Pension Unlocking suggested for home-buyers

Pension unlocking has recently been proposed by the CBI (Confederation of British Industry) as a way to kickstart the stalling UK housing market.  They suggested that first-time buyers should be able to borrow against their pension to fund a larger deposit on their home.

Retirement Solutions reported the suggestion –

“Current pension rules let pension savers invest in commercial property, generally with a self-invested personal pension.

Residential property is barred as politicians are concerned rich investors will gain a tax benefit by buying their own homes and then claim relief on the cost.

Property is classified as ‘taxable property’ with any saver who tries to buy a home with pension funds faces drastic penalties as the cash released for the purchase is considered an unauthorised pension withdrawal.

John Cridland, CBI Director-General, said: “We have to do more to give our young people hope in the future and support their aspirations to be home-owners. While we would not want to see a return to overly-risky lending practices and unsustainable personal debt levels, it is important that we get credit flowing to those who need it most.

“We could reduce the risk of higher loan-to-value mortgages if the government encouraged lenders to take out insurance against the borrower failing to meet payments.

“We can also jump-start the housing market by allowing first-time buyers to boost their deposits by borrowing their own pension savings, and ensuring existing owners who want to move house have more options. It’s also crucial that the government presses ahead with relaxing some planning rules for “change for use”, particularly from commercial to residential.””

Update: Ian Robinson at Which Magazine has added to the calls for early access to pensions. He argues that early access to the state pension will allow people to make a “graduated retirement” rather than just stopping work completely on a predefined day –

“When the government abolished the default retirement age earlier this year, the Department for Work and Pensions said this meant ‘you should be able to retire when the time is right for you’. That’s great for those who don’t want to stop at 65, but what about those who do?

Not everyone fancies carrying on in full-time employment until they are that old, or even older. Some of us might prefer to work for a few days less, to semi-retire, to cultivate a hobby or downsize in readiness for full retirement. If you can’t draw your pension until you’re 66 or 67 these prospects seem pretty remote.

I think it would be fairer to make the state pension age negotiable. You can already put off claiming state pension and get interest on the money you’ve forgone, so why can’t you start drawing from it early as well, in exchange for receiving a little less?

After all, you only need to have made 30 years of National Insurance contributions to qualify for a full state pension, so many of us might feel we’ve already paid our due by the time we reach 55 or 60.”