WITH POLITICS OFTEN being so stoic and samey, it can be a nice change of pace to discuss a more left field idea. And boy, do we have one here.

Andrew Lewin, an MP who is part of the current UK Labour government, has proposed giving under 40s access to £11,500 (€13,750) in exchange for delaying retirement by one year.

While the so-called ‘Citizens Advance’ could theoretically be used for anything, the focus is very much on helping people come up with a deposit for a home.

Given that Ireland’s housing problem is very similar to the UK’s (in terms of how unaffordable a home is for someone on a typical income) – could such a scheme also help give people a leg up here?

Well, we should recognise that the proposal has received a, shall we say, mixed response, to be kind.

To be unkind, many economists have said it is nonsensical and shouldn’t even be considered.

But how exactly would the initiative work? Why are so many economists against it? And could something similar ever work in Ireland? Let’s take a look.

Early pension

Basically, the idea for the ‘Citizen’s Advance’ is that you’d draw down your state pension one year early.

In the UK, a year’s worth of pension payments are worth £11,500, which is where the headline figure comes from. The equivalent figure in Ireland would be about €15,000.

In exchange, you delay your retirement age by one year. This is set to rise from 66 to 68 in the UK, so anyone who took the ‘Citizen’s Advance’ would only be eligible to receive the state pension at 69 instead.

The other major requirement is that you’d have to have worked for ten years – measured by your social security contributions – before becoming eligible for the initiative.

Lastly, you’d have to be aged under 40.

Lewin says that, rather than being a handout for young people, the scheme should be thought of more as your current self borrowing cash from your future self.

The aim is to give some help to those who can’t rely on parental handouts to buy a home.

A recent study found that, in the UK, payouts from the ‘Bank of Mum and Dad’ have increased by 50% in just three years. And for those who are lucky enough to get help, the average value of the support on offer was a staggering £58,000.

However, Lewin has also said the ‘Citizen’s Advance’ could be used for other purposes, such as funding college fees or a career change.

The Labour MP has said the details of such a scheme would still have to be worked out, and it seems that the proposal is more aimed at getting people talking about how the playing field can be levelled between those whose parents can help and those who can’t.

Problems

If it is only a conversation starter this is no bad thing. Why? Well, because taking the scheme at face value, there are some fairly significant issues.

First – what Lewin has suggested does not align with how state pensions – in both England and Ireland – work.

We explain in more detail here, but essentially – people don’t pay into their own personal fund as they work. Instead, the social insurance contributions of current workers funds the pensions of current retirees. When they retire, current workers rely on future workers to do the same for them.

So there isn’t a pot of money the under 40s could borrow from – the ‘Citizen’s Advance’ would likely have to come from day to day expenditure, which could put a big strain on the public finances in the short term.

While this should theoretically balance out long-term, as there would eventually be fewer people drawing down the state pension at retirement, in practice that’s not really how governments budget.

Former UK pension minister Ros Altmann isn’t a fan. He called it “a truly dreadful idea” which “does not seem to make sense unless we scrap our whole system’.

Other criticisms from economists were similar, warning that the suggestions come at a time when the UK is grappling with a supposed £22bn financial ‘black hole’.

In Ireland’s case, while we are currently running surpluses, the country is almost comically reliant on ever more-precarious looking corporate tax windfalls to balance the books.

Whether done in the UK or here, the scheme could add a significant cost without it being clear that it would succeed in its aim of making housing more affordable.

Because that is another potential problem – if everyone who was eligible for the ‘Citizen’s Advance’ took advantage of it, it would likely only push up prices.

As it would give buyers more financial firepower, without doing anything to increase the number of homes available.

Positives – and should Ireland consider it?

It’s worth reiterating again that Lewin seems fully aware that there are big issues with his proposal. He talks about working with a think tank to “develop it further”, but more tellingly, said he wanted the proposal to “start a conversation”.

That is perhaps what Ireland should take from the suggestion. Rather than take it at face value, use it as a jumping off point to examine something which could help people who do not have parental wealth backing them.

Most surveys find that around half of people in Ireland who buy a home with a mortgage do so with help from their parents. This is consistent with figures in the UK, where it’s estimated between half and two-thirds of first time buyers get parental support.

Even at that, in Ireland a big salary is also likely needed on top of the financial help – the median income of first-time buyers buying a second hand property has increased to €79,000, well above the median household income of about €55,000.

This likely means a decent crop of home buyers fall into the category who earn enough for a decent mortgage, and then use parental support to get over the hump of saving for a deposit.

It means that people who do not have some form of help are at a major disadvantage.

It’s also worth considering that these same young people are also the generation who face paying much higher PRSI to fund the pensions of current retirees.

This is a luxury which they themselves will likely not be able to take advantage of.

Various state bodies have repeatedly signalled that the state pension age will eventually be raised. While the government has rowed back on these plans, there’s a high chance Ireland’s ageing population will end up making such a move a necessity.

Given all that, shouldn’t these young people get something back?

Drawing down imaginary pension earnings may not be the way to do it. But other countries are looking at innovative measures, such as cutting income tax for under 35s.

Such a measure would likely work better here if it was targeted at people who actually need it – perhaps giving tax relief on property sales to first time buyers under a certain income threshold. Or those who could demonstrate that they are buying without additional financial support.

Again, these run into the issue of giving people more buying power in an already heated market, without improving supply. Ireland’s fundamental problem is that there aren’t enough homes.

But young people without parental backing are the ones suffering the brunt of this issue.

The Citizen’s Advance may not be the right band-aid. But it’s at least got some chins wagging about how to help a group which faces higher taxes, a higher retirement age and sky-high house prices.