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Can £750bn of property wealth avert a pensions crisis?
Funding longer retirements and hefty long-term care bills means more pensioners will be forced to look at making their property pay.
by Michelle McGagh on Jul 16, 2012 at 09:17
Britons are saving less into pensions, but the trend for ploughing money into property continues. Billions of pounds are tied up in UK property, and with people living longer and retirements expanding, an increasing number of people will have to dip into their housing equity as their pensions come up short.
Many people coming up to retirement are finding themselves asset rich but cash poor, and thanks to a decade of property price rises much of their wealth is tied up in their homes.
Equity release is essentially a way of getting at that money by taking out a loan that uses your home as collateral. The loan can either be paid out as a lump sum or as monthly income.
Homeownership is at record levels in the UK, and those over 65 have an estimated £750 billion invested in property. Some 84% of people in their 60s and 70s own a home with at least £200,000 of equity in it, according to research by insurer Just Retirement.
Despite the amount of wealth in their homes just over half, 51%, of those approaching retirement expect to feel ‘comfortable’ in retirement, and only a third believe they will be comfortable in 10 years' time after inflation has taken a toll on their money.
Expectations versus reality
The research found that most people expect an annual income of £17,000, a far cry from the £10,000 annual income the average retiree receives.
Stephen Lowe, group director of external affairs and customer insight at Just Retirement, said there was a huge gap between pension expectations and retirement reality – and equity release could help to bridge the gap.
‘There is clear evidence of a pension income gap, a shortfall between an actual income and one that provides an acceptable standard of living,’ he said. ‘The expectations of baby boomers are not realistic – there is an expectation-reality gap.’
Lowe added that property would have to be seen as part of an overall ‘wealth pot’ if baby boomers want to bridge the gap between what they want and what they will get in retirement.
As money can be dripped out of property monthly, equity release can help people to top up their pension income bit by bit, rather than siphoning off a lump sum of money out of the home.
We’ve spent the inheritance
As people save less and generous defined benefit pensions are phased out, more Britons will be wondering how to fund the retirement they want.
One trend the Just Retirement research unearthed was a change in attitude to housing wealth and inheritance.
More about this:
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