Pensions Minister Guy Opperman has faced criticism from many pension experts following his recent suggestion that first-time buyers could potentially use their accrued retirement savings as a deposit on their first home. Many of those in the pensions industry have reacted strongly to this as they have long battled to get more people engaged with their pensions and save sufficiently to ensure they have a big enough fund when they retire.
Stuart Price, Partner and Actuary at Quantum Advisory, says: “I understand that there is a need for people to save more – both for their retirement and for other reasons such as a deposit on a home. However, I don’t believe that taking money from pension savings to pay for something else is beneficial, particularly as the auto enrolment minimum pension contribution rates are not enough on their own to provide someone with a comfortable income when they eventually retire. By dipping into retirement savings for other means when only paying the bare minimum contribution just compounds this issue even further.
“There is no doubt that young people need support getting onto the property ladder; the latest edition of the Great British Retirement Survey found that a fifth of working parents who had withdrawn some or all of their pension in a tax-free lump sum used part of it to help their children buy a home. The difference here is that this is being done at the point of retirement when it is clearer what retirement income the parents will have in the future.”
Combining pension and non-pension savings is not a new idea. The National Employment Savings Trust (NEST), set up by the government so that employers could meet their auto-enrolment obligations, trialled such an initiative in 2019 to help workers save for a ‘rainy day’. NEST established Insight’s Sidecar Savings whereby money above the auto-enrolment minimum contribution threshold was taken from employees’ wages and secured in an accessible account which could then be built up and used if the individual found themselves in financial difficulty. A further trial of the hybrid savings tool, Jars, is set to commence in January 2021 with companies including Timpson and BT.
Stuart continued “I think Mr Opperman’s comments send out the wrong message about pensions. Yes, it is a savings pot for your future, but it has a very set purpose and if people keep dipping into it, they could find they have nothing left when they need it the most. Introducing a specific savings scheme alongside pensions such as the NEST initiative is a worthwhile idea and may give people the benefit of both worlds.”
For more information any pension-related topics, visit www.quantumadvisory.co.uk.