The over-65s own approximately £2.5 trillion in housing equity. However, while pensioners are generally better off than they were a few years ago, many are still struggling with the cost of living.
Average incomes in retirement range from about £14,500 for a single pensioner, to nearer £31,000 for a couple (after housing costs).
Housing equity is not evenly distributed and averages hide significant disparities. Those with lower pensions are also less likely to have wealth tied up in their homes.
Nevertheless, the equity release market now turns over something like £2.5 billion a year, down from over £6 billion a few years ago when interest rates were lower. In the context of the sums paid out in pensions, that’s a rounding error; the state pension alone commands about £145 billion a year.
The need undoubtedly exists: many pensioners could do with more income. A lump sum of a few tens of thousands of pounds could be transformational. Many have offspring who currently have to wait well into their middle age for nature to take its course and any inheritance to come their way. The average age of a first-time buyer is now 32. Not only could asset rich, income poor pensioners make good use of some of that wealth tied up in their homes, so could their grandchildren.
So why aren’t more people unlocking the wealth tied up in their homes? There are understandable reasons, not least the tarnished reputation of equity release as a solution, a consequence of the poor products and dodgy sales practices of yesteryear. The sector is heavily regulated these days and has put in place comprehensive safeguards, yet its reputation continues to lag behind reality.
Many pensioners could do with more income
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There are also understandable reservations due to uncertainties concerning the future costs of later life care. Add in too an understandable desire to preserve the value of the home for a posthumous legacy, though, as noted above, the timing can be suboptimal; the average age of death in the UK is about 80, when children are probably already well into middle age.
What is perplexing about all this is that the government has no strategy pertaining to the consumption of property wealth in later life. Successive governments have interfered with our pension savings on a pretty much constant basis but, when it comes to housing wealth, nothing … tumbleweed. They have literally no opinion on a £2.5 trillion store of wealth.
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We have Pension Wise, a free financial guidance service to help people tap into their often very modest defined contribution pension pots. The service has nothing to say about the six-figure sums many of these pension savers have tied up in their homes.
The Money Helper guide to pensions and retirement has nothing to say about equity release: a bizarre oversight. A pension dashboard will be launched soon to help people trace their lost pensions. Yet when it comes to that £2.5 trillion of housing wealth … nothing.
At a time when the government is desperately looking for economic growth, it could do worse than helping pensioners make the most of their accumulated wealth and maybe bring forward some economic activity at the same time.