Pensions for property is still a bad idea

Originally published on June 4 as a blog for Inside Housing.

Every seven years or so, it seems, a senior politician will be tempted by the alluring idea of linking pension savings to home ownership.

When James Brokenshire said on Monday that young people should be allowed to use some of their pension pot to buy their first home, he was following in the footsteps of Nick Clegg and Danny Alexander in 2012 and Gordon Brown in 2005.

He told a meeting organised by Policy Exchange:

‘It seems rather obtuse that we would deny people the opportunity to do this, given that we know those who own their own home by retirement are on average a) wealthier and b) do not have the burden of the largest expense in retirement – accommodation.’

This was one of several what he described as ‘personal ideas’ to ‘help empower consumers in the housing market’ and it’s one that seems superficially attractive given the size of deposit required by many first-time buyers.

And it was an indication of what the housing secretary really thinks about a brief that he could well lose once we have a result from the contest to be the new prime minister and Conservative leader (he ruled himself out).

For him, the idea of allowing people to use their pensions for housing is common sense:

‘It is, after all, their money. Not the fund’s, not the state’s, it’s yours and the next Conservative government should free that capital up, and trust the individual to make the choice for themselves.’

The choice of venue seemed appropriate given that Policy Exchange has been the source of so many of the worst ideas in housing since 2010.

But this one has drawn condemnation from two different directions, with housing groups saying it would fuel house price inflation with tax-subsidised pensions and the pensions lobby arguing that it could destabilise saving for retirement.

Within hours of Mr Brokenshire’s speech, Sky News was reporting that the Department of Work and Pensions (DWP) had complained to Downing Street about a ‘risky’ plan that had not been discussed with them.

A source said:

‘We cannot support this policy because the evidence shows it will be risky and does not help the people it intends to help. The housing market doesn’t need people to dip into their pensions to buy more houses.’

Though this may seem a bit rich coming from those who designed universal credit, the DWP is quite right about the plan: tax breaks are there to boost pension saving not house prices.

Rising house prices would skew the housing market even more in favour of people with wealthy families but falling prices would undermine retirement incomes and increase costs for the DWP.

In fairness, though, Mr Brokenshire was joining an all-party group of senior ministers seduced by different versions of the same idea.

Go back seven years to 2012 and deputy prime minister Nick Clegg and Treasury chief secretary Danny Alexander were proposing ‘pensions for property’ at the Lib Dem conference.

The scheme to allow parents and grandparents use their retirement savings to guarantee a deposit for their children and grandchildren had far more detail than the one floated by Mr Brokenshire but it looked just as dumb. Thankfully nothing ever came of it.

Go back another seven years to 2005 and Labour chancellor Gordon Brown was proposing that residential property should be one of the eligible categories for investment by people with self-invested personal pensions (SIPPs).

This idea was if anything even worse, with huge tax subsidy for housing investment by the wealthiest section of the population and no benefits for first-time buyers.

Thankfully, the Treasury saw sense at the 11^th hour and ruled that residential property would not be eligible but that did not mean that the housing and pensions issue had gone away.

The boom in Buy to Let that was just starting to get underway was partly fuelled by older home owners seeing investment in renting as a more flexible way of saving for retirement but it took ministers years to see the impact on would-be first-time buyers.

James Brokenshire is not the first politician to connect pensions and housing and see a way of appealing to aspirational voters but this is a seven-year itch that does not need scratching.