A radical rethink on the role of property is needed in order for people to be able to fulfil their retirement aspirations, according to Retirement Advantage.
Its new Home Truths report highlights the limitations of what pensions savings can deliver and provides steps to help savers achieve the retirement they want.
Retirement Advantage said those over the age of 50 could be in for a shock once they retire when they find out their pension pot is not enough to meet their needs.
It warned that with people aged over 50 estimating they will need a household income of more than £1,400 a month after tax, retirees cannot rely on their pension pot alone to generate the retirement income they need.
The report found that 37% people fail to recognise their property is worth more than their pension.
It also showed that as house prices continue to rise the total value available to over-55s in England, Scotland and Wales via equity release is now £365 billion, compared to just £75 billion held in pension pots.
Alice Watson, head of marketing at Retirement Advantage Equity Release, said: “There is a huge gap between what we want in retirement and what our pensions alone will be able to fund.
“We need to break down the long-held views that we do one thing with our pension and ISAs and something different with our property, and instead consider how they can work together to generate an income in retirement. Too many people are missing out on the retirement they want and deserve because they’re unaware of all the options available to them.”
The research also revealed widespread misunderstandings about the role property can play in retirement finance.
It found that 82% of people want to stay in their current homes as they get older, but 26% think they will downsize when they retire. Almost one in five (19%) won’t consider releasing money from their property through equity release because they mistakenly think they will lose control of their property, and over half (57%) say it isn’t normal to take on debt in retirement.
“The recent pensions freedoms and new tax laws have changed the relationship between property and pensions, but our thinking hasn’t changed quickly enough to keep up with these reforms.
Watson said: “Pensions can now be passed on as a tax-free inheritance, and retirees could reduce their tax bill in retirement if they leave their pensions untouched and generate income from their property or other savings instead. This means options like equity release should be firmly on the list of considerations for anybody with property who is approaching retirement.
“There’s a clear need for financial advisers to discuss equity release with their clients and demonstrate how it can help them achieve their goals for retirement while remaining in control of their property.”
Home Truths sets out three steps to help savers ensure they make the most of their wealth in retirement:
Start early
Let’s talk about pensions, property and retirement much earlier. Speak to your workplace pension adviser, involve friends and family – make sure you are armed with the latest knowledge and keep an open mind about what different assets can do in retirement.
Think more widely
Recent rule changes and longer term trends have brought property and pensions much closer together as assets. This means a bigger number of options and requires bigger thinking – rather than considering each individual pot of wealth separately, think about the kind of retirement you want and speak to a professional financial adviser about how to make that happen.
Understand how our brains are wired
All sorts of thinking biases can have an impact on the way we make decisions, often without us even realising. We often overvalue what we own, especially things with a big emotional connection like our property, and this clouds our judgment when making investment decisions. Knowing how biases work can help us make better choices.
A full copy of the report can be found here.
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