This is the note I sent around to the media yesterday:
Initial comments by Brendan Burgess on Government’s Strawman Pension Proposals
This proposal must be changed to allow savers withdraw their funds to buy their first home
1) The absolute priority for a young person is to save up the deposit to buy a house
2) One should not contribute to a pension fund until one has bought a house
3) So I am against mandatory enrolment under the current regime – unless the saver is allowed to withdraw their funds to buy their first home
The New Zealand auto enrolment system allows this
A saver can withdraw the full value of their fund – their contributions, their employer’s contributions and the tax credits to buy their first home.
http://www.kiwisaver.govt.nz/new/benefits/home-withdrawl/
If the current proposals are not amended to allow for this, then I would be opposed to them
· Buying a house is a higher priority
· Tax relief of 25% makes no sense, when the pension may well be taxed at 40% on drawdown
Alternatives to the Kiwi System – The member could borrow the deposit from the pension account
1) Johnny contributes to a pension fund and gets the normal tax relief on his contributions
2) He does not save for a deposit separately.
3) When he is ready to buy a house, the gets a mortgage of €300k from the bank and a €100k loan from his own pension fund.
4) The pension fund loan is a formal second mortgage.
a. Interest is charged at 2% but it would be rolled up rather than paid
b. When the house is sold, the mortgage would have to be discharged.
5) If the house is not sold, on retirement, the rolled up pension loan would be deducted from his tax-free lump sum