Extending the pensions auto-enrolment scheme to mortgage deposits could help get young people on the ladderby Jack Airey / October 16, 2017 / Leave a comment
Should we be making opt-out schemes for housing deposits? Workplace pension reforms are a triumph of the Coalition Government. Heavily influenced by the work of this year’s winner of the Nobel Prize for Economics, Professor Richard Thaler, they have transformed pensions saving.
Since the scheme was introduced in 2012, over 6.7 million people have been automatically enrolled. The government expects that, once fully-rolled out by 2020, 10 million workers will either be newly saving or saving more in a workplace pension scheme.
Thaler was right: public behaviour can be nudged in a positive direction. The scheme has been a success. Such a success, in fact, that it should now be reformed to address another of the country’s ills.
In the past few decades levels of home-ownership have plummeted. Yet it has taken two fingers from the under-50 electorate for the political class to clock a trend which is reshaping people’s lives and which all evidence suggests will continue to.
Research from Localis finds that fifty-eight percent of people who do not already own their home outright or with a mortgage are saving nothing at all each month for a deposit to buy a home in the future. Just twenty-three percent are saving anything towards a deposit (the remainder didn’t know, or declined to answer).
These figures should frighten any government. For one whose votes tend to come from homeowners and the mortgaged, they should terrify. The foundations of the home-owning democracy are weakening year-on-year. And yet government’s response has been tepid at best.
If government makes the choice that the home-owning democracy is something worth preserving—as it has and should—then it has to take a more muscular interest in deposit saving. Its laissez-faire approach is failing.
This is where Thaler’s work, and the successes of the workplace pension scheme, can be latched onto and reforms made. Government should introduce auto-enrolment for deposit saving. Instead of, or alongside, a pension, workers should be given the choice to contribute towards a mortgage deposit (via a Lifetime ISA).
Like with the current scheme, employers would make contributions equal to three percent of the employee’s qualifying salary (paying no more or less than before) and, as with the Lifetime ISA, government would continue to match twenty-five percent of employee contributions.
Extending the auto-enrolment scheme to mortgage…