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Should retirement pots be used to fund property?

The retirement planning sector is already a complicated one for savers but the UK pensions minister reportedly wants to add another layer of complexity to it.

Guy Opperman has reportedly expressed an interest in allowing people to access their retirement pot early to get on the housing ladder.

The idea of pensions early access was previously investigated and rejected by the Treasury in 2011.

International Adviser spoke to the sector to find out if this has legs or is actually feasible in the long-term?

Costly trade

Steven Cameron, pensions director at Aegon, said: “Buying a home and saving for retirement will be the biggest and most expensive financial commitments for many people, so there will always be political attractions in offering younger people a way of combining the two.

“But extending this concept to pensions more widely needs to be thought through very carefully. Once the money has been spent on the house, it’s no longer there for retirement, meaning many people would have to start again on their retirement savings journey.”

Jason Hemmings, partner at Cornerstone Asset Management, added: “They are taking the p out of pensions. If the government want them be more flexible, they should be renamed ‘flexible long-term savings scheme’.

“The idea to allow people to draw from a pension to help fund a property purchase helps solve one problem, but creates are far bigger one in the future.

“While it is pleasing to read that the government want to look at ways to help people onto the property ladder, I feel that accessing to core vehicle for providing for ones future undermined to importance of saving for retirement. Pensions are complicated enough, this just adds an extra layer of administration, rules, etc which makes them even more complicated.”

Deeply flawed

Just like the pension freedoms, this UK government idea comes with many flaws, according to Ian Browne, retirement expert at Quilter.

“This isn’t the first and it won’t be the last time that politicians cling to the power of pensions to solve the housing dilemma,” he said. “The proposal is deeply flawed and worse than that, it gives the sense that it’s okay to take money set aside for retirement to pay for a need today, something that pensions, by their very nature try to avoid.

“The younger years are vital for building up a pension pot as that money receives the most benefit from compound interest.”

Stephen Lowe, group communications director at Just Group, added: “Auto-enrolment has been a hugely successful device to get people saving for their retirement as early as possible. Tempting people to use their initial pension savings in order to clamber onto the housing ladder poses a serious risk to their income potential in retirement.

“While there are ways people can use their property to provide retirement income, it is important people are clear that getting onto the property ladder is not a straightforward substitute for saving into a pension.”

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