[Originally posted at Dale&Co, 24/09/12]
This came to mind when I read of Clegg’s announcement on Sunday’s Andrew Marr Show that the Liberal Democrats are proposing a “pensions for property” policy. The party is starting the process of sounding out the various financial institutions that would need to get on side for the policy to work.
The proposal is that young people who are shut out of the housing market because they lack a deposit can be helped by the bank of mum and dad or, equally likely, grandmother and grandfather by putting pension savings to work. Parents or grandparents will be able to use their pension pot to guarantee a sum of money for a younger member of the family to use as a deposit on a property. Estimates suggest there are 250,000 households with a pension pot of at least the £40,000 needed to make this a realistic proposition. Those developing the proposal consider that, of those households, some 12,500 are likely to use the money to assist in house purchase.
We can contrast this policy with the pupil premium. The pupil premium is a quintessentially liberal policy. It is seeking to ameliorate disadvantage and level the playing field to try to achieve equality of opportunity. It’s about making sure everyone has the best possible start in life.
You might argue that the pupil premium isn’t generous enough to achieve this objective. You might argue that the money hasn’t been ringfenced and it is being diverted to other uses. You might argue that while the pupil premium is all very well, if it is funded by cutting education budgets elsewhere then that doesn’t advance the educational cause overall. Or it could be argued that any beneficial effects the pupil premium might deliver are entirely overshadowed by broader cuts to the public spending and welfare benefits that have been assisting disadvantaged families.
All these arguments have some merit. But they are arguments about policy implementation and context not about the principle underlying the policy itself.
But where is the liberal principle behind the pensions for properties policy?
In practice, it will only be available to families who already have significant assets, and most likely those where the grandparents are able to safely write off the odd five figure sum from their pension. So it will serve to perpetuate wealth inequality.
In addition, the policy approaches the issue from the wrong direction. We certainly need to increase the affordability of housing for younger people. We should be seeking to do so through an orderly reduction in real house prices, as a result of an increase in supply, rather than trying to come up with new mechanisms to allow young people to afford inflated prices.
Politicians don’t seem to be able to grasp this point. Or the electoral arithmetic – it’s older people who vote and they want to maintain house prices – means they are strategically blind to it.
Finally, we have to ask whether starting to think about pensions as ‘available’ for other uses is a wise move. This particular policy might only be to the advantage of the already advantaged, but we can anticipate that it won’t be long before politicians think up new wheezes to unlock pension capital. It is a tempting alternative to facing difficult questions about paying for services from taxation. Pensioner poverty is already a significant issue in the UK. Government is steering us towards auto-enrolment in an attempt to address the issue. Making it easy to spend down your retirement savings before you get to retirement age isn’t going to help.
I cannot see an angle from which the pensions to property proposal looks like a good idea. It’s not particularly liberal and it does nothing to address our dysfunctional housing market.
It’s difficult to fathom what sort of not-so-smart aleck comes up with this sort of stuff. It’s met with universal derision as soon as it’s announced. It is then, as often as not, quietly buried – never to be heard of again.
You have to wonder sometimes. You really do.