Up to 3m people of working age are planning to downsize from their current home to fund their retirement rather than save into a pension.
That is the worrying finding of a report from insurer Royal London called the Downsizing Delusion, claiming a small but growing proportion of people are choosing not to save for their retirement through a pension, but instead they plan to ‘downsize’ to a smaller property and use the proceeds to fund their later life.
The report shows that, looking across the UK as a whole, the average person downsizing from an average detached house, worth £310,000 according to Rightmove, to an average semi-detached house worth £197,000 and using the proceeds to buy an annuity, would secure an annual income from an annuity plus state pension of £13,700. But the typical UK full-time worker has an annual wage of £27,400. This means their income would slump by half on retirement.
The report also highlights a number of barriers to a ‘downsizing’ strategy such as children still living at home, the mortgage not being paid off, house prices falling and a lack of supply where you want to retire.
Steve Webb, director of policy at Royal London, said: “Hoping to live off the value of your home could be a ‘downsizing delusion’ for millions of people.
“In most of Britain, the amount of money you could free up by trading down at retirement to a smaller property would generate a very modest income.
“Someone who chose to save for later life through their home rather than through a pension could easily see their income halve at retirement.
“If they opt out of workplace pension saving they are also missing out on tax relief on pension contributions and a valuable contribution from their employer.
“Even with today’s record house prices, very few people could fund a retirement by selling up and moving to a smaller property.
“In addition, house prices can be volatile, not least in the light of the recent Brexit vote, and depending on the value of a single asset – your home – to fund your whole retirement is an incredibly risky strategy.”
The report is timely given recent Office for National Statistics figures that forecast a growing number of households owned by the over-65s.
Comments (4)
Royal London said ” Someone who chose to save for later life through their home rather than through a pension could easily see their income halve at retirement.” Unlike with a pension where they would live a life of luxury. Just how much do you need to contribute each month to retire with your annual salary as a pension? Enough to buy a whole portfolio of properties I would imagine.
Agenda driven nonsense.
Many peope did do the “right thing” with regards to their pensions but are still forced to sell their home and downsize to make ends meet.
Who in their right mind would now buy an annuity? Insurance Companies rip people off which is why people seek alternative forms of investment.
Thanks very much for the advice but we’ll be fine, we’ve all got large cash payouts due any minute now as our endowments mature to pay off our mortgages and leave us with a huge wedge of tax free spending money.
Oh! wait a minute no we haven’t, Financial services got that wrong . They did OK spending our cash on flashy cars and houses while we all got taken in by a Nigeria 419 style scam; “you give us lots of small amounts of cash as we’ll give you a fortune”
Royal London haven’t got it wrong but this sales pitch is wasted, we might as well blow our cash of frivolous nothings rather than pass it over top professional investors who can blow our cash on frivolous nothings for themselves.