Millions of homeowners face retirement income gap despite substantial housing wealth, report finds

Millions of older homeowners are heading towards retirement with incomes below recommended living standards despite holding significant amounts of housing wealth, according to new research from Fairer Finance.

The consumer group’s latest Retirement Compass report estimates that 3.7 million homeowner households aged between 55 and 79 will have retirement incomes below the Pensions UK moderate living standard, equivalent to 46% of homeowners in that age group.

The analysis suggests many of those households could potentially draw on housing wealth to supplement their retirement income. Fairer Finance found that single female homeowners are most exposed, with 65% expected to fall below the moderate living standard despite holding average housing wealth of £225,000. The equivalent figure is 44% for single male homeowners, while 37% of homeowner couples are forecast to face a similar shortfall, with average housing wealth of £275,000.

The report highlights a wider retirement savings challenge. While the Second Pensions Commission has estimated that 15 million people are under-saving for retirement, around three-quarters of households aged 55 to 79 own their home.

Among the households identified as having retirement income below the moderate living standard, around 1.8 million hold between £200,000 and £400,000 of housing wealth, while a further 650,000 have property wealth exceeding £400,000.

The research also points to a gender gap in retirement security. More than six in 10 single female homeowners are projected to fall short of the moderate retirement income benchmark, compared with fewer than half of single male homeowners. Women were also more likely than men to report concerns about their financial security in retirement.

Despite widespread awareness of equity release products, relatively few homeowners have considered using them. Fairer Finance found that 70% of homeowners aged 55 to 79 were aware of equity release, but only 13% had previously considered taking out a lifetime mortgage.

When asked how they would address a retirement income shortfall, most respondents said they would cut spending or adjust their lifestyle. Downsizing was the second most popular option, while only 14% said they would consider using housing wealth to supplement their retirement income.

The report also found changing attitudes towards borrowing in later life. Among adults aged 18 to 54, 67% said it is becoming more common to have a mortgage in later life, while 59% believe it is becoming more socially acceptable, both significantly higher than equivalent findings recorded in 2021.

Tim Hogg, director of Fairer Finance, said: “It’s important to help people save more into their pensions, but if we focus on pensions alone then we overlook a major asset that millions of households already hold. Our research shows that huge numbers of people heading for a retirement income shortfall are sitting on significant housing wealth which could bridge the gap, if they want it to.

“The picture is particularly stark for single women, who face the highest risk of low living standards in retirement, despite often owning homes worth hundreds of thousands of pounds. Silos in regulated advice markets mean many people are not presented with all their options for borrowing in later life, and many don’t see downsizing as a viable option because there is a lack of desirable retirement housing.

“Tackling these barriers will help millions of people improve their living standards in later life. We need policymakers, regulators, and firms to work together to overcome the barriers that are preventing people from seeing their pension and their property as part of the same financial picture.”

Jim Boyd, chief executive, Equity Release Council, added: “Following the Pensions Commission’s recent warning that 15 million people are under-saving for their retirement, Fairer Finance’s research explains how housing wealth can provide a lifeline for our rapidly ageing population and transform retirement living standards.

“Despite property being the largest asset for homeowners, too often it is considered separately from pensions and savings and there is a lack of knowledge among consumers how property wealth can fund longer lives in retirement. Property wealth is currently not part of the mainstream retirement conversation and there is a lack of actionable advice around housing wealth, and retirement options are biased toward pensions with a real risk that this important asset is overlooked.

“As attitudes towards later life lending continue to evolve, it is vital that people can access clear information, appropriate advice, and products with strong safeguards, so they can make informed choices about what is right for their circumstances.

“The challenge to government and regulators now is to create a system that helps consumers consider all their options in the round and use their assets more effectively to support financial wellbeing in later life. Failure to grasp this issue now may consign millions of people to poorer living standards.”