Confusing Pension with Property

This has been doing the rounds in the press recently. “Could pension savings be used for a house deposit?” and I think that it is the harbinger of bad things to come.

There are major problems in the UK with how people find and afford shelter. It’s a basic human need and the government does not seem to think it’s important. There have been 19 housing ministers since 1999 and the current incumbent is Christopher Pincher  (since February) preceded by Esther McVey who started last July. With such a high turnover in the position and its apparent perception as a stepping stone job, it is very clear that it’s not important to the UK government.

The problems caused by the housing crisis are well known and the solutions are well known too. Unfortunately, the government lacks the will and capacity to do anything about it and their donors’ interests outweigh those of the people; so you end up with ridiculous policies which are intended to Help To Sell houses at inflated prices to gullible / not other option left buyers while the developers get very rich off tax payers money. There’s no shortage of grand plans and bluster but we know it’ll come to nothing

Your own success in life is becoming less dependent on your own abilities, hard work and personal choices and more and more dictated by the wealth of your parents. If they can afford to send you to private school, you’ll meet the right people. If they can afford to pay your fees and costs you can go to a good Uni. If they can subsidise your rent when you are doing an internship in London.  If they can give you a five figure sum for a house deposit. If you didn’t win the genetic lottery then you are at a disadvantage and unlike the past when you could overcome these, the property puzzle makes life modern life for millennials in Britain miserable. In Victorian times you may well have had nepotism and snobbery limiting opportunities, now it’s a postcode lottery which separates the winners from the losers.

Generation Rent

I don’t know what to write here that easily sums up either the facts or my emotions about the situation so I’ll give you an anecdote. I live in a university area and many of our friends/acquaintances work in the university and have kids. By and large they don’t come from here and with that, they lack the family connections and network that you get elsewhere. In one case, two university professionals who have a kid the same age as the Master and are currently renting something half the size of our place for more than our mortgage (interest plus capital). They would like to buy but lack 1) the deposit 2) confidence in future work 3) housing benefit. All the while, they continue to rent and live in fear that their AST will end and they’ll have to find somewhere else to live. If this is how internationally mobile, highly skilled, tax paying families are treated and when you can get a better quality of living elsewhere, it’ll be no surprise that the empty rhetoric of “Britain is open for Business” rings hollow for many.

My pension is now my property

News articles don’t get released by accident, so maybe the news article that the government will allow you to dip into your automatic pensions savings to buy a house is something that will happen. If you are forced to save 8% of your wage into a pension, then after a few years you could end up with maybe £10,000 or more. What’s the point of that money if you don’t have a house to call your own? Why not use it to supplement your deposit?

Well the problem is that without substantial savings made from your earnings NOW, you will never be able to retire. The state pension will come too late for you and will not be enough for you to live off. The UK policy has been to scrap final salary pensions in favour of “defined contribution” pensions which shifts the risk and responsibility of your pension to you. You’ll be eaten alive by the sharks who make money off your savings with rubbish funds overcharging you for underperformance. But now they are not content to eat away at 1% of your money a year – now they are coming after the lot. You see, continuously inflation busting house prices lead to a situation where houses become unaffordable and instead of making them cheaper, the government wants you to use your pension to help you buy them. Who cares if you have swapped your pension for an overpriced Barratt Box with instant negative equity and 40 years left on the mortgage paid from your insecure work? You’ll be getting on with your life.

Other alternatives to saving for a deposit?

Rant over now. There is of course a government scheme to help people save for a house deposit. It’s called the LISA or Lifetime ISA. Put money in and get a 25% bonus with a limit of £4,000 per tax year (and £1,000 bonus) per person aged between 18 and 40 and you can pay in up to the age of 50. You can use the proceeds to buy a house or take it out at age 60. Early access (Covid notwithstanding) incurs a 25% demurrage.

Personally, I think that the LISA is a terrible idea and I’ve said so but also I have filled both my and the Lady’s LISA up every year since they came out because it is just too good an opportunity to pass up for the sake of your principles. I’ve also said that there’s good FIRE argument for the LISA. But why is the government touting this abuse of your pensions savings for a house purchase anyway? Maybe buying houses is more important than building them for the government?

Whatever it is, property remains a blind-spot of government in the UK, it stokes up intergenerational inequality and resentment and swapping out pensions for property (still without building enough) isn’t doing anyone any favours.

Thanks, GFF

15 comments

  1. Anecdotally, many people outside of the FIRE community in the U.K. are under the belief that “property” is a pension. The result is that many are not contributing as they don’t understand what a good tax break they get. I’m always shocked to hear that someone isn’t contributing to their pension in favour of saving for a deposit, especially when the employer gives a contribution. This policy seems to suit that mentality down to the ground.

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    • It could of course be that everyone is broke!
      For many the returns on saving for a deposit and then to avoid rent by getting that mortgage is more valuable and immediate than the pay off from a pension.
      For 40% tax payers who are renting they are truly squeezed.

      Also there is no such TV show as “shares under the hammer”, “an ETF in the sun” or “pension, pension, pension” on TV now is there?

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  2. once youve acquired the necessary skills, i would recommend anybody who wants to get on in life to get the hell out of the UK!!! The world is out there and needs some motivated people. You will be well rewarded and gain great life experience. Also the weather is crap in the UK.

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    • Haha – my thoughts exactly but my actions speak otherwise.
      The UK is a great place if you plan to underachieve and retire early.
      Free schools, free healthcare, generous tax free perks / limits and the weather is great if you go on holiday

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  3. I seem to remember my old employer giving the option to match your contributions up to a certain point, but instead of it going into a pension it goes into a savings account with a Building Society I can’t remember the name of (might have been Coventry). I think it was also a H2B account which was still available at the time.

    Could be an interesting concept and something for other companies to think about. I think you could also do half and half too so you didn’t totally miss out on contributing to a pension. But I never really looked into this because I’ve always done my own thing with my own LISA so just put it all towards my pension.

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  4. Auto-enrolment is heading in the right direction – using pensions to buy property seems like a u-turn.

    As LlSAs came too late for me, I have no real view about them, though I guess they seem quite good for first time buyers.

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    • Even more useful for the non first time buyers.
      The problem is that the ones who can benefit from LISAs are those who need it least.
      Similar but worse than the ISA limit being £20,000 a year – you could make the limit £200,000 a year and it’ll make as much good for 90% of people as anything.

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  5. Broadly I sympathise but I think you’re wrong on “If they can afford to pay your fees and costs you can go to a good Uni.” Anyone who gets the full taxpayer loan/subsidy can go to a good uni. Maybe London is an exception but then that’s not where the best unis are.

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    • Maybe my point is a bit inaccurate at this but I know when I was looking at universities the relative costs of living were a factor.
      And more to the point, where I live there is a uni and a prestigious one 30 minutes by bus away – the cost of living is very different between the two.

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