Property or Pensions? investigates recent trends in property and pension wealth, and analyses the ways in which property can be used to provide an income in retirement. Despite the recent surge in property prices, the report concludes that the majority of people will not have enough housing equity to allow them to retire without saving in other assets.
Although more wealth is held in housing than in private pensions, not all housing wealth can be converted into an income. Equity release products typically allow only 20% of the house value to be realised at age 65. Housing wealth — like other forms of wealth — is not evenly spread. Most houses are worth less than £130,000. Only 10% of homes are worth more than £330,000, which is how much is needed for equity release to provide an income of £100 a week.
Director of the PPI Alison O’Connell said:
"Saving in property is often proposed as an alternative to saving in pensions. But only a (wealthy) minority will be able to invest in property other than their own home.
For most people, owning a home contributes to retirement by reducing the cost of living compared to renting.
Not everyone wants to release housing equity — and it does have risks — but it could be used to reduce the amount of pension saving needed to meet a target retirement income.
Even so, today’s average levels of pension saving (around 7-8% of salary a year) could only be enough to fund a two-thirds final salary retirement income for a forty year old if he or she can release equity from an average value house and retire at age 67.
For most people, property will be at best a complement to occupational or personal pensions, not a substitute."
