Allowing employees to access pension savings to support a first-time home purchase could help a small number of workers, but would expose many more to long-term financial risk and unintended consequences for both the housing market and retirement outcomes.
That is the conclusion of a year-long research project by Nest Insight, unveiled at a London launch event this week.
The research shows that while pension access could meaningfully improve housing prospects for a limited group of employees saving through their pension, the overall impact would be modest. Nest Insight’s modelling suggests around 55,000 people — just 0.5 per cent of private renters — would be able to buy a home they otherwise could not, assuming a 20 per cent deposit requirement.
But 291,000 people who would otherwise have saved without touching their pension pot could opt to do so under the plan if this approach became the norm, raising the risk of increasing house prices across the board. In New Zealand 71 per cent of first time buyers have accessed their KiwiSaver pension account to support their deposit.
The report did not model the impact on house prices of the change.
Concerns include mortgage defaults, although defaults are typically very low, pension adequacy, and systemic risks if house prices rise because supply fails to meet demand or pension funds need to hold large amounts of liquidity.
If savers sought a 5 per cent deposit, the numbers who would benefit from the policy who could not otherwise have bought rises to 211,000.
Depending on the pension access method used, overall pension savings for those using the facility could be reduced.
But the research did find potential for increased engagement with pensions overall, suggesting some might increase their pension savings, motivated by the goal of home ownership.
The research has been prompted by the sharp decline in home ownership over the past 20 years, driven partly by the growing challenge of saving for a deposit. The share of households renting privately has more than doubled, from 11 per cent in 2003-04 to 24 per cent in 2023-2024. If trends continue, the share of households renting privately in retirement could more than double from 6 per cent today to around 16 per cent by 2040 (those aged 45-64 in 2023/24). This would represent a major shift towards renting in retirement and puts pressure on income for older people – meaning that many could face financial hardship because they don’t have enough pension income to afford their rent.
The interaction between pensions and the benefits system means many with typical auto-enrolment pension savings will see their housing benefit reduced by a pound for each pound of pension income they accrue, effectively meaning they would have been better off not saving in a pension.
The research found 46 per cent of people either expect their rent to be covered by benefits, haven’t thought about it or don’t know who will pay their rent in retirement.
The report looked at three methods of using pension saving to support home purchase – early access withdrawal of a lump sum, a pension loan that is required to be paid, or ‘pension pledge’ where nothing is withdrawn from the pension but it is used as security for a deposit. These different approaches are used in the US, South Africa, Singapore and New Zealand, with differing degrees of success, suggesting product design and delivery are key to effective implementation.
The research included a nationally representative YouGov survey of 4,200 people, impact modelling for a range of potential home-buyer scenarios, analysis of the ONS Wealth and Assets Survey to understand potential reach, an online discussion forum where 48 people could exchange views and ideas on the topic, and interviews with 16 experts across the housing and pensions industries.
Renters also highlighted that lack of a deposit is only one barrier among many, with mortgage affordability a major obstacle.
Speakers at the launch event suggested public sector workers and others in DB schemes could be resentful at being excluded from the scheme. Current analysis only considers DC schemes although solutions could be created to give access to DB benefits, or through giving security against DB entitlements under the pledge model.
Will Sandbrook, managing director of Nest Insight, said: “Time and again our work at Nest Insight leads us back to the same conclusion. To support the financial security of low- and moderate-income households, we need to take a holistic view of household finances and the products and services people use. Viewing ‘pensions’, ‘emergency savings’ and ‘debt’ as unrelated product categories or policy areas doesn’t reflect the realities of people’s lives, especially those dealing with scarcity and financial volatility.
“The last couple of years have seen a rising number of proposals emerging to allow people access to their pension savings in some way, to support purchasing a home. But there has been a lack of robust, UK-specific evidence for whether and how approaches could be applied here. That’s why we embarked upon this research. It doesn’t address all angles and never could have. Nor does it come down clearly in favour of or against the idea – that wasn’t our goal. But what emerges is a considerable degree of nuance and a clear set of questions and trade-offs that need addressing before a clearer case for or against could be made.
“We hope this work will help inform the discussion, and contribute to that discussion being truly evidence-based.”
