Half of adults in 30s and 40s prefer property over pensions and Isas to finance retirement
Nearly half (47%) of 35-54 year olds known as ‘generation X’ – which equals 8.3 million people in the UK – intend to use property to finance their retirement, according to a report by the Pensions and Lifetime Savings Association (PLSA).
However, 23% of people within this group have yet to buy a property. This suggests that some may be basing their future financial security on an asset they do not actually own yet.
Property is often viewed as a resource for retirement by the British population. Two decades of largely uninterrupted house price rises have boosted people’s confidence. Even the Bank of England's chief economist has previously claimed that property is a better investment for retirement than a pension which reopened the debate.
Retirement experts including Tom McPhail, head of retirement policy at Hargreaves Lansdown, are concerned that "far too many people are under the illusion that property will be the goose that lays the golden egg in retirement".
He says: "Unfortunately many of them may find out to their cost that they end up having too many eggs in one basket. A workplace pension with all the attractions of employer contributions and tax relief is simply the best way for the vast majority of people to save for retirement."
In addition, the older generation of baby boomers is already capitalising on their property to fund their retirement. Equity release lending in the UK surpassed £2 billion for the first time in 2016, according to the Equity Release Council. But equity release can be very costly in the long run, compared to drawdown plans, because the interest on a lump sum amount can be very high. IFAs recommend that people consider other options to fund their retirement first.
Too busy to think about retirement costs
Alarmingly, the PLSA report showed that 54% of generation X don’t think much about retirement income at all. Around half said they are "too busy worrying about day-to-day living costs to think about their retirement income".
Graham Vidler, director of external affairs at the Pensions and Lifetime Savings Association, says: "The majority of generation X find themselves in the unenviable position of being too young to benefit from generous defined benefit pension schemes and too old to receive the full benefits of automatic enrolment."
"They need support in understanding how their pension, property and any other savings might top up their state pension to give them a decent income in retirement. Government should assess the best ways for generation X to engage with retirement income planning and, in particular, consider whether interventions related to key life events, such as a mid-life financial health check, would result in better outcomes."
This story was originally written for our sister magazine, Money Observer.
A term to describe financial products or ‘plans’ that help older homeowners turn some of the value (equity) of their homes into cash – a lump sum, regular extra income, or sometimes both – and still live in the home. There are two main types of equity release: lifetime mortgages and home reversion plans (see separate entries for both). Whichever type you choose, you borrow money against the value of your property, on which interest is charged, and the loan is repaid when the house is sold after your death.
Defined benefit pension
Often referred to as a “final salary” pension, benefits paid in retirement are known in advance and are “defined” when the employee joins the scheme. Benefits are based on the employee’s salary history and length of service rather than on investment returns. The risk is with the employer because, as long as the employee contributes a fixed percentage of salary every month, all costs of meeting the defined benefits are the responsibility of the employer. (See also Final Salary).