Almost 3.8m people aged 22-29 are saving below the recommended level for a comfortable retirement, according to the 15th annual Scottish Widows Retirement Report.

Despite auto enrolment, one in six people in this age group still aren’t saving at all for their retirement. However, 38% of under-30s say they would save more into their pension if they could access savings as a one-off to help fund a deposit on a first home. That would be the equivalent of 3.5 million young people increasing their long-term savings levels and helping to ensure a more comfortable retirement.

The average size of a deposit in 2018 was £32,000. A decade ago the average deposit was a third smaller at £21,366. The average age of a first-time buyer is now 31, the highest it has ever been.

Scottish Widow said that as this trend continues, it could mean more people renting in retirement. They would need to save a significant amount more during their working life to cover this additional cost, whereas homeowners may have paid off their mortgage by the time they retire.

To avoid a crisis of renters struggling in retirement, Scottish Widows is calling for flexibility within the pension system to allow young savers to withdraw up to half of their early retirement pot and put it towards a deposit on their first home. While some critics may argue this further depletes the long-term savings of young people, it is advocating for further changes that will increase savings levels overall to account for this.

It calls for the age at which people become auto-enrolled to be reduced to 18 alongside an increase in minimum contribution levels to 15% by 2030, with employers and employees continuing to share the cost. Scottish Widows is also calling for an annual government top-up of £500 – similar to the model used in Help To Buy and Lifetime ISAs. It points out that first home deposits tend to be smaller than the average (£32,000) and split between a couple. In this scenario, people would have much higher levels of savings, which would ensure accessing them for a property deposit is financially sound.

Pete Glancy, head of policy at Scottish Widows, said: “Property ownership is a national obsession, but it is also a long-term investment that could support people into old age, either by avoiding expensive renting costs or providing a source of equity. We should recognise the fact that many young people will prioritise getting onto the property ladder ahead of saving into a pension, despite the powerful positive impact of compound interest by saving at an early age.

“This is a radical idea. However, we have done the necessary testing and modelling and can demonstrate that, alongside our other proposals to increase overall savings levels, this approach could provide a secure financial future for millions of people into old age.

“This policy is focused on helping young people to move from renting, not to increase demand for housing. Of course, we still require appropriate government policies to ensure an adequate supply of housing and improve affordability.”