Research suggests despite the major increase in house prices, equity tied up in homes will not be enough for people to rely on when they retire.
A report published by the Pensions Policy Institute (PPI) entitled Property or Pensions suggests people will have to save other assets too in order to secure a decent income at retirement.
The PPI says while more wealth is now held in housing than in private pensions, not all of this housing wealth can be transferred into income as equity release products generally allow only 20% of the house value to be achieved at age 65.
It adds housing wealth is not evenly distributed, with most houses worth less than £130,000, while only 10% of homes are worth more than £330,000.
This is the amount of money needed for equity release to provide an income of at least £100 a week, according to PPI.
Director of the PPI Alison O’Connell says people believe saving for retirement through residential property is an alternative to saving in pensions, but only the wealthy few are able to invest in a second home.
O’Connell says for most people, a home is seen as a retirement investment, as reducing the cost of living compared to renting means saving.
“Today’s average levels of pension saving (around 7-8% of salary a year) could only be enough to fund a two-thirds final salary retirement income for a forty year old if he or she can release equity from an average value house and retire at age 67," O’Connell adds.
"For most people, property will be at best a complement to occupational or personal pensions, not a substitute.”
An example presented by the PPI suggests someone starting pension contributions today at age 40 would need to save 19% of salary each year to achieve a total pension at age 65 of two-thirds of final salary.
After taking account of possible equity release from an average value house, the required contribution rate falls to 13% of salary each year.
This still beats the average pension saving rate of 7-8% of salary a year so with that level of private pension saving, as well as equity release from an average value house, he or she could reach a total pension of two-thirds final salary only by working to age 67.IFAonline
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