Over half of UK households (51%) are forecasted to need housing wealth to support their spending needs in retirement – releasing over £23bn, in today’s prices, each year by 2040.
This is according to research by independent consumer campaigner Fairer Finance which also forecasts that this shift could deliver a £21bn yearly boost to the UK economy.
The campaign group points out that based on levels of pensions and savings alone, almost four in ten (38%) future retirees are on course for an income below the recommended minimum living standard. However, on average people in the UK hold more housing wealth than pension wealth, highlighting a major mismatch between assets held and retirement funding options.
Fairer Finance’s report demands urgent action from Government and the Financial Conduct Authority (FCA) to break down the barriers preventing older homeowners from accessing the equity in their homes, and to incorporate housing wealth into mainstream retirement planning alongside pensions.
The report, commissioned by the Equity Release Council (ERC) highlights the barriers to unlocking housing wealth through downsizing and proposes five policy recommendations:
These are:
Increase housing supply: Build more suitable homes for downsizing located in the communities where people in later life wish to live.
Cut stamp duty for older people downsizing to encourage mobility and free up larger homes.
Normalise the use of housing wealth to maintain living standards in later life: MoneyHelper and Pension Wise should ensure housing wealth is a central plank of later life advice and guidance. Also, public information campaigns to help normalise the use of housing wealth in retirement.
Create a single financial view: Government and regulators should develop a personalised service for consumers to see their pension and housing wealth in one place.
Reform the regulation around later life advice, to break down advice silos and ensure all consumers are supported to maximise the use of all their assets as they approach retirement.
On the final point, Fairer Finance is urging the FCA to ensure that equity release advisers are obliged to consider all forms of later life lending and build more explicit consideration of housing wealth into the FCA rulebook.
In advice markets, the FCA should use Consumer Duty to remove product bias – and ensure consumers are supported to achieve the best outcomes for their needs, irrespective of which area of the advice market they are conversing with.
Commenting on the recommendations Fairer Finance managing director James Daley said: “It’s an inevitability that more people will need to rely on their housing wealth in retirement – and our new research shows the scale of the problem as well as the opportunity.
The combination of smaller pensions, increased longevity and rising care costs threaten to create a perfect storm which will leave millions of people unable to maintain their living standards in later life.”
However Daley stressed that with around 75% of the population owning a property as they reach retirement, many people are sitting on – and sleeping in – a significant store of wealth.
“As things stand, there are a number of social, economic and regulatory barriers which stop housing being part of the mainstream retirement planning conversation. For those who want to downsize, there is a lack of suitable and desirable retirement housing.
“Whilst when it comes to borrowing in later life, the silos in regulated advice markets mean many people are not being presented with all their options. If we’re to head off a later life funding crisis, policymakers need to start taking action to bring down these barriers now.”
L&G managing director retail retirement Lorna Shah commented: “This report from Fairer Finance highlights the increasingly important role that property wealth will play in helping many people achieve a rewarding retirement.
“At L&G, our own research also indicates that equity release will become an increasingly mainstream source of income for retirees, in part due to the growth in property wealth.
“As Fairer Finance sets out, the financial requirements of those in retirement will vary at different stages of their lives.”
She added: “For many, releasing equity from their home could be one of the most significant financial decisions made in retirement. Financial advice is critical in helping homeowners take a balanced, holistic view of the options available to them.”
