Property Outperforms Pensions for those Nearing Retirement

Property wealth is greater than pension pots for six in 10 baby-boomers, according to a new report - meaning many are relying on bricks and mortar to fund retirement

Emma Wall 3 May, 2016 | 4:00PM
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Property assets outstrip pension saving for six in 10 people aged 55 and older in the UK, according to a new report from high net worth adviser Bower Private Clients. Thanks to the property boom of the past 20 years which has seen the average house price increase by around 300% in the UK and more than 500% in London, many aged 55 plus are sitting on a pretty pricey pile.

In contrast, the UK stock market has moved sideways – the FTSE 100 is at the same level now as it was in February 1999. Although this does not take into consideration the power of compound interest on your capital through reinvested dividends, you can see why one in 10 plan to fund their retirement through the sale of their home.

“Stock market volatility and historically low interest rates have had a major impact on pension and investment income since the financial crash while those who are lucky enough to have got on the property ladder have benefited,” said. Andrea Rozario, chief corporate officer at Bower Private Clients.

“That means over-55s may find themselves in a position where they have the home which they love but not the income or liquid assets they need to fund their own retirement while being able to help family.”

Pensioners Cash in on Freedoms

It has been one year since pensioners have been able to access their retirement savings – and spend their cash at will. Pension freedoms now mean that buying annuity at retirement is no longer compulsory and the latest figures from HMRC show that 230,000 people withdrawn cash from their pension pots since April 2015. While it is positive that pensioners are engaging with the new freedoms, Richard Parkin, head of Pensions at Fidelity warns against rash decisions.

“The challenge we are now facing is how retirees should manage this lump sum while also making their monies last. Paying off debts or establishing a rainy day fund if you didn’t previously have one seems eminently sensible but we would urge retirees to think about the longer term plan of what they want to do with their monies,” he said. “Happily, many will enjoy 30 years in retirement so careful thought needs to go into getting the most from their retirement savings.”

So far, those cashing in their pensions have tended to have smaller pots of less than £30,000. Pots of this size may be unsuitable for annuitisation while interest rates are so low, but withdrawing cash is not the only other option. Instead, pension savers should be asking themselves whether they need the cash now – is the financial need pressing – or could this money be put to better use remaining within the pension fund, and growing with other invested assets.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Emma Wall  is former Senior International Editor for Morningstar