Pension-for-property plan is too paltry a solution

Monday 24 September 2012

Tighter constraints on lending have made it impossible for many first-time buyers to secure a mortgage.

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Those whose parents or grandparents cannot afford to hand over a hefty sum for a deposit are left paying rents which leave no scope for saving.

The Liberal Democrats have announced a way to overcome this by enabling parents or grandparents to use their pension pots to help a family member buying their first house with the amount they can take as a lump sum when they retire. Will this scheme be able to bridge the gap? About 250,000 households in the UK have pension assets of around £40,000, enabling them to promise £10,000 as a deposit on a first home for one of their children. It is thought that thousands of people could benefit.

The proposal shows that the LibDems are prepared to look for imaginative ways to help people on modest incomes but even Nick Clegg admitted its scope is limited and details of how it would operate remain sketchy. There are two key questions: can the future pensioners afford it and will it have the potentially unhelpful consequence of raising property prices? Given the race to the bottom of final salary pension schemes and increasing longevity, most people of working age need to raise the amount they pay into their pension to ensure a comfortable retirement. Robbing their modest pots, even for the best of motives, could leave them struggling in old age. Those close to retiring on a relatively modest pension pot of about £40,000 are likely to have earmarked £10,000 or so for other purposes such as insulation and double glazing to keep heating bills to a minimum. So could the first-time buyers who benefit be made to reciprocate the support in years to come? While providing a deposit is a practical way of helping first-time buyers to get a mortgage, it may not be the best way. If thousands of young people suddenly have access to mortgages it is certain to cause prices to rise, especially in cities. The stagnation in the housing market is a problem but the drop in house prices will eventually enable more people to gain a rung on the housing ladder. And building new ones would help even more and also reduce unemployment.Yesterday Mr Clegg told his party conference: "We have got to make sure that we do not put Humpty Dumpty back together again and make the same mistakes, that we rewire the British economy and make it fairer and give people more opportunities."The pension-for-property plan will provide only the most paltry of pushes towards more opportunities but it does offer an opportunity for some. If the Liberal Democrats are serious about a fairer distribution of wealth, they must do more than pay lip service to the possibility of a mansion tax and changes to capital gains tax, and hold out for them to be implemented.

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Pension-for-property plan is too paltry a solution

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