Using pension contributions to pay off a mortgage would not be a financially attractive option, a survey by the Amsterdam School of Real Estate (ASRE) has suggested.

It found that, on balance, the financial advantage of lower initial housing costs would be more than cancelled out by a lower pension income in retirement.

The survey found that households using their pension contributions to pay down mortgage debt would have 6% more income during the entire duration of the mortgage.

However, these households would also have a 15% lower pension income, it said.

The issue of deploying pension contributions for mortgage payments has been on the agenda for pensions reform in the Netherlands since at least 2011, when trade union RMU came up with the proposal.

Last month, social affairs minister Wouter Koolmees said he would assess the possibilities of making it an option for savers in a new pensions system.

The researchers at ASRE highlighted that they only looked at the financial impact of using pension contributions for paying off a mortgage, and said that they hadn’t taken any possible legal or practical hurdles into account.

Contribution flexibility pros and cons

Research published by Tilburg University and the Netherlands Bureau for Economic Policy Analysis last year called for Dutch workers to be granted greater flexibility over how they use their pension savings, claiming the benefits of such freedoms would outweigh the risks.

At IPE’s annual conference in Dublin in December, panellists also debated alternative uses for pension contributions.

During a panel discussion, Michael O’Higgins – a former chair of the UK’s Pensions Regulator – suggested allowing people to use auto-enrolment savings to pay off student loans faster. 

Amlan Roy, chief retirement strategist at State Street Global Advisors, added that the US Treasury department and the Department of Labor were considering “lifetime loan-bundling vehicles” to help younger workers pay off student debt.

However, Tim Jones, former CEO of UK defined contribution fund NEST, disagreed strongly with the idea, arguing that: “Pension money is for your later life. No ‘ifs’ or ‘buts’.”

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