people would benefit more from saving to buy a house than from locking their money into a pension which can't be touched for decades. They would receive help from their employer and perhaps some tax relief if they use the savings for a first home.
Or enabling older generations to pledge part of their own home, not their pension: Surely it makes more sense to try to use some of the value of older generations' homes to help younger people buy a house, rather than using their pensions.
Most people don't have enough in their pension fund anyway - and what if they have more than one child?: Of course, most people simply don't have enough money in their pension fund to make this a viable proposition. The average defined contribution pension fund is worth around £30,000, which delivers very little pension income in retirement anyway.
Future pension values are not guaranteed: Borrowing against future pensions has a number of drawbacks. Firstly, the value of people's pensions many years' hence is not guaranteed. Most pensions are invested in assets that will rise or fall over time, depending on the markets. Secondly, most people will need their pensions to support them in retirement, or perhaps for later life care needs. Thirdly, borrowing against a future pension lump sum would be more expensive than taking the money out of the pension fund and using it directly.
Need joined-up thinking on savings policy: As we are about to start auto-enrolment of all workers into workplace pension savings, let's have some joined up thinking on savings policy, rather than knee-jerk reactions that could end up backfiring if older people lose the pensions they need and younger people do not learn the value of saving for themselves.
Probably only helps children from better off families, as higher earners have higher pensions: Those who have much larger pension funds are likely to be much higher earners. So the children most likely to benefit will be from better off families. These families are more likely to be able to support their offspring from other means anyway. Those with final salary-type pensions would have more confidence of receiving their pension lump sum, but even that is not necessarily guaranteed unless they work in the public sector.
After all, if people's families can help them out, they often do. And if they can't, they either won't have much money in their pension fund or will need whatever they have for their own retirement.
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