Housing Wealth as a Supplement on Pension Savings

mandag, 05 januar 2015

Mortgage debt in the Netherlands is the highest among all countries in Europe. At the same time, the dutch pension system has always been regarded as one of the best worldwide, mainly because of the high replacement rates.

A high amount of pension assets in combination with a high amount of mortgage debt is reason to consider whether it would be a good idea to use pension savings for the housing market. This thesis investigates the financial consequences for Dutch households when the possibility is offered to use pension savings for a mortgage loan. Moreover, a survey at CentERdata is conducted to examine whether Dutch households actually wish to use pension savings for housing purposes.

One reason to make use of pension savings for housing purposes is to change the nature of savings. To change the nature of savings, a household effectively is provided a loan by the pension fund that can be used to lower its mortgage loan. The corresponding lower housing costs have to be repaid. If the after-tax mortgage interest rate is higher than the after-tax return on pension savings, there are no changes in consumption pattern before retirement but households will gain from higher retirement income. Another reason is to change the level of savings. In this way, pension savings are used to decrease a mortgage loan whereby households can benefit from a higher consumption pattern before retirement.

Majority of the participants from the survey conducted by CentERdata among Dutch households are not interested in using pension savings for housing purposes. The main reason given is the importance that they attach to a high level of retirement income. When individuals choose to substitute pension wealth for housing wealth, most participants mention the resulting lower housing costs as their reason.