Thinking that you can fall back on your property later in life because your pension won’t be enough? You might have to think again.
New research from Royal London – “Will Housing Wealth Solve the Pensions Crisis?” – examined the pension income and housing wealth of nearly 7,000 pensioners across Great Britain and argues that, for most retirees, their housing wealth is unlikely to tackle the problem of having an inadequate pension fund.
Equity release schemes (along with lifetime mortgages and drawdown mortgages) are an increasingly popular route for property owners aged 55 and over, which is hardly surprising when more than 75% of them own their own home: Key Retirement calculates that the property wealth currently owned by the over-65s has now topped £1trillion, up by £37bn in the past year alone.
But that wealth is not evenly owned.
Data from the Wealth and Assets Survey looked at how far those with poor pensions are sitting on significant amounts of housing equity – and concluded that the people with the most housing equity tend to be the same people who have the highest pensions.
Among the poorest 20% of pensioners, average housing equity is only around £150,000, but just over £400,000 for the richest 20%.
Bearing in mind that lenders will rarely go beyond 40% loan to value ratio unless the borrower is on the higher end of the age spectrum or has a life limiting health condition, and it’s easy to see why the amount that can be borrowed can be useful – but will not make a significant difference to many people’s income.
Downsizing can certainly reduce outgoings, but again there is a shortage of supply of property designed for later life and moving can take up to £25,000 out of the available funds.
There is one predictable exception however: lower income pensioners in London and the South East, particularly those exercised their “right to buy” their council house during the Thatcher era.
Some divorced pensioners together with some widows and those with inherited wealth may also break the trend by combining modest pensions by having significant amounts of housing equity, says Royal London.
| Nation/English region | Average housing equity, all pensioners |
| North East | £136,000 |
| North West | £178,000 |
| Yorkshire | £165,000 |
| East Midlands | £197,000 |
| West Midlands | £198,000 |
| East | £276,000 |
| London | £399,000 |
| South East | £334,000 |
| South West | £259,000 |
| Wales | £179,000 |
| Scotland | £157,000 |
| GB | £234,000 |
Source: Royal London calculations based on Wealth and Assets Survey, Wave 5 (2014-16)
Steve Webb, director of Policy at Royal London said: “Official figures suggest that around 12 million people of working age are not saving enough for their retirement.
“Whilst using housing equity will help some groups of poorer pensioners, particularly in London and the South East, for most there is no substitute to building up a decent pension FUND for a comfortable retirement.”
Everyone’s circumstances will be different, but the new findings should make all of us (at the very least) relook at our assumptions on how we fund our retirement
Using the RetireEasy LifePlan gives you a head start here, because (with the Classic and Premium versions) you can play out as many different scenarios as you think of, each showing the impact on your finances depending on how many years you expect to live, how much you will need to put aside to fund your care and so on.
That may help you determine whether you should cut back your spending, save more, stay in work for longer than you had planned…or if you could even spend out a little more.
Having oversight and control of your finances will make a big difference to making the very most of your retirement years.
