Housing wealth will play an increasingly important role in maintaining retirement living standards over the next 50 years, an Equity Release Council (ERC) report claims, with 15 million people estimated to be under-saving for retirement.
Figures in the ERC’s Fairer Finance – The Retirement Compass report also suggest one in 10 working age people are on course to live later life in poverty.
The figures – from the Pensions Policy Institute and Society of Pension Professionals – “underline the urgency of the issue”, the ERC said. The report also reveals “significant inequalities” in retirement living standards, with women having 48% less pension wealth than men.
ERC modelling on the types of households that have the greatest need of, and access to, housing wealth suggest 3.7 million homeowner households aged 55-79 won’t have enough income for a moderate retirement. Couples make up 1.7 million of the total, with single women outpacing men by 1.4 million to 600,000.
Almost two third (65%) of single female homeowner households have or are expected to have a retirement income below the Pensions UK’s moderate threshold of £32,700 a year for a single person. However, while single women tend to have much smaller pensions, housing wealth isn’t related to gender – suggesting single women have more to gain from equity release.
This is reflected in ERC’s analysis, which found single women make up almost a third (32%) of the equity release market compared to 18% of single men. Half (50.5%) of all new plans were sold to couples.
However, the ERC points out that housing wealth is not perfectly correlated with retirement income.
“There are many people across the country who have valuable houses but low levels of pension saving”, the report notes. “For example, of all the couple homeowner households aged 55-79 with housing wealth of £200,000-£399,000, 44% will have average retirement income below Pensions UK moderate.
“Even amongst those with more than £400,000 of housing wealth, a fifth (21%) will not have enough retirement income to reach Pensions UK moderate – which amounts to 650,000 households. For these groups, housing wealth has the potential to play an important role in improving their living standards.”
The report provides “a granular understanding” of the later life lending, the ERC said, and brings “fresh evidence” to the policy debate.
Mark Gregory, founder and CEO at the Equity Release Group, agrees. “The industry has spoken for some time about breaking down advice silos, and this research reinforces why that matters”, he said.
“Consumers want to understand how they are going to fund the next stage of their lives. They should be able to explore their pensions, savings and housing wealth as part of a connected conversation, with a clear understanding of the benefits, costs and implications of the options available.”
He added: “The finding that 65% of single female homeowner households aged 55–79 fall below the moderate retirement living standard, despite holding average housing wealth of £225,000, shows why looking at pension income alone can leave an incomplete picture.
“The question we now need to ask is whether consumers and advisers have the understanding and support to explore what that housing wealth could mean for their retirement.”
Mike Batty, Legal & General’s managing director of home finance and product and strategy director of retail retirement, said retirement planning should reflect the reality of the multiple stages and differing financial needs of later life.
“That means taking a broader view of retirement income and considering all available assets. For many homeowners, the wealth tied up in their property is an important part of that conversation.”
He added: “Housing wealth is not a substitute for pension saving but, for some people, it can form part of a broader retirement strategy, alongside pensions and other sources of income. We therefore welcome Fairer Finance’s report and its recognition of the important role housing wealth can play in helping people achieve financial security.”
Key Equity Release CEO Will Hale said the report is “a welcome contribution” to the conversation surrounding retirement planning and underlines the growing importance of housing wealth.
“Crucially, the report shows that consumer attitudes are evolving, with 52% of homeowners aged 55 to 79 now believing it is acceptable to have a mortgage in later life”, he added.
“As perceptions continue to change, policymakers, regulators and all participants in the financial services sector have an opportunity to ensure consumers are better informed about all the options available to them.”
Fairer Finance | The Retirement Compass | The Later Life Finance Index
