Money News
Standard Life has conducted an analysis of the UK housing and retirement markets and is predicting a bleak future for many people hoping to use their current property to provide their pension.
By calculating the average equity released from a property through downsizing (selling your existing home for a smaller property), it has worked out how much pension income that could potentially generate.
Most people want to retire on an income of 2/3rds of their working earnings. This should provide a similar standard of living in retirement, allowing for the fact many people will have paid off their mortgage and won't have costs associated with travelling to work. By comparing the income likely to be generated from the equity and retirement income aspirations, significant shortfalls have been identified.
The average detached home in the UK is valued at £343,058. If the owner downsized from the detached property to a bungalow in the same region (average UK value £118,260), and allowing for moving costs of £2,248, the equity released could generate a retirement income of £100 a week, or put another way, 30% of your retirement income.
Andrew Tully, Senior Pensions Technical Manager, Standard Life, makes the point that across the UK many people are pinning their hopes on a continuing strong housing market to provide the retirement of their dreams.
"The reality is somewhat different. Our analysis shows retiring and banking on your main residence to provide a sufficient retirement income is a potential retirement disaster unless you have made sufficient provision elsewhere," he says.
How much income you can generate by downsizing your property will of course be determined by the type of property you have and where it is situated. For example, if your main residence is a detached house, you could generate about 35% of your retirement income by moving to a semi-detached property. However, if you currently live in a semi-detached house and move to a flat, it may only generate around 2% of your retirement income.
The insurer arrives at these numbers having analysed UK house price data using the Halifax House Price Index regional dataset for Q3 2007; Office for National Statistics average weekly earnings of full-time employees; and FSA annuity tables.
There are significant regional differences in how much income downsizing your home might generate. The South East and London can potentially provide the best opportunity to supplement your retirement income while East Anglia and Scotland could potentially provide the least.
Tully argues that people need to think long and hard about their retirement dreams before banking on their home to provide the income they want.
"Although there are many ways to unlock the value in your home, for example equity release, drawdown equity as well as downsizing, a broader mix of assets and investments combined with tax efficient wrappers should be considered, but always consult a professional financial adviser. That way you maximise your chances of enjoying the retirement of your dreams," he says.
05 March 2008 © Moneyextra.com
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