Over half a million will use pension to repay mortgage
The insurer’s findings suggest 631,000 will use their pension to meet mortgage obligations. The majority of 40-70 year olds intend to meet their obligations via monthly repayments (71 per cent) and additional lump sum contributions (25 per cent). Up to 9 per cent (631,000 people) intend to use their retirement savings – whether the tax-free lump sum, or entire pot – to repay. This is higher than the number of people who will use an inheritance (8 per cent – 561,000 people) – 7 per cent (491,000) do not know how they will meet their obligations.
The table below illustrates
|How will you repay your mortgage?||2014||2015||No. People|
|Keep making monthly repayments until it is paid||58%||71%||4,957,000|
|Make additional lump sum repayment||23%||25%||1,787,000|
|Use my tax free pension lump sum to repay outstanding balance||9%||6%||421,000|
|Have savings/investments set aside to repay outstanding balance||6%||5%||351,000|
|Use an inheritance||5%||8%||561,000|
|Use my pension to repay outstanding balance||5%||3%||210,000|
|Will take in a lodger to help repay my mortgage||3%||2%||140,000|
Last year, 14 per cent of 40-70 year olds intended to use their pension to repay their mortgage.
Andrew Megson, managing director of retirement, Partnership, said: “While it is shocking that over half a million people in the UK intend to use all or part of their retirement savings to repay their mortgage, it has fallen from over 1 million in 2014. This suggests the Pension Freedoms which allow people to access their entire pension in cash have encouraged people to take a more holistic view of how they use their pension, rather than focusing on one-off expenditure. This in turn appears to have focused minds on paying off their homeloan before they retire.
“The work lenders have done in communicating with interest-only mortgage customers about their options and obligations is also likely to have had a positive impact, as it will have encouraged more people to move to capital repayment. While a debt-free retirement is the ideal, some people may find they reach traditional retirement age with an outstanding balance.
“Using their pension may well seem like an option but it is not the only option, as working longer, downsizing or considering a lifetime mortgage may be more appropriate. Ideally, pension savings should be used to provide an income in retirement, and with the state pension only providing a very basic safety net, making this choice could lead to hardship in later life.”