The London Chamber of Commerce has urged Prime Minister Andy Burnham to redraw workplace pension rules to allow first-time buyers to use their tax-free pension contributions to buy property, arguing that getting on the housing ladder in London is 'a wall they cannot climb'.
Budget submissions and housing ladder barrier
The government has invited various organisations and charities to make submissions about what they think should be included in the upcoming Budget on October 14, the first under Mr Burnham and new Chancellor John Healey. Recommendations put forward include abolishing Sunday Trading Laws and increasing the Warm Home Discount.
Currently, workers are automatically opted into putting some of their wages into a workplace pension, with employers matching contributions up to a certain percentage. This money is placed into a workplace pension scheme tax-free, deducted before National Insurance and Income Tax is applied to the remainder of earnings. The pot is then invested over several decades until it can be accessed from age 55, though this is rising to 57.
Proposal for young workers
The Chamber is asking the government to change the rules to allow young workers aged 18 to 28, so those born between 1998 and 2008, to dip into their pension pot before retirement and use it to put down a deposit on a property.
It suggests: “Give first-time buyers flexibility to divert tax-free pension contributions towards a deposit: “The deposit, not the monthly payment, is the wall most young Londoners cannot climb, and the current system asks a 23-year-old to lock savings into a pension they cannot touch for four decades while renting indefinitely because they cannot save a deposit.
“The UK’s system for saving for retirement is largely built on the majority of pensioners being mortgage-free homeowners by the time they retire. Given that a significant proportion of young workers will not be mortgage free or homeowners at all by the time they retire, the existing pension contribution system is built for the housing market as it existed forty years ago, not as it exists today.
“Allowing 18 to 28-year-olds to redirect some or all of their own and their employer's contributions into a first-home savings scheme lets them build the deposit during the years it matters most, then return to building a pension thereafter, at no additional cost to employers.
“Home ownership is itself a form of retirement security, so this is less a raid on the future than a reordering of when each form of security is built, prioritising the foundational asset first.”
Budget speech and confirmed agenda
Mr Burnham and Mr Healey will make their first Budget speech to Parliament on Wednesday, October 28. Among the items already confirmed to be on the agenda are the Cash ISA cut, the tax exemption for state pensioners and the details of the triple lock changes.
