Older homeowners facing £17,984 retirement shortfall

Older homeowners are anticipating they’ll need an annual retirement income of £35,196, a sum more than double today’s average income in retirement, according to a new report published by the Equity Release Council and Key.

The figure is 16% higher than the average income of a full-time UK employee, and with the average retirement income currently sitting at £17,212, the expectation could be leaving a potential shortfall of £17,984 per year.

The new report suggested pension pressures are set to rise as many people access their savings early, while generous final salary pensions are expected to be extinct for most people by 2050.

From a study amongst 2,009 UK homeowners over the age of 55, the challenges of rising living costs (30%), prioritising mortgage repayments over pension savings (24%), supporting financial dependents (22%) and earning less money so being unable to afford to save more (24%), were all cited in the report as reasons for being unable to increase their pensions savings.

Equity Release Council chairman, David Burrowes, commented: “With the UK’s population ageing rapidly, the scale of this issue is only set to become greater. An increasing number of consumers must make their pensions savings last over longer retirements with property wealth fast emerging as a viable solution to help meet this funding challenge.

“Our report emphasises the pension pressures faced by many across the UK and calls for property wealth to be better considered and integrated into the advice process. A single-product solution to retirement planning is no longer fit for purpose. We must break down the silos that create tunnel vision when it comes to later life financial planning.”

The report also suggested that paying off a mortgage often competes with retirement savings to be older homeowners’ biggest financial priority – stifling pension contributions and increasing the likelihood of people being ‘asset-rich, cash-poor’ in later life.

The research showed that 31% of homeowners who had increased their pension savings in the last year had been able to do so as they’re no longer paying off their mortgage. Among those who still had a mortgage, 44% reported that paying off their mortgage was likely to limit their pension savings potential.

Property wealth also holds significant untapped potential to help close the retirement income gap, according to the report, which revealed the average homeowner in England and Wales could access £88,290 from their property via a typical equity release plan – equivalent to over a decade of state pension payments.

Key CEO, Will Hale, added: “How do we juggle our financial responsibilities as we age in such a way that allows us to increase our pension contributions and achieve goals such as paying off our mortgages?

“Sadly, there is no simple answer to this particular question – especially with the slow death of final salary schemes but an increase in longevity. However, to me this report suggests that we should be asking an entirely different question – how can we use all our assets to help us achieve our wants and needs in later life?

“While even the boost provided by using residential property, investment and savings as well as pensions might not help everyone achieve a retirement income of over £35,000 – which is higher than the average UK salary – it will certainly help.”

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