The Association of Consulting Actuaries (ACA) welcomes the debate sparked by the Housing Secretary, James Brokenshire’s, proposal to allow first-time buyers to use part of their pension pot as a deposit, namely that the ability for future generations to save in a flexible and joined-up manner is essential to help them meet ever increasing and competing savings needs.
ACA shares concerns expressed by many commentators that adequate retirement provision must not be compromised by draining pots too early in life. However, it believes that, with sufficient safeguards, a more flexible approach to saving is preferable to requiring separate savings for different purposes.
ACA Chair, Jenny Condron commented:
“Anyone over the age of 55 can use their pension pot tax-efficiently for any purpose, including paying off mortgages. Given that younger generations will both work and retire more flexibly than in the past, we believe those under age 55 should also be given some, limited flexibility in how they use their pension savings in a tax-efficient way. We believe this would encourage greater and more efficient saving.”
The ACA has set up a Younger Members’ Group (YMG) within its membership of consulting actuaries. It is leading the development of initiatives within the ACA to consider possible pensions and savings reforms for people early in their careers and to carry out research, including with employers, around how additional flexibility might sensibly be approached.
ACA Younger Members’ Group Chair, Thomas Dalton added:
“Young people today have many competing saving needs. Saving for retirement is very important and the sooner you start, the easier it is. However, for many, saving for a deposit on a house is also important. The Government currently incentivises both with tax-efficient pensions and with bonuses on Help to Buy ISAs, but young people have to choose which to contribute to and cannot move funds without penalty.
“The Lifetime ISA was intended to provide a flexible savings vehicle that could be used for both retirement and housing, but the restrictions on it render it largely ineffective. It cannot be used to meet auto-enrolment requirements and cannot receive employer contributions, so cannot replace a regular pension. We believe a truly flexible savings product would be of great value to young people and could encourage people to save more and earlier.
“Reasonable concerns have been expressed that this could lead to worse retirement outcomes, but this is by no means certain if careful rules are applied. Young people already save towards a deposit on a house but often in inefficient ways. If those savings were paid into a flexible savings vehicle along with existing retirement savings, they could be used to fund a house deposit without reducing the amount available for retirement. There should be limits on the amount that can be withdrawn and should be mandatory additional contributions following a withdrawal to ensure it is replaced.
“It has been suggested, quite rightly, that more effective policies to increase the supply are also needed, but it will still be necessary to save up for a house deposit. A flexible savings product that meets the varied needs of young savers would encourage greater and more efficient saving.”
Contacts for further information:
Jenny Condron, ACA Chair at jenny.condron@mercer.com – 01483 777053
Thomas Dalton, ACA YMG Chair at thomas.dalton@capita.co.uk – 020 7204 1414
David Robertson, ACA Secretariat at david.robertson@aca.org.uk – 020 3102 6761
About the Association of Consulting Actuaries (ACA)
Members of the ACA provide advice to thousands of pension schemes, including most of the country’s largest schemes. Members of the Association are all qualified actuaries and all actuarial advice given is subject to the Actuaries’ Code. Advice given to clients is independent and impartial. ACA members include the scheme actuaries to schemes covering the majority of members of private sector defined benefit pension schemes. The ACA is the representative body for UK consulting actuaries, whilst the Institute and Faculty of Actuaries is the professional body.
About the ACA Younger Members Group
The ACA Younger Members Group consists of consulting actuaries that qualified within, approximately, the last ten years. It organises events targeted at young consulting actuaries and provides a voice for them within the ACA, contributing a different perspective to discussions and the formulation of ACA policy.
Disclaimer
This document is intended to provide general information and guidance only. It does not constitute legal or business advice and should not be relied upon as such. Responding to or acting upon information or guidance in this document does not constitute or imply any client /advisor relationship between the Association of Consulting Actuaries and/or the Association of Consulting Actuaries Limited and any party, nor does the Association accept any liability to any person or organisation relating to the use of such information or guidance.
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