IFAs slam Clegg’s pensions-for-property plans
The deputy prime minister’s latest idea will only help the rich and puts retirement savings at risk, advisers have warned.
Proposals that would allow grandparents to use their pension pots as security against their grandchildren’s mortgages were criticised by leading IFAs today as highly damaging to retirement saving.
Deputy prime minister Nick Clegg announced at the Liberal Democrat conference that his party would ensure grandparents could use up to 25 per cent of their pension pots in the scheme, saying it would help first-time buyers.
However, AWD Chase de Vere’s Patrick Connolly (pictured right)
claims this could endanger the already low level of pensions saving in the UK.
He said: "The risk is that people will use money they need for their own retirement and then become more dependent on the state, so it could only be suitable for the small amount of people who can safely fund their retirement without that money."
"I think people aren’t saving enough for their own retirement anyway, so the number of people for whom this is applicable is small."
Danny Cox (pictured left)
, head of advice at Hargreaves Lansdown, agreed: "We think the idea is pretty bonkers."
"You would be exposing your pension to two risks: firstly the risk of having it invested in the first place, secondly that of losing the money if your grandchildren can’t pay the mortgage."
"Not a lot of people can afford to expose their pensions to that level of risk. The people who are going to be best-placed to do this are those who already have the means to help their grandchildren."
Kerry Nelson (pictured right)
, managing director at Nexus IFA, said: "The people it’s going to apply to aren’t those he’s trying to help. Effectively it’s help for the rich."
"Young people struggling to get on the housing ladder aren’t those with grandparents who can afford to risk their mortgage."
Cox commented: "The proposal is to use 25 per cent of your pension to guarantee your mortgage, so you are going to have to have a pretty large pension fund to guarantee the typical mortgage."
"If the mortgage is £200,000, for example, you will need a pension pot worth that amount to be able to use £50,000 as a guarantee on a 25 per cent deposit."
Cox points out that savers can draw the money from their pension pot once they get to the age of 55 anyway, so if they can afford to lose that money they may prefer to simply gift it to their grandchildren.
He adds that the problem with the housing market is not that people can’t pay their mortgages but that deposits are too high for most people to be available to afford.
"The issue in the housing market right now is raising money for the deposit rather than the mortgage," he said.
"Banks need to recapitalise and the housing market needs to move back to growth so lenders are prepared to lend more money."
"We will eventually get back to 95 or 100 per cent mortgages; we are just not there yet. The housing market goes through 10-year cycles of boom and bust. People just need to let the cycle run its course."
Nelson agrees that it is the lack of lending by banks that is the problem and she says that the Government should address this.
"The banks have completely withdrawn from the market and at the end of the day you can understand why, but they were at the heart of the economic problems we are now dealing with, so it is rather unpalatable that they aren’t lending," she said.
"The only way is to force the hand of the banks – there’s no other real solution."