Citizen's Advance: plans to use state pension as a ‘piggy bank’ slammed as "loony" by experts

PROPOSALS allowing workers to dip into their state pension contributions to fund a house deposit have been branded ‘loony’ with experts saying they would be "really expensive for the taxpayer”.

The idea of being able to draw on State Pension contributions after 10 years of National Insurance payments has been proposed by Andrew Lewin, MP for Welwyn Hatfield.

Lewin told delegates at the inaugural Social Market Foundation’s (SMF) Pension Conference in Westminster earlier this month he had been working on the idea of a Citizen’s Advance with the SMF since last year.

Mr Lewin said people's ability to shape their lives was being impacted to an ever greater extent by the wealth, or lack of wealth, of their parents.

“The Bank of Mum and Dad gave £9.6 billion pounds in gifts in 2024 to their children, or in some instances, their grandchildren.”

“That's up 71 per cent on the previous four years and the average gift is £55,000.”

Mr Lewin said that those without access to this sort of family wealth were failing behind in terms of their ability to buy a home, which meant they were on the back foot when it came to other opportunities.

His solution is to allow savers who have 10 years or more of National Insurance contributions to take a lump sum.

The lump sum would be the value of one year of their state pension but they would have to retire a year later.

Mr Lewin said the amount, worth just under £12,000 for the majority of people claiming the state pension currently, would help the saver put a deposit down on a house,  retraining or even taking maternity or partner leave.

He said: “It means that people in their late 20s or early 30s, the time when they are most likely thinking about starting a family or trying to get on a housing ladder or retrain, can have access to capital that they otherwise wouldn't.”

Mr Lewin said: “I think if done right, it has the potential to be transformational to those people who have done everything right but can't rely on the Bank of Mum and Dad as so many others can.”

Scott Gallacher, director at Leicester-based Rowley Turton said however appealing it sounds  on paper, “it’s a loony idea. The government would effectively be borrowing to fund it, and with a strong short-term bias, almost everyone would take the money”.

Mr Gallacher added that if 750,000 people claimed £12,000 each, then an extra £9bn a year would need to be found. 

“And with eligibility only after 10 years of NI, most won’t benefit until around 30, by which point the scheme does nothing to tackle the real issues of housing affordability, childcare and stagnant wages.”

Rob Mansfield, an independent financial adviser at Tonbridge-based Rootes Wealth Management said the plans would be “really expensive for the taxpayer”. “There would be little incentive to not take advantage of this scheme. In the example of using it towards a house, it could stimulate a housing market desperately short of supply, pushing up prices.

"We need strategic ideas that change the dynamic, not short-term fudges that actually make things worse."

Samuel Mather-Holgate, an independent financial adviser at Swindon-based Mather and Murray Financial, said the proposal flies in the face of trying to push back the state pension age.

“Although this sounds great for the public, it will be counter-productive on many levels. Retirement savings will be slashed, meaning higher pensioner poverty and the Chancellor will have an ever-expanding black hole as more people are using their state provisions rather than dying before they break even."

Eamonn Prendergast, chartered financial adviser at Bromley-based Palantir Financial Planning Ltd said: “"Pensions aren’t piggy banks, and raiding them early risks today’s quick fix becoming tomorrow’s retirement crisis. The whole point of the pension system is to provide security in retirement, not to be siphoned off for short-term spending.

"In a slow-growth economy, the last thing we need is to weaken the one pot of long-term capital that actually works. Of course, helping younger people onto the housing ladder matters, but this proposal risks creating two classes of workers: those who can afford to give up a year of pension, and those who can’t. 

“Worse, it could be open to abuse, with money diverted away from its intended purpose. If government really wants to boost social mobility, it should fix housing supply and wage growth, not gamble with people’s retirement income."

Laura Purkess, personal finance expert at Investing Insiders, added: "Several companies have put forward proposals to the government to allow people to access their retirement savings early to help them buy a home, almost like a reverse Lifetime ISA.

"Young people are locking away tens of thousands of pounds into their pensions via auto-enrolment, but are struggling to buy a home or save for things to improve their quality of life in the near term, so letting them access this cash early in some form seems like a no-brainer.

"We're also struggling to make young people care about pensions and retirement - giving them a shorter-term goal to work towards with this savings mechanism could boost engagement, which could actually improve retirement outcomes long-term."

Scott Taylor-Barr, principal adviser at Leicester-based Barnsdale Financial Management, said the move might be sensible: "How we can help people buy their first homes has been a key topic for some time. A handful of lenders have 100% or 99% mortgage deals, but these have been in painfully short supply, and it is the lack of a deposit that is the main issue for many potential buyers.

"Some are able to get a deposit due to a family gift, be that from their families' savings or family members having to take further borrowing against their own homes, but it does mean that buying property becomes something that requires a degree of family wealth to make happen, and that's not right.

"Allowing people access to their state and/or other pensions is a sensible way to help; this type of arrangement has already been in action with the LISA so is not a new concept.

“As well as allowing people access to a capital sum for a deposit on their first home, it has the added benefit of pensions being seen as far more relevant to people and may encourage more active use of them from a much earlier age.”