Almost two million people plan to use property to fund over 50% of their retirement income claims a new report from Prudential.
The joint report from Prudential and Datamonitor, suggests property is now seen as more important than savings and investments in retirement planning, with 12.9 million people expecting to use property to fund at least part of their retirement.
According to Prudential, a retirement gap exists in the UK, as over a third of people think between £12,000 and £25,000 a year is sufficient fro a comfortable retirement.
But at current annuity rates, an income of £17,000 would require a pension fund of around £250,000, or even £350,000 to ensure it rises in line with inflation, which is in stark contrast to the average pension pot of just £25,000.
The report suggests the large amount of equity held by the baby boom population, those aged between50 and 60, could prove to be instrumental in reducing the pensions crisis in the medium term.
Figures reveal the current baby boom generation holds £542.6bn of equity in their property, with Datamonitor estimating by the time they reach retirement age in 2020, this will have increased to £1,425.4bn.
This is a sizeable resource, and Prudential says it makes sense for this age group to consider the role property could play in retirement planning, with those most dependent on it falling into the 45 to 55 age group.
The report claims this group, representing the younger wave of baby boomers, hold a great deal of wealth in property and have benefited more than most from the rise in house prices. T
his is reflected in the report, which claims one in 11 people at this age expect property to account for more than half of their retirement income. Although Prudential says this is not a cause for concern, as those in this age group who bought property 20 years age, have seen prices increase by 358%.
Ways people plan to access the value of their property range from downsizing, chosen by 19%, followed by 10% opting for a lifetime mortgage or equity release scheme.
Ali Crossley, director of lifetime mortgages at Prudential UK, says property can form a great part of a retirement planning portfolio. It may be too late for people approaching retirement to build up a supplementary source of income using a pension, savings or investments, but the equity tied up in their homes could be instrumental in boosting their funds.
She adds: “There are many ways of releasing equity, and different options will be suitable fro different people. Lifetime mortgages suit those who do not want to leave their home and who want to release chunks of money over time.”
Crossley points out the market has seen a lot of innovation recently, and products can be much more flexible, which obviously makes them more attractive to consumers, as it allows them to minimise interest by borrowing what they need when they need it, rather than a single lump sum up front.
She says: “What’s crucial is it’s never too late to start retirement planning. We would urge anyone concerned about their retirement provision to seek financial advice.”
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7968 4558 or email [email protected]IFAonline
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