Topping up pensions with property wealth is becoming the norm
Using property to fund retirement is going to become the norm, but there’s stigma attached to it, writes James Daley
It’s time to start talking about housing as part of your pension
It’s well known that we’re all living longer – and the quality of company pensions is getting worse. Many of those retiring today have the benefit of generous final salary schemes. But tomorrow’s retirees will only have contributory pensions, with pots that are likely to fall well short of what they might need to maintain their standard of living.
The good news is that for many people, the most valuable part of their retirement plan is the roof over their head. But as things stand, there’s a series of social, economic and regulatory barriers that stand in the way of people using their property wealth to fund retirement.
Let’s start with the social. Many people have a romantic notion about passing their property down as inheritance to their children. And for those who do use later life lending products – like equity release – to access some of the value in their home, there’s often a shame attached to it.
That needs to change. Government, regulators and other public agencies like the Money & Pensions Service need to work together to break down that stigma. Using property to fund retirement is going to become the norm – and the sooner we can start to break down the social barriers, the sooner we can realise the economic benefits.
Earlier this month, my firm Fairer Finance published some fresh economic analysis which estimated that as many as 51 per cent of people will need to use their housing wealth in retirement by 2040. And if we can help them achieve that potential, we can boost consumer spending by over £20bn a year (in today’s prices).
If we’re going to make this happen, we urgently need more suitable retirement housing. And we also need to break down the regulated advice silos that prevent financial advisers from giving joined-up guidance on all the options available for funding retirement.
Building retirement homes will help the young
When my kids have left home, I don’t have any problem with the idea of selling up and buying a smaller place to release some of the value in my property. But I want it to be in the community I’ve raised my children in. I don’t want to be forced out into the countryside or a new suburb.
In the corner of London I live in – like most places in the UK – there’s simply no suitable or desirable retirement communities to move into. While we often hear politicians talking about the need to build new starter homes, it’s actually retirement homes that are in desperately short supply. If we can build more of those, more people like me will move and free up properties on the other rungs of the ladder.
Dreaming up my own retirement digs
The Netflix show Man on the Inside – starring Ted Danson – is an absolute delight. It depicts a view of retirement living that actually looks really attractive. There’s a great community in a great location – and some real heroes who work on the staff to make it a wonderful place to be.
My friend and I are already plotting how to build our own version in our little patch of south London where we live. We’ve identified a whole block to knock down – and have a clear vision for the layout and plans. Any developers out there who want to help us make it a reality?
Later life lending
If you’re retiring now, and you don’t have a gold-plated pension, then there are already later life lending options – such as equity release and retirement interest-only mortgages – which can help you get at some of the money in your home without moving.
For those of us who are a bit younger, our mortgages are increasingly stretching well into our 60s and 70s. I’m 48 and mine currently runs till I’m 79 – by which time I might not be around any more! With more people remortgaging in their 60s and 70s, we need to use these moments to start conversations about retirement planning. Many people don’t really think about how to pay for their retirement until the last minute. The earlier we can have these conversations – the better.
James Daley is managing director at Fairer Finance