Property 'is no Substitute' for Pension

People who believe their property will provide their pension are deluding themselves, an independent pensions research body warned yesterday.
Despite the soaring market, for most people their property or their home "will at best be a complement to occupational or personal pensions, not a substitute", said Alison O'Connell, director of the Pensions Policy Institute.

Falling stock markets and rising house prices mean that more wealth is held in housing than in pensions - about £1,904bn in the former against £1,120bn in the latter. At the same time, it was becoming increasingly common to hear people say that their home, or property investments, would be their pension, said Ms O'Connell.

In its Property or Pensions report, the institute said that a third of the population said they were saving in property to provide retirement income - and 15 per cent said they planned to use income from properties other than their own home to finance their old age.

But the reality is that just 2 per cent of people of working age - 750,000 in total - report owning more than one property. Despite their recent growth, there are only about 400,000 mortgages on buy-to-let properties. And those who believe that their own home will provide their pension have either false ideas of how much of their housing equity can be released, or they will have to trade down significantly to release money for income.

"You have to live somewhere," said Ms O'Connell - and the evidence was that owning your own home reduced living costs in retirement by 45 per cent compared with renting. Rather than increasing retirement income, home ownership tended to in-crease living standards by reducing costs.

Equity release schemes could generate capital and income - but usually only up to 20 per cent of the home's capital value for someone aged 65, rising to 50 per cent for someone in their 90s. A typical income stream would be only £130 a month on a £100,000 house for a 65- year-old, rising to £1,200 for a 90-year-old.

The median house price is £132,000, and a mere 10 per cent of homes are worth more than £330,000 - the sum needed to generate an income of £400 a month, or the rough equivalent of the minimum means-tested state pension.
Property can, therefore, help in old age, the report concludes. But "most people will not be able to rely solely on their equity".

In practice, most people, even in high-value areas, would need both pensions and property. Save for a wealthy few - who anyway tended to have good pensions - "for the vast majority, property will be at most a complement to private pension saving, rather than a substitute".