This is the second of a series of articles from the Nest Insight research team exploring whether integrating pension assets into the UK housing system could improve financial security for low- to moderate-income households. The work, funded by the abrdn Financial Fairness Trust, will use new data and analysis to investigate what is possible, and reflects Nest Insight’s focus on whole-of-life financial wellbeing, and our work towards a more holistic approach to financial security for all.
We know that a stable, affordable home is not only essential for financial wellbeing, but also for supporting better health, education, and quality of life. Yet over the past 30 years declining home ownership among working-age adults and difficulties accessing social housing have resulted in increased private renting by low-and-moderate income households.
Without action to improve access to secure housing, many people will face high housing costs in retirement – costs that their pension savings may not be able to cover. Some, including the Financial Conduct Authority1, are now questioning whether pensions could be part of the solution. However, we still know very little about how this might work in practice.
Examples of using individual and institutional pension assets in housing systems can be seen in other countries
At a high level there are two ways in which pension assets could be integrated into the UK housing system. Through the use of individual pension assets, or the use of institutional pension assets. The first approach could allow households to use their own pension saving towards buying a home, either through early access to pension pots, or through ‘pension pledging’ models. Examples of early access are seen in Singapore, the USA, Australia and New Zealand. Pension pledging allows pension savings to remain invested but used as security towards buying a home. This is seen in South Africa. Behind these initiatives is a common purpose, enabling access to home ownership in economies where saving for a home can be challenging for low- to middle-income households.
The UK faces similar challenges. For many households pension savings will be the only, or largest, financial asset they hold. Some commentators argue that this makes them a logical place to look for a solution to the risks that housing can present to financial security. Some also suggest that opening up the pension system in this way could encourage people to make higher levels of contributions. Others argue that pensions should remain ringfenced for retirement income, and that it is not the role of the pension system to fix the housing crisis.
could widen access and opportunities for institutions to invest pension assets in UK housing initiatives. Pension systems in Canada and Singapore already form part of a wider framework that supports greater institutional investment in the national housing system, particularly in social and affordable housing. Other countries, including Australia, are actively seeking ways to achieve the same. In this case, the common purpose of these systems is to improve the supply and affordability of housing. The UK faces similar challenges, as evidenced by the government’s commitment to building 1.5 million new homes over this parliament. Enabling greater use of institutional pension assets in social and affordable housing in the UK might provide a way to support these targets and could increase housing security among the households who need it most.
Research overview
Given the interest in these ideas, there is an increasingly urgent need for evidence of whether they could work in the UK, and what the potential challenges or risks might be. This project compiles the evidence that people need to both inform and interrogate their own views about housing and pensions. To do this we are undertaking analysis that comprises new qualitative and quantitative research, international comparisons, analysis of existing data and expert interviews. We need to size the problem and quantify the potential benefits, risks and trade-offs of interventions, and we also need to know how people feel about them. What are people worried about, what would be needed to make the interventions work, and do they truly address the challenges we face around housing and retirement in the UK?
Learnings so far show reasons for both optimism and caution
Experts we have spoken to have expressed support for the concept of closer links between housing and pensions. There is also a clear willingness to identify and tackle barriers that could constrain ideas. Our research programme has increasingly surfaced a need to look holistically at household finances, and for the benefits of hybrid approaches that better enable households to target multiple financial security goals simultaneously. We share the interest in these ideas. However, in recent months the focus on joining up housing and pensions has moved quickly from interest to advocacy, without robust evaluation or an evidence-base that might support it. From our work so far, we are seeing clear reasons for optimism, but also for caution.
We have heard concerns over two main risks of giving individuals access to their pension savings for housing needs. First, the long-term effect on pension adequacy for low- to middle-income households from potentially allowing significant sums to out of the pension system. And second, the inflationary risk of adding capital to the demand side of the UK housing market without also addressing supply issues.
This second risk links to an emerging theme of our data analysis – that in the short-term relatively few low- to-moderate-income workers might benefit from this. People need to have saved for long enough, or at a high enough rate, to have accumulated a meaningful sum in their defined contribution pension pot. But they also need to be young enough to afford the repayment terms of a mortgage. Some, including public sector workers in defined benefit schemes, may not be able to use their pension savings at all.
Using pensions towards shared ownership, or other affordable housing models, may be an exception to this theme, as could placing conditions on who could benefit. But if access were to be more widely available and, in the process, simply augmented the buying power of those already closer to achieving home ownership, it could further exclude those with greatest housing insecurity from any prospect of buying their own home.
In terms of institutional assets, many experts share the view that greater investment in the UK housing system could have a positive effect on the financial security and wellbeing of large numbers of renters. Notably, we’ve heard that the social value and stable, long-term returns of affordable housing are important reasons for pension funds to consider investing more widely in UK housing. Historically barriers to investment have included returns, capability, operational complexity and the need for greater trust, understanding and alignment of values between the two sectors.
Although the focus on international examples has provided valuable context, this cannot on its own justify similar solutions in a UK context. We need to understand more about differences in other pension systems, including their maturity and its implications for balance sizes, as well as house-price-to-income ratios that affect affordability. We also need to understand why, in many cases, some models are far from universally popular where they are already in place.
Considering the scale of these challenges, we are also hearing that none of these solutions provide a quick fix. Instead, changes will need to be supported by robust, long-term frameworks that address concerns around education and regulation, while not overlooking the growing need to improve the condition of existing homes.
We’ll continue to keep you updated with our learnings as we go, so stay tuned to hear more. If you’re interested in this work or would like to contribute to our research, please get in touch insight@nestcorporation.org.uk
Anna Brain, Research Lead at Nest Insight
References
1. Financial Conduct Authority (2025) www.fca.org.uk/news/speeches/right-track-connecting-consumers-products-and-growth
