Houses 'cannot replace pensions'

25 May 2004
A report published by the Pensions Policy Institute suggests that the equity most people have in their home will not be enough to sustain them throughout their retirement.

"Property or Pensions?" investigated recent trends in property and pension wealth, yet despite the recent surge in property prices found that owning property is not enough to replace an actual pension.

Although more wealth is held in housing than in private pensions, not all housing wealth can be converted into an income. Equity release products typically allow only 20 per cent of the house value to be realised at age 65.

PPI director Alison O'Connell, said: "For most people, property will be at best a complement to occupational or personal pensions, not a substitute."

Only ten per cent of homes are worth more than £330,000 - the amount needed for equity release to provide an income of £100 a week.

She explained that although saving in property is often proposed as an alternative to saving in pensions, only a minority would actually be able to take advantage of this.

"For most people," she pointed out, "owning a home contributes to retirement by reducing the cost of living compared to renting. Not everyone wants to release housing equity - and it does have risks - but it could be used to reduce the amount of pension saving needed to meet a target retirement income."

By today's average levels of pension saving - around seven to eight per cent of salary a year - equity would only be enough to fund two-thirds of the final salary retirement income for most people.