Relying on a property pension is not a solution for anyone approaching retirement with a savings shortfall, warn financial experts.
Although three out of four pensions own their own home and most owe nothing or little to mortgage lenders, many pensioners rent a home and have no cash locked into the value of their homes to call on.
And these pensioners are among the poorest as they also have the lowest level of savings, says research by financial firm Royal London.
The study also points out that equity release is not a choice for many.
Reluctance to downsize
Those with the option of taking the most money from their homes live in London and the South East, where retired homeowners have an average £399,000 in equity. This drops to £136,000 in the North East.
Equity release lenders generally offer a third of the cash to borrowers, which leaves downsizing as the only way to boost retirement cash for many, and homeowners are reluctant to trade their homes for cash as they may have to move from friends and family to do so.
“Official figures suggest that around 12 million people of working age are not saving enough for their retirement. It might be tempting to think that if such people are home owners in retirement then they can top up meagre pensions by using the value of their home. But this research shows that even owning a home is not a get out of jail free card for those with poor pensions,” said Steve Webb, director of policy at Royal London.
No substitute for saving
“Many of those with low pensions also have relatively small amounts of housing equity, and lenders will often lend only a small percentage of the value of your home. 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 for a comfortable retirement.”
The report also points out that many younger retirement savers, aged 45 to 65 years old, are renting and the number of even younger savers able to buy their own properties is falling.
Read the full report Will housing wealth solve the pensions crisis?
