Should First Time Buyers Be Able To Access Pension Savings As A Deposit?

It’s not surprising how difficult people have it when trying to attain property.

According to a Your Move and Reed Rains study, 14 percent of tenants believe they cannot afford a deposit on a home. This is an increase from 4 percent from the year before. 44 percent of those folks lack the ability to save money for a cash, which is keeping them from buying a home.

New figures are coming in from mortgage provider Halifax that show people between the ages of 20 and 45 have given up saving money for a down payment. The percentage amount of savers dropped from 57 percent last year to 43 percent this year.

Steps have been developed to make it easier for first-time buyer to put down a mortgage deposit such as the help-to-buy plans on new-build housing along with the governments help-to-buy ISA that’ll be introduced sometime 2015.  All of these could be ways to help would-be home buyers to get their first home.

With auto-enrolment with private workplace pension systems happening more and more in the workforce, more people have started to save for their retirement. The opt-out rate for these savings plans is actually less than 10 percent – a large majority of them are 50-somethings and older who already have a private pension fund and own their home.

People are being advised to save money into their pension, which means they don’t have the money to put back for a home deposit. Therefore, shouldn’t some of this money in pension savings be diverted to a home down payment?

The UKIP has alluded to another tactic, which is to let people use their savings for certain life events like helping relatives buy property.

Of course, there are some positive and negatives to this process.

PRO: You Can Benefit From The Offered Tax Relief For Pension Contributions

The government provides tax relief on your private pension savings, up to 100 percent of your yearly earnings. If you pay into the auto-enrollment workplace pension, the government and your employer will also add to the contributions made.

Despite the fact that using your pension savings could be extremely beneficial for a home deposit, the chances the HMRC will let this happens is unlikely.  Mainly because of the offered tax relief on the private pensions.

PRO: Your Assets and Investments Are Spread Out

While it’s important to have a private pension fund when you finally quit working, you should spread your assets out. When you don’t own any property, the only investment you’re likely to have is that pension fund. Since you can’t erase risks from investments, you need to spread the assets out. When you diversify assets, you’re preserving the capital. Thus, when one investment isn’t doing well, the other investments may fare better.

CON: You May Be Heavily Taxed

If, in time, savings can be used for a home deposit, the taxes you pay could be enormous. It was just recently that the government eliminate the 55 percent tax on using money from a pension fund.

At the moment, access the pension fund has a taxed rate of 20 to 40 percent when you turn 55. In order to make up for the offered tax relief on pensions, the bill is likely to stay at 55 percent. Even if it’s not, you could still be in the 40 percent range for the year, and you not be financially better off.

CON: Your Pension Fund May Suffer Upon Retirement

The key reason you shouldn’t be given access to your pension fund before you retire is so you can have money to live off of when you do finally retire. Since your pension savings are still being invested, they can build up a worthwhile pension fund… even when the interest rates are low.

Therefore, if you saved £175 each month, beginning at 30 years old, you could have a pension of £180,000 when you’re ready to retire.

First-time property buyers need around £29,218 for a deposit, which means a person would have to save £175 a month for 13 years to afford it. Taking the money just from the pension fund doesn’t make it a viable option… even if a law is passed for this to happen.

A better option for some folks is to reduce the pension savings and make an investment in a good ISA. While there’s not as much of a tax relief with these as you’d see with a pension fund, it’s worthwhile if you’re more concerned with a home deposit.


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