EXPERTS have called for people to be allowed to spend up to half their pension or borrow against it to buy a home before they retire.

Pension consultant Hymans Robertson warned pensioners who are stuck renting in retirement are much worse off as their income is being swallowed up by housing costs.

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Meanwhile those who have paid off their mortgages are living a much more comfortable retirement.

The consultant has released a report looking at how pensions could be used to help savers get on the housing ladder, but it’s not yet an idea being actively considered by the government.

As an example, the Hymans Robertson report looked at the case of a 22-year-old working 40 hours a week on the minimum wage and earning £26,437 a year.

If they paid the minimum 4% of their wages into a pension each month but didn’t buy a home, they would have a £229,939 pot at stage pension age.

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Their private pension would generate an annual income of £10,452 but their annual rent would be £10,246, leaving them with £12,753 per year including the state pension.

If the same person reduced their day to day spending to afford both a pension and a home deposit, their total wealth including home equity by state pension age would be £490,075.

They would pay no rent, their annual private pension would be £11,414, and their total income including the state pension would be £23,962.

That’s a huge difference of £11,209 a year compared with someone who hadn’t bought a home.

It comes after a stark warning from the Pensions Commission that 15million Brits are not saving enough for retirement.

It has sounded the alarm over a looming pensions crisis, saying a large number of people are “facing a severe cliff-edge when they retire”.

How much do you need to retire?

THE Pensions and Lifetime Savings Association (PLSA) breaks retirement down into three lifestyles.

The “Minimum” Lifestyle
This covers the essentials with very little wiggle room.

Single: £13,900 a year
Couple: £22,500 a year

The Lifestyle: You pay your bills and eat, but it is tight. You have no car (relying on public transport), spend just £57 a week on food, and your holiday is one week in the UK per year.
Good News: For most couples, two full State Pensions (approx £24,000 combined) will cover this level automatically.
The “Moderate” Lifestyle
This covers more financial security and flexibility.

Single: £32,700 a year
Couple: £45,400 a year

The Lifestyle: You have more flexibility. You can run a small 3-year-old car, enjoy a two-week all-inclusive holiday in the Med, plus a long weekend in the UK. You can afford to eat out a few times a month and spend £1,000 helping family members.
The “Comfortable” Lifestyle
Total freedom and luxury.

Single: £45,400 a year
Couple: £62,700 a year

The Lifestyle: You are living the dream. This covers a new car every five years, three holidays a year (two weeks abroad, plus weekend breaks), extensive TV subscriptions, and plenty of cash for theatre trips, hobbies, and expensive meals out.

How could spending your pension on a house deposit work?

The solution floated by Hymans Robertson is to allow people to use their pension pots to buy a home, or to borrow against their loan.

“Allowing a saver access to 50% of their pension savings could help them secure a larger deposit or get onto the property ladder sooner,” it said.

“Once the mortgage is repaid, some of these housing costs can be redirected into pension savings.”

If the 22-year-old on minimum wage (as in the previous scenario) were to use this scenario, it would take them seven years to save for a house deposit.

Their total wealth at state pension age would be £478,528 and they would not need to pay rent.

That would leave them with an annual private pension of £10,889 and a total income including the state pension of £23,437.

This is slightly less than the amount they would have if they reduced their day to day spending to afford saving towards both their pension and house deposit.

But not everyone is able to reduce their daily spending dramatically or save large amounts, especially as inflation continues to rise.

An option that could leave pension savers even better off is allowing them to use their pension to release a home deposit loan.

This would work by letting you borrow an amount of money based on what your pension is worth.

For example, if you have £100,000 in your pension, the rules could let you borrow 50% of it (£50,000) to use as your house deposit.

Hymans Robertson said you could then pay it back through automatic deductions from your paycheck, similar to how student loans work.

You would only have to pay it back if you earn over a certain amount of money, and you wouldn’t have any money taken directly out of your pension.

In this scenario, it would still take you seven years to save for the house deposit but your total wealth at state pension age would be £510,807.

You’d have no rent to pay and your annual private pension would be worth £12,356, with your total income including the state pension at £24,904 per year.

“If pension savings were a condition of getting a loan for a home, more people would probably be encouraged to save into their pension and engage with it,” Hymans Robertson said.

“There are of course separate challenges on the supply of affordable housing, which our proposal doesn’t look to solve. 

“The challenge of supply must also be resolved in parallel, so that house prices are managed sustainably for generations to come.”

The Pensions Commission is currently looking at ways to address under-saving for retirement, and this could be something it considers.

Saving for retirement

Anyone planning their retirement needs to do some careful calculations about how much they will need to afford the lifestyle they want.

A good starting point is the government’s state pension age calculator, which will tell you when you will receive your state pension.
Visit gov.uk/state-pension-age to find out more.
Pension calculators can also help you determine how much money you need to save to have the pension pot you want at retirement. 
The earlier you start saving, the easier it is as your money grows longer. 
And you’re not on your own when saving for retirement.
Your workplace will almost certainly contribute some money to your pension pot, too, and you get tax relief from the government, which reduces the amount you have to pay yourself.