Property plays key part in pension planning

Over 1m Britons over the age of 50 plan on cashing in their homes to help fund retirement despite the recent drop in property prices, according to new research undertaken by retirement specialist Liverpool Victoria.

The study appears to highlight renewed confidence in what was formerly a battered property market. Retirees also appear to be riding on the back of the recent housing market recovery. Home prices edged 0.5 per cent higher in November, its seventh consecutive monthly rise.

Those surveyed believe that the recent recession has eroded over £27,000 in the value of their homes, bringing total losses to £80bn.

However, only 2 per cent have dismissed the idea of using their home as their pension, with a further 11 per cent planning to sell their properties for extra retirement income.

The survey also reveals the extent to which the housing boom had affected retirement decisions. Over 12 per cent had saved less into traditional pensions because they believed the value of their home would continue to rise.

Those hit hardest by the plunge in property values were between the ages of 60 and 65, with more than half of those surveyed citing a drop of £29,000 in the value of their homes.

Vanessa Owen, head of equity at Liverpool Victoria said: “In the decade leading up to the credit crunch, more and more homeowners saw their property as a potential cash cow to aid retirement. But in a matter of months millions of pre-retirees have seen both their property and pension fund values battered.”

Despite this, Ms Owen said their confidence in the long-term value of the property market remains strong, with retirees “feeling more confident that their home can still play a big part in helping to finance their retirement.”

More interestingly, 34 per cent of over-50s believe it will take at least five years for house prices to return to their former value, which might explain why 41 per cent plan on cashing in once they reach 60.

Retirees are also relying less on pension savings, with 16 per cent claiming that pensions alone will not provide enough for retirement, whereas a home would provide another alternative source of income.

Roddy Kohn of Kohn Cougar said: “It’s a very viable option as it makes retirement more affordable. Pension funds simply do not deliver enough to the average investor.”

He said pensions are unsuitable for the vast majority of investors since they lack a professional adviser who can provide ongoing service and monitor those funds.

“Once those funds drop in value, pensioners feel vulnerable.”

However, Mr Kohn cautioned against rushing too quickly into the property market, citing home prices “grossly too high.”

He said pensions might be worthwhile for clients who are interested in the commercial property market.

“If you’re buying commercial property prices that are depressed, then from a pragmatic point of view, buying through a pension fund will be more efficient.”