Don't bet on houses for pensions

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Don't bet on houses for pensions

Steve Hawkes, Evening Standard, This is
London

November 11, 2003

Rampant house price inflation is lulling homeowners into a false sense of security about the health of their long-term savings.

Association of British Insurers director-general Mary Francis said there is a growing risk the red-hot property market has made people complacent about putting aside enough money for their retirement.

Her stark warning came at a fractious Treasury Select Committee hearing into the life insurance sector.

The ABI puts the UK savings gap at £27bn - £1,400 per household per year - with 10m people not saving anywhere near enough to enjoy the lifestyle they expect when they draw a pension.

Francis told MPs: 'I am sure that people are hoping to use their property to produce some retirement income. But I would question whether they have been over-influenced by the increasing value of their property in recent years into assuming that, in the long term, property will always outpace everything else.'

'People seem to believe they can rely on housing if all else fails. I would question if that might be an over-optimistic view and I think there's a danger of putting too much trust in that.'

Earlier this month, Nationwide Building Society upped its projection of house price inflation for 2003 to 15% from 13%.

Francis's comments come as the Treasury kicks off a two-month consultation into whether home reversion plans, allowing the elderly to release equity from their homes, should be regulated.

Today's hearing is likely to herald an in-depth inquiry into long-term savings that is almost certain to centre on the growing mortgage endowment crisis and the complexity of policies such as with-profit schemes.

The Labour MP for Wallasey, Angela Eagle, said life insurers' apparent complacency over endowment mis-selling was 'incredible'.