Scottish Widows backs pensions for property proposal

Scottish Widows has announced its support of a proposal which would see young people being able to use some of their pension savings towards a deposit for their first home.

The insurance and pensions company called for young savers to be allowed to withdraw up to half of their retirement pot early to fund their first house purchase.

It was initially proposed by Housing Minister James Brokenshire in early June, as he said that it would provide people with “real choice, real opportunity”.

Scottish Widows announced its support following the publication of its annual Retirement Report, which found that 38 per cent of young people believed that they would save more into their pension if they could access savings as a one-off to help fund a deposit on a first home.

Commenting, Scottish Widows head of policy, Pete Glancy, said that the industry should “recognise the fact that many young people will prioritise getting onto the property ladder ahead of saving into a pension”.

He continued: “This is a radical idea. However, we have done the necessary testing and modelling and can demonstrate that, alongside our other proposals to increase overall savings levels, this approach could provide a secure financial future for millions of people into old age.”

Scottish Widows argued that a 25-year-old earning £25,000 and purchasing a property with a partner with the same income could use £11,400 from each of their pension pots to put a 10 per cent deposit on a property worth £228,000.

Calculations are based on an individual with £25,000 initial wages at age 21, and assumes a 10 per cent employer contribution rate and 5 per cent employee contribution rate.

It also assumes a government match of 50 per cent up to £500, which has been proposed by Scottish Widows to help savers. Real wages and investments are assumed to both grow at 1 per cent and 3 per cent in real terms respectively.

However, Moda Living managing director, Johnny Caddick, did not agree: "People are right to look at pensions to fix the housing crisis but looking at them in the wrong way. Rather than telling first time buyers to raid their pension pots, we should be encouraging pension funds to be building homes - for rent.

“Most renters are already into paying into someone's pension already, with many buy-to-let properties being nest eggs for private landlords as well as a secondary source of income.

"Pension funds are already pouring billions into what's called 'build-to-rent' housing and at turn of 20th century, many pension funds and insurers built and owned rental blocks across the UK.”

Scottish Widows also called for the auto-enrolment age to be reduced to 18, alongside an increase in minimum contributions levels to 15 per cent by 2030.

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