UK - Property is a poor substitute for a good pension plan despite the recent surge in house prices, a new report warns.
The Pensions Policy Institute’s Property or Pensions? study says only the wealthiest will have enough equity in their homes to retire without saving in other assets.
It points out that only 10% of homes are worth more than £330,000 – the amount needed for equity release to provide an income of £100 a week.The report goes on to say that although more wealth is held in housing than in private pensions, not all housing wealth can be converted into income. Equity release products typically allow only 20% of the house value to be released at age 65.
PPI director 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 in addition to their own home.
“For most people, owning a home contributes to retirement by reducing the cost of living compared to renting.”
The report says a 40-year-old starting pension contributions now would need to save 19% of salary each year to achieve a total pension (from the state and private savings) of two-thirds of final salary at 65.
Equity release from an average value house, cuts the contribution rate to 13% – way above the average rate of pension saving which is 7-8% of salary. With that level of private pension saving, as well as equity release from an average value house, a person could only reach a total pension of two-thirds final salary by working to age 67.
Jonathan Stapleton asks whether newly-accredited professional trustees should be a statutory fixture on pension scheme boards.
Savers are being warned by the Insolvency Service to guard their pension pots from investment scammers and negligent trustees as it winds up 24 companies.
Respondents say they should only be required in certain situations as the system is not broken.