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Homes are the new pensions

People will increasingly depend on the value of their homes to help bridge the pension gap, according to research by retirement planning group Sovereign Reversions plc...

UK over sixties will own £2.21 trillion of equity in their homes by 2036 at today's prices according to research by retirement planning group Sovereign Reversions plc.  This is an increase of 61% on the current level of £1.37 trillion.  At the same time, pension provision will look much less generous than it does for today's retirees.  People will increasingly depend on the value of their homes to help bridge the pension gap.

Ageing population

By 2036, there will be 20.8 million people over the age of 60 equivalent to almost one third (29%) of the population (SOURCE: ONS – 2006-based national population projections); almost a quarter will be over 65.  The over sixties make up just one fifth (21%) of the population today.  As these people plan for their retirement, they are likely to find finances much tighter for a number of reasons:

• The official retirement age is rising leaving the over sixties forced to work longer
• Final salary schemes are being consigned to history making pensions more dependent on uncertain investment outcomes
• Age dependency ratios are increasing (from 30% to over 45% (SOURCE: ONS – the proportion of over 65s compared to those of working age) making it harder for working families to support more ageing relatives
• Furthermore, the government and pensions industry have consistently underestimated longevity.  The projections are rising all the time forcing annuity rates ever lower. 

80% of the over sixties are homeowners, well ahead of the 70% average for the UK overall.  After deducting any remaining mortgage debt, the average equity for a homeowner over the age of 60 currently stands at almost £265,000 (Source: Alliance & Leicester).  The over sixties today own almost half the UK's £3.3trillion of housing equity.

Graeme Marshall, chief executive of Sovereign Reversions plc said: “Equity release is riding the demographic megatrend of the ageing population.  The UK's savings and assets are increasingly concentrating in the hands of the older generation.

Older people typically own more valuable homes than the average and the vast majority have no mortgage debt left.  For many, the value of their home will become an obvious source of income to help fund their retirement as traditional means of income and support are eroded.

The fact that annuity rates are set to become more personalised and will be lower for regions of longer life-expectancy should also boost the equity release industry.  These areas tend to be richer and enjoy higher house prices, so the lower annuities can be compensated by the greater scope to release equity from homes.”