In July, the Economic and Social Research Institute, on behalf of the Pension Council, published a study examining the impact of lower homeownership levels on pension adequacy at retirement.
Today, 90% of retirees own their own homes. According to ESRI’s projections, current trends show that only 50% of those currently aged 25 to her 34 will own their own home when she retires. That means her 50% of these people rent from state or private landlords.
Retirement home ownership is one of the best ways to ensure a comfortable retirement. Not only does it dramatically reduce a person’s housing costs, it also means that they have valuable assets that they can borrow if they need to supplement their income.
The ESRI paper examined the policy options facing governments. They conclude that either more pensions need to be contributed to ensure that people have enough to pay the ever-increasing rents, or the government will have to subsidize them. I got
But this paper did not look to the much more obvious solution, which is the subject of my pre-budget submission this year. The biggest barrier. I suggest that first-time buyers should be allowed to borrow this from their own pension fund.
It’s important to note that they don’t reduce the overall size, as they will return this money to the pension fund. They pay it back from their income or when they sell their home and trade it up.
Also, if you don’t repay it by the time you retire, the loan will be deducted from your tax-free lump sum. It’s strange to give 65-year-olds access to a lump sum retirement payment they don’t need, while preventing younger people from accessing that money when they need it.
In general, people in their 20s and 30s have little interest in pensions because they won’t benefit from them for at least 30 years. Their immediate concern is how to get on the housing ladder. They’ll be more enthusiastic about contributing if they find that contributing to their pension helps them climb the housing ladder.
Pension and home ownership are two sides of the same coin
A pension and a home are two sides of the same coin. Together they provide long-term financial stability. Without both, a person cannot live a comfortable old age.
But this is not just about retirement. Mortgage repayments are generally lower than rent. The sooner a person gets on the housing ladder, the lower the cost of housing while in the workforce.
This will give you more disposable income to contribute to your pension fund. People who buy a home in their 20s are very likely not only to have a mortgage-free home in retirement, but also to have a larger pension fund than someone who has spent a lifetime on rent. high.
The government suffers from fragmented thinking on this issue. The Social Welfare Division deals with pensions. The Housing Division deals with housing.
They work independently of each other. The Department of Social Welfare has introduced a self-enrollment pension scheme. This effectively forces employees to contribute 8 percent of their after-tax income to the pension fund.
This may be perfect for achieving the agency’s strategic goal of improving pension coverage. But that would make it even more difficult for people to accumulate deposits, further reducing home ownership levels.
Singapore is going in the opposite direction
Simply allowing first-time buyers to borrow a security deposit will not solve the housing problem. This is just part of the solution. Governments must focus on pushing down the cost of first-time home purchases while encouraging more homes to be built.
This is not a short-term fix for your current problem. It is a long-term reform of the pension and housing system. The mortgage supply experiences booms and busts.
Irish banks now have ample funds to lend to homebuyers. However, this cycle will change and we will sometimes face mortgage shortages.
When this happens, home construction slows down due to lack of home buyers. Allowing people to borrow from pension funds smoothes the entire financial supply, so the ups and downs of housing finance and home construction have never been so pronounced.
Singapore has increased home ownership from 30% to 90% of the population in just 20 years. During the same period, they doubled their housing stock. Integrating pensions and homeownership was a key element of that strategy.
Singapore is going in the opposite direction.
The prospect of 50% of retired citizens relying on the mercy of the state or the mercy of private landlords for a comfortable retirement is terrifying. I need to resolve this issue now.
Brendan Burgess is the founder of Askaboutmoney.com, an Irish consumer forum.