Your home is not your pension

Many homeowners believe their property will generate enough money to provide for their retirement. This is far from the case. The Institute for Public Policy Research says there are almost a million asset-rich income-poor pensioners - who own more than £100,000 of housing wealth but are on means-tested benefits.

Further, half of retired people living on less than £128 a week have three or more spare rooms. Yet cashing in on property prices by moving into a smaller home could see them lose means-tested benefits.

The IPPR is calling for free financial advice for OAPs, allowing them to see whether their benefits would be affected - the Pensions' White Paper failed to address the issue.

Social policy head Jim Bennett said, "To help pensioners who want to release wealth from their home, the government could help by improving the availability of financial advice, ensuring that there is enough housing suitable for retirement and by helping older pensioners with the logistical process of moving.

"There are almost a million asset-rich income-poor pensioners - those living in big houses but on small incomes. Because of the complexity of the benefits system, many pensioners are unaware of exactly how their benefits would be affected, and are unable to calculate whether they would be penalised."

The call for education and financial advice for the elderly has been matched by calls for further financial education for those still in work. JPMorgan INVEST argues that the proposed reforms increase the need for firms to help their staff through the provision of financial education.

David Cassidy, JPMorgan INVEST CEO said, "UK employees find pensions very confusing. To address this, employers need to ensure their workforce is well equipped to make the most effective choices in light of the government's plans. Bosses need to make provision to ensure their staff understand the basics of pension planning

"Auto-enrolment tends to rely on inertia by requiring people to proactively opt out of the scheme. However, in an environment of record levels of mortgage and credit debt, many people may have no option but to opt out if the level of their contribution is the difference between them being able to cover their debts."

30 May 2006 © Moneyextra.com

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