Schroders calls for early access to pension for first-time buyers

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One of Britain’s biggest asset managers has called on the government to allow depositors to access their pension early if the money is used for a deposit on a house.

Schroders and the Institute of Pensions Management, an industry group, have proposed a “national lifetime savings plan” to allow early access to pension savings for first-time buyers as part of a review of how that people build and use their wealth.

The move comes as the new Labor government launched a pension adequacy review, with plans to explore ways to improve retirement outcomes.

“Even when taking account of pension freedoms, the UK’s long-term savings system is unusually inflexible,” Schroders and PMI said in a report published on Tuesday. The report pointed to Singapore, the US and Australia as examples of countries that have allowed early access to housing and financial hardship pensions.

In the US, 40% of members of 401(k)s, the popular workplace pension plans, typically take out a loan against their pensions at some point, according to research. Meanwhile, in Australia, members can take up to $15,000 from the First Home Super Saver scheme each year, up to a lifetime limit of $50,000.

Savers with defined contribution pension pots currently have to wait until the age of 55 to access their savings, with this threshold set to rise to 57 from April 2028. Cash pension taken before the normal age of access faces punitive fees.

The UK offers a Lifetime Isa to help savers aged 18 to 40 with home deposits. But Lisa’s contributions are capped at £4,000 a year. The government applies a 25% bonus in lieu of tax relief and the funds must be used for a property worth up to £450,000 or a 25% withdrawal charge applies.

The report from Schroders and PMI argues that while long-term savings should be encouraged, allowing people to access some of their pension earlier if it goes towards a house deposit or paying off bad debt can improve them in the long term.

“The number of people renting in retirement will triple in the next 20 years. . . the financial impact is enormous,” said James Barham, executive chairman at Schroders Solutions.

For a renter to achieve the same standard of living in retirement as a homeowner, the Institute of Pension Management estimates that they would need to save an additional 9% per year in pensions over their working life.

“If you have all your savings in a pension but don’t buy a house, you have no hope of a good retirement,” said Sir Steve Webb, a former pensions minister who is now a partner at actuarial advisers Lane, Clark & ​​​​Peacock. .

The proposal for early access to housing and bad debt pensions comes as part of a wider savings plan, which includes calling on employers to offer employees a facility to contribute to a “rainy day” savings product, perhaps as part of a people. savings account, if the employee agrees.

Experts said if people knew they could access their pensions for money to pay a house deposit, they might be more comfortable increasing their pension contributions.

“This proposal accelerates and evolves the use of auto-enrolment in the UK [pension] framework to meet the needs of modern society while addressing the challenge of saving for life,” said Ruston Smith, president of the Pension Management Institute.

The intervention comes as the UK continues to face a pension savings crisis.

According to research by the Phoenix Group, a pensions provider, 17 million adults in the UK are not saving enough for the retirement they expect.

In this context, some experts believe that allowing early access to pensions for housing deposits could muddy the waters. “Pensions are designed to provide a retirement fund in the first place and there are other schemes designed to help you buy a home,” said Jason Hollands, managing director at Wealth Manager Evelyn Partners.