First-time buyers should be allowed to access pension savings early to fund a deposit for a house, according to some policy experts.
Supporters say it could help tackle the biggest barrier to buying a home. Critics warn it risks weakening already fragile retirement prospects.
Behind the debate lies the question of whether pensions should remain a tightly protected pot for old age or evolve into a more flexible form of lifetime savings.
And the premise has been widely discussed in pensions circles in recent weeks, including at Pensions Age’s spring conference, held in London.
So how would the idea work, and what are the risks?
How would it work?
There have been various iterations of the suggestion in recent years. Still, most proposals would allow younger workers to withdraw part of their defined contribution (DC) pension pot to fund a deposit, usually with limits on how much could be accessed or restrictions to first-time buyers only.
It comes after the Tony Blair Institute last week proposed replacing the state pension with a more flexible “Lifespan Fund”, allowing people to access some state-backed support earlier in life for events such as unemployment, retraining or caring responsibilities.
While not focused specifically on housing, the proposal reignited broader discussions about whether retirement savings should be treated more flexibly over a person’s lifetime.
Several countries already operate similar schemes, such as Canada, where first-time buyers can withdraw up to C$60,000 (£32,400) from retirement savings tax-free through the Home Buyers’ Plan to purchase property, but the money must be repaid over 15 years.
Australia and Chile have also allowed early access to pensions, particularly during the pandemic. Critics argue these policies weakened retirement savings and, in supply-constrained housing markets, may have contributed to higher house prices.
Could it help with deposits?
Supporters of reform say the policy should be judged against the reality facing first-time buyers.
Sir Steve Webb, former pensions minister and now partner at LCP, said allowing people to access their pensions to fund deposits could help them avoid renting in retirement, which can be damaging to their finances.
He said: “If it helps ensure people are not renters in retirement, then early access to pension pots could still be a good overall strategy for retirement.
“The risk, as always, is that this approach could stoke up house price inflation, so it would ideally be accompanied by more measures to stimulate housing supply.
“But if housing developers could see that younger first-time buyers had more buying power, it might affect the mix of housing on new developments in a positive way.”
So would people’s pension savings be enough to help them fund a deposit?
Webb thinks so and says they could help more in the future.
He said research often underestimates how quickly pension pots are growing. Workers automatically pay 8 per cent of their salaries into pensions, but this level was only reached in 2019, meaning many younger workers are only now beginning to build pension savings at the full rate. As a result, balances are likely to rise significantly in the coming years.
Others said there were extra advantages to the policy.
Former pensions minister Ros Altmann said UK rules had treated pension contributions as a “locked box that will hold money for later life.”
She said there were downsides to doing this, and that allowing people to access money earlier could actually incentivise people to save more.
“[Having a locked box] puts people off putting money into the locked box in the first place, as they fear that – even if they really need it – they can’t get it out again.”
What are the downsides?
Several experts argue that early access would do little for those most locked out of home ownership.
Zoe Alexander, executive director of policy and advocacy at Pensions UK, said the policy may sound appealing but risks creating new problems.
She argued that for many younger and lower-income savers, pension pots are still too small to make a meaningful dent in a deposit.
In her view, that means the policy could end up helping those who are already closer to buying, rather than those facing the steepest barriers.
Speaking to The i Paper, she said: “Using pensions to solve the housing crisis may sound intuitively attractive, but in reality, it risks storing up a pensions problem. At the same time, taking money out early undermines the core purpose of pensions: to provide income later in life.
“The long-term impact can be significant, and the risks are very real if people cannot rebuild their savings.
“It also fails to address the real problem. The UK doesn’t have a shortage of demand for housing; it has a shortage of supply. Channelling pension savings into deposits risks pushing prices higher, not improving affordability.”
Altmann admitted there were downsides to flexibility as well.
She added: “All of these [proposals] are a trade-off between money for a social purpose today and money for later life in the future. But any money taken from a pension fund will normally mean less available for retirement.”
She suggested a more targeted UK approach could involve restricting access to individuals’ own contributions, while preserving employer and taxpayer top-ups. That, she argued, would strike a balance between flexibility and protection.
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