Allow pensions savings to go into housing deposits, says FCA chief
The head of the financial watchdog has suggested that the UK should have the “contentious debate” about whether pension savings could be put towards housing deposits.
Nikhil Rathi, chief executive of the Financial Conduct Authority (FCA), said there was greater scope for pension savings to support financial resilience, particularly among lower income households.
“We have an opportunity as pension reforms are taking shape to think very holistically about how these parts of the system fit together,” he said at the Resolution Foundation’s Unsung Britain conference in London.
“Can we think about allowing modest access to pension funds for emergency rainy day savings to bolster resilience? A number of other countries already do this – South Africa, Singapore, Turkey, the US, New Zealand.”
“Being able to access £1,000 from your pension pot for an emergency could take some pressure off.”
“Then there’s a more contentious debate, which does happen in other countries – but I think it is worth having here – about whether a modest portion of those pension savings can also be used to support housing deposits,” Rathi said.
“It’s worth us having that discussion,” he added, again pointing to New Zealand and Singapore.
Pensions withdrawals tax charges
The UK has fairly inflexible rules about accessing pension savings before the age of 55. Withdrawals can incur a tax charge of 55 per cent if they do not meet the stringent eligibility rules, such as being unable to work or having a terminal illness.
Rathi’s comments reflect the challenging economic situation faced by many lower income households, detailed in the Resolution Foundation’s latest report.
It found that 60 per cent of households in the lower half of the income distribution lack a buffer to cover three months worth of income – even though the savings rate has increased in the 2010s.
“The fear that ordinary mishaps – the fridge or cooker conking out, say – could lead to debt or disaster casts a pall over the experience of day-to-day life,” the think tank said.
Homeownership has also fallen among lower-income households. Research from the think tank showed that while three-in-ten families in the lower half of the income distribution had a mortgage in 1994-95, that had fallen to 17 per cent by 2023-24.