FCA fresh thinking on using pension pots for house deposits ’a welcome development’ – Steve Webb, LCP

Pensions & benefits Financial wellbeing Personal finance

A speech by the CEO of the Financial Conduct Authority (FCA) in which he flagged openness to using pension saving to help individuals get on the housing ladder has been warmly welcomed by LCP Partner and Former Pensions Minister, Steve Webb.

At a speech on Friday (28 March), FCA CEO Nikhil Rathi, talked of FCA bringing forward ‘bold ideas for a joined-up future’ in which he said:

“Buying a first home. Paying down a mortgage. Building a pension. Drawing on housing wealth later in life. These are not isolated events – they are junctions on the same financial journey. Can we do more to design policy, regulation, products and services that reflect that?”
He said that FCA was already looking at whether those who save regularly and reliably into a pension could be viewed more favourably by mortgage lenders but went on to say:

“Going further – one of the biggest challenges prospective homeowners face is raising a deposit. Australia, New Zealand, the United States, Singapore and South Africa all permit citizens to leverage their pension savings to buy a first home.”

He acknowledged that there could be “trade-offs” if such a model was adopted in the UK, including “...the ability of savers to replace those withdrawn funds, [and] the impact on house prices”. But he went on to say:

“And as we think more radically about the mortgage market and options to support homeownership, what might this mean for saving, including for pensions, more broadly?”

It is very encouraging to hear the head of the FCA talking positively about thinking radically about how we save. For too long, we have saved in separate ‘buckets’ with money for a pension in one place, short-term savings for emergency needs in another, and money for a house deposit somewhere else. There is much to be said for trying to meet these needs in a single financial product, supported by workplace automatic enrolment, which could help more people become homeowners and reduce the risk of them having to fund a rent out of their modest retirement income.

Steve Webb LCP Partner

Home ownership is declining in the UK, and three times more people are expected to be renting in retirement in the next 20 years. The cost of ‘renting in retirement’ alone could be equivalent to annual pension contributions of around 9% of pay from the age of 22. The statutory minimum of 8% wouldn’t therefore even cover the cost of rent, never mind put food in the fridge. The proposed FCA consultation will be a big step forward and is hugely welcome. The Lifetime Savings Initiative considered the learnings of those countries who have more developed retirement savings models where they look to support people in building short-term savings and buying a first home as well as putting money away for retirement. With expected inadequate retirement savings for the next half century, people depend on wider lifetime savings to make ends meet in retirement.

Ruston Smith Chair of the Pensions Management Institute

Notes to editors

The full text of the CEO’s speech can be found at: On the right track: Connecting consumers, products and growth | FCA
One model of an integrated approach, which links short-term cash saving, saving for a house deposit and pension saving is the Lifetime Savings Initiative, jointly developed by the Pensions Management Institute and Schroders.