The report, entitled How can housing wealth bridge the later life funding gap?, was commissioned by the Equity Release Council. It found that based on pensions and savings alone, many future retirees are heading for relatively low living standards.
The findings echo Scottish Widows’ Annual Retirement Report, published last week, which found two-fifths (39%) of people in the UK aren’t on track for a minimum lifestyle in retirement, worsening from 35% in 2023.
But Fairer Finance found that many people hold housing wealth that could help fund their desired later life living standards. According to modelling by the independent consumer group, based on levels of pensions and savings alone, almost four in 10 (38%) future retirees are heading for an income below the recommended minimum living standard.
Yet, on average, people in the UK hold more housing wealth than pension wealth, highlighting a major mismatch between resources and retirement funding strategies.
Fairer Finance is calling for action from the Government and the Financial Conduct Authority (FCA) to break down the barriers that prevent older homeowners from accessing the equity in their homes.
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As well as considering how later life lending can support more consumers in retirement, the report also considers the barriers to unlocking housing wealth through downsizing.
Recommendations to Government
The report makes five recommendations to regulators and the Government. These are:
- Increase housing supply: Build more suitable and desirable homes for downsizing located in the communities where people in later life wish to live
- Reduce stamp duty: Cut stamp duty for older people downsizing to encourage mobility and free up larger homes
- Normalise the use of housing wealth to maintain living standards in later life
- Create a single financial view: Government and regulators should develop a personalised service for consumers to see their pension and housing wealth in one place
- Reform financial advice: Ensure consumers receive comprehensive, joined-up guidance
James Daley, managing director of Fairer Finance, said: “It’s an inevitability that more people will need to rely on their housing wealth in retirement – and our new research shows the scale of the problem as well as the opportunity. The combination of smaller pensions, increased longevity and rising care costs threaten to create a perfect storm, which will leave millions of people unable to maintain their living standards in later life.
“But with around 75% of the population owning a property as they reach retirement, many people are sitting on – and sleeping in – a significant store of wealth. As things stand, there are a number of social, economic and regulatory barriers which stop housing being part of the mainstream retirement planning conversation. For those who want to downsize, there is a lack of suitable and desirable retirement housing. Whilst when it comes to borrowing in later life, the silos in regulated advice markets mean many people are not being presented with all their options. If we’re to head off a later life funding crisis, policymakers need to start taking action to bring down these barriers now.”
Economic benefits
Jim Boyd, chief executive of the Equity Release Council, said: “Fairer Finance forecasts property wealth taken in the form of later life lending could inject £21bn into our economy each year from 2040. This substantial amount has the potential to act as a real economic stimulus supporting businesses and improving the living standards and spending power of our rapidly ageing population. 45,000 UK jobs are already directly funded through money released from bricks and mortar – the growth of later life lending can potentially take this to another level.
“We know younger homeowners are interested in using money in their homes in later life to meet a range of financial needs as generous final salary pensions all but disappear. Today’s report challenges us to develop a system that treats housing wealth as a core part of retirement planning, removes regulatory barriers and gives people the confidence to use it wisely.”
