Using property to fund retirement

Are people depending on downsizing to fund retirement?

Are homeowners selling up to fund retirement – or not?

The not entirely disinterested parties around the insurance and pensions market have been busy surveying the population heading into retirement to find out how they plan to support themselves.

Despite regular encouragement to think again and plan broadly for retirement, some surveys are finding that homeowners will be selling up and downsizing.

The Royal London reports that up to 3 million people are planning to rely on their homes for a pension. Even more of those interviewed by Aviva have the same intention, with six million homeowners over 45 seeing their homes as pivotal to their retirement plans. Some 69% of Aviva’s respondents say their homes are worth more than their combined pension, savings and investments.

Yet research from Aegon has found that 74% of homeowners would only use their homes as a last resort to provide a retirement income and that 53% are still hoping to leave their homes to their loved ones. In Aegon’s survey, 21% were hoping their own inheritance will help fund their retirement.

So who’s right?

There are plenty of grey areas. House prices across the country still show distinct differentials, so those in the southeast who choose to quit and move to cheaper areas could feel real benefits. For many though that may not deliver the hoped-for value. Steve Webb, ex-pensions minister, called it a “delusion” when launching the Royal London report.

There are also plenty of issues around whether people will be in a position to downsize. Retirees may find they still have family living with them who have been unable to get onto the property ladder but still need to stay in the area for their jobs.

At the same time, moving into purpose-built retirement housing is not necessarily going to release much capital. The sale price of a slightly run-down house and the purchase price of a retirement apartment may actually be surprisingly similar. And this market has slowed at least temporarily in the run up to the European Referendum.

Yet it looks like the trend may have already started. Legal & General’s latest results show its equity release business had overtaken annuity sales in the last six months, with the company selling more equity release products in the first half of 2016 than in the whole of its first year in the business last year.

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