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Property wealth in retirement planning blind spot as retirees face £18k shortfall

Older homeowners are facing an annual shortfall of close to £18,000 between their actual pension income and the amount they think they will need to live on when they retire, according to research.

Findings from the Equity Release Council’s (ERC) report on property wealth and retirement planning reveal the stark difference between retirees income expectations and their financial reality.

According to the report, which surveyed more than 2,000 homeowners aged 55 or older, on average they anticipated they would need an annual retirement income of £35,196.

This is 16 per cent higher than the average income of a full time UK employee at £30,420, according to government statistics, and more than double the average pension income of a retiree of £17,212.

Property wealth, reports the council, holds untapped potential to help close the retirement income gap.

The average homeowner in England and Wales could access £88,290 from their property via a typical equity release plan – equivalent to over a decade of state pension payments.

Valued at a combined £11.21trn, private pensions and property account for 77 per cent of household wealth.

They are the two biggest sources of wealth in the UK, the fastest growing and consistently ranked top in public perceptions as the safest ways to save for retirement, the ERC noted.

Financial pressures on pension savings

Older homeowners say they are unable to save more money for their retirement because of the financial pressures of rising living costs and mortgage commitments. Furthermore, the cost of living is leading to the erosion of pension pots as one in six said they planned to draw down their pension savings early.

Pension income growth has also stalled increasing by £7 a week over the last decade.

The report shows paying off a mortgage often competes with retirement savings to be older homeowners’ biggest financial priority which makes saving for pension contributions difficult and increases the likelihood of people being asset-rich, cash-poor in later life.

Some 31 per cent of homeowners who have increased their pension savings in the last year have been able to do so as they’re no longer paying off their mortgage.

Among those who still have a mortgage, 44 per cent report that paying off their mortgage has, or is likely to, limit their pension savings potential.

Retirement planning blind spot

The Equity Release Council says that despite the amount of wealth held in bricks and mortar and homeowners’ willingness to rely on it to support them when they stop working, it remained in the blind spot when it came to retirement planning.

Just less than 20 per cent of older homeowners who have sought information, guidance or advice on later life finances were prompted to consider accessing property wealth as an option, it added.

David Burrowes (pictured), chairman of the Equity Release Council, said: “With the UK’s population ageing rapidly, the scale of this issue is only set to become greater.

“An increasing number of consumers must make their pensions savings last over longer retirements with property wealth fast emerging as a viable solution to help meet this funding challenge.

“Our report emphasises the pension pressures faced by many across the UK and calls for property wealth to be better considered and integrated into the advice process.

“A single-product solution to retirement planning is no longer fit for purpose. We must break down the silos that create tunnel vision when it comes to later life financial planning.”


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