Property used as backup for poor pensions
GROWING numbers of retired people are dipping into their property wealth to top up their pension incomes, but the next generation may not have that luxury due to the decline in homeownership.
The phrase “my property is my pension” was common before the financial crisis, as more people said they would rely on rising house prices to fund their retirement, rather than a private or workplace pension.
It is now becoming a reality, as Baby Boomer homeowners withdrew almost £9.5 million in housing wealth every single day through equity release in 2019, or £75,631 on average, according to over-55s specialist Key.
Many use some or all of the cash to clear debts, with three in 10 paying off personal loans or credit cards and one in five clearing mortgages.
Demand dipped slightly last year, but Key chief executive Will Hale said it should rebound as political and economic uncertainty ebbs, driven by innovative equity release products and falling interest rates: “Equity release can help boost retirement incomes, fund social care at home and help the younger generation onto the property ladder.”
Georgina Oxton, strategic sales manager at LV=, said that equity release is a lifeline for growing numbers of homeowners with interest-only mortgages, allowing them to pay off the debt and continue to live in their home until they die or go into care.
It is particularly popular with women, as many have smaller pensions, higher life expectancy, and can struggle financially as over-60 divorce rates rise, Oxton added.
Adults in their 50s typically have a retirement shortfall of £135,000, according to John Lamb Financial Solutions.
Only one in five adults is confident they are saving enough for retirement, and care costs are a growing concern as dementia cases rise.
Average UK house prices are up 35.4 per cent in the past decade, giving people more property wealth, and equity release can give people up to 56 per cent of the property’s value, depending on age, health and other factors.
John Lamb managing director Alex Gibson-Watt said equity release can help defuse the “retirement timebomb”.
Pensions still play a key role in retirement planning, with more than £30 billion flexibly withdrawn since pension freedom reforms were introduced in April 2015, against £13 billion from equity release over the same period.
AJ Bell senior analyst Tom Selby said for every £1 flexibly withdrawn from pensions, about 44p has been generated from equity release: “Retirement planning is now multi-faceted, with private and state pensions often combining with equity release and other financial products like Isas.”
Selby warned that younger people are finding it increasingly difficult to get on the housing ladder and they then face longer mortgage terms than their parents and grandparents: “In all likelihood, their house will not be their pension.”