Legal & General has just released an interesting online survey of respondents currently contributing to a DC pension in which 70% said they would feel more positive about their pension if the funds were being used to support affordable housing.
Taking this a stage further I suspect an even higher proportion would feel positive about their pension if part of their pension fund could be used to support the purchase of a home for themselves, which would also in many cases be an incentive to increase contributions.
The new Government says it wants to help FTBs and a relatively inexpensive way of doing this would be to amend legislation to allow DC pension fund investments to include an equity loan from the policy holder’s own fund to facilitate the purchase of a home, providing the policy holder was a FTB.
This would help address both the affordability and deposit issue for FTBs, in much the same way as the Help to Buy scheme, but without being limited to new builds or an unrealistic price cap. It would be particularly useful for FTBs who can save more than the Lifetime ISA annual limits or for whom a Lifetime ISA is useless because their expected purchase price is over £450,000.
There would be some extra admin for pension providers, but many lenders already have systems in place from the Help to Buy scheme which could accommodate this with fairly modest tweaks.
Adding such an option to the choice of pension fund investments would incentivise younger people in particular to increase their pension contributions (which in some cases would be matched by a higher employer contribution) and they would then reap a further reward in retirement by having a larger pension pot!
Although the Government is planning a stick to reduce the auto enrolment age limit from 22 to 18, if those under 22 knew their pension savings could help them buy their first home that could be just the carrot they need to start a pension!
