Lib Dem ‘property from pensions’ plan: innovation or disaster?

  • By: Rachel Dalton
  • 27 Sep 2012
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Deputy prime minister and leader of the Liberal Democrats Nick Clegg

Rachel Dalton looks at Clegg and Webb’s plan to allow parents to access pensions to help children get on the property ladder.

Conference season always throws up ideas from political parties that are towards the more fanciful end of the scale, but Nick Clegg’s plan to allow parents or grandparents to guarantee their children’s mortgages with pension entitlements has been labelled outright as “bonkers” by the industry.

Experts have already thrown up several problems with the proposed scheme, and many are hoping it will fall by the wayside before the Autumn Statement.

The plans

The Deputy Prime Minister announced on 23 September that the Liberal Democrats have proposed a system where parents or grandparents could use their pension commencement lump sum to guarantee their children’s mortgages.

This is in response to the problem of younger people being unable to afford ever-increasing deposits on properties, with the average age of first time buyers having grown from 28 to 35 over last decade, according to research by the Post Office.

Since Clegg’s announcement, further details have emerged. The Lib Dems believe around 250,000 people have a pension pot of around £40,000, with a PCLS of 25%. The party said around 5% of those with a suitable PCLS will take up the scheme, meaning 12,500 could use it to benefit their children.
If their children then default on mortgage payments, the PCLS would be at risk, but the remainder of the pension entitlement would not. It is not yet clear whether individuals would be able to use their PCLS to back any mortgage, or if it would be restricted to family members’ mortgages.

Progress so far

Some commentators dismissed the proposals out-of-hand as conference season bluster. However, there is evidence that the proposals are actually a step further towards the statute books than previously thought.

A Lib Dem spokesperson confirmed that Clegg has passed on the plans to pensions minister Steve Webb, who will now consult with the industry on which products it could design to make the scheme feasible.

Webb has already responded in the media to criticism of the plans, saying they will not reduce retirement income as they would only utilise PCLS money, which is usually withdrawn at the earliest opportunity to fund holidays or pay for home improvements anyway.

Industry reaction

Given the negative reaction to the plans from the industry, it would appear that some bodies have been taken by surprise by the proposals.
Association of British Insurers director general Otto Thoresen said: “We would want to look closely at the detail of the scheme.

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