Nick Clegg announces pension-backed mortgage proposals

| September 24, 2012
Nick Clegg announces pension-backed mortgage proposals

Deputy Prime Minister Nick Clegg has revealed plans for parents and grandparents to use their pension pot to help younger members of the family onto the housing ladder.

The Liberal Democrats are suggesting that future lump sum pension payouts could be used to guarantee a mortgage.

This would help younger people who are currently unable to save up enough money for the high deposits demanded by lenders to secure a loan to purchase a property.

Mr Clegg revealed the proposal on BBC One’s Andrew Marr Show.

He said: “We are going to work out ways in which parents and grandparents who want to help their children and grandchildren buy a property of their own.

“We are going to allow those parents and grandparents to act as a guarantee, if you like, so their youngsters… can take out a deposit and buy a home. It is a pension-from-property scheme.”

While the idea would benefit potential house buyers, many people coming up to retirement age are facing a shortfall in their pension provision and organisations such as Saga have questioned whether the scheme would be viable.

The return on pension savings and annuity rates have both taken a battering in recent years due to low interest rates and the quantitative easing policy implemented by the Bank of England to support the economy.

A recent study by investment firm Barings Asset Management found that 38 per cent of British workers have no idea when they will be able to afford to stop working, while 12 per cent said they doubted whether they would be able to retire at all.

Speaking at a event held alongside the Liberal Democrats conference in Brighton, pensions minister Steve Webb said the proposed scheme would not adversely affect retirement planning.

He explained that 80 per cent of pension schemes release 25 per cent as a tax-free lump sum payment upon retirement.

An agreement could be made with a mortgage lender to pass this to children to support a house purchase.

Otto Thoresen, director general of the Association of British Insurers, said: “Any scheme which uses pensions as a guarantee must ensure that it does not inadvertently make the saver worse off when they retire.”

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