Clegg floats allowing parents to use pension savings to guarantee children's mortgages

Speaking on the BBC's Andrew Marr Show, Clegg said that the scheme would allow workers to use up to a quarter of the value of their savings to guarantee mortgages taken out by their children or grandchildren. Pension savings cannot normally be accessed until retirement, but scheme members are entitled to withdraw up to a quarter of their savings as a tax-free lump sum at that point.

"We have thousands of young people who are desperate to get their feet on the first rung of the property ladder but deposits have doubled and the number of young people asking for help from family members to get a mortgage has doubled," Clegg said during his televised interview. "We are going to allow ... parents and grandparents to use their pension pots to act as a guarantee so their children and grandchildren can take out a deposit and buy a home."

The effect of the guarantee could be to make mortgages more affordable, as it could mean the person buying the property can save up for a smaller deposit.

Pensions law expert Simon Tyler of Pinsent Masons, the law firm behind Out-Law.com, said that it was "surprising" to see the Government once again considering early access to pension savings so soon after rejecting the idea following an industry call for evidence. The Government had, he said, looked at various options such as allowing savers to borrow from their pension funds or to draw funds early in cases of financial hardship.

"In April 2011 the Government rejected early access, stating that there was 'limited evidence that allowing early access would have a positive effect on overall pension contribution levels, or provide significant help to individuals facing financial hardship'," he said. "Linking home ownership to pensions could give pensions a welcome boost; however, if the Government wishes to encourage that link, it could just let pension savers invest in residential property directly. That would be simpler and would not just benefit those with children or grandchildren who are looking to buy a property."

Around 250,000 people have a pension pot of £40,000, according to Liberal Democrat figures, meaning a lump sum element of around £10,000 which could be used as a guarantee. The guarantee would be at risk if the family member purchasing the property defaulted on mortgage repayments, but the rest of the pension would be unaffected.

However, professional bodies and pensions experts said they were "slight uneasy" about the idea.

"We need to see more detail on how this might work," said Joanne Segars, chief executive of the National Association of Pension Funds (NAPF). "A pension can only be spent once and this policy could end up leaving retirees out of pocket. The UK already has a serious problem with people saving too little for their old age."

Otto Thoresen of the Association of British Insurers (ABI) similarly warned that pensions were "designed to mature into a decent retirement income" rather than for any other purpose. "Any scheme which uses pensions as a guarantee must ensure that it does not inadvertently make the saver worse off when they retire," he added.

In April last year, the Government said that it had found "insufficient evidence" during a call for evidence from pension funds and the financial services industry that allowing early access to savings would encourage people to save more or be of assistance in times of financial hardship. It added that it would concentrate on the implementation of automatic enrolment, which begins for the largest employers next month, before considering further reform.