‘My property is my pension’: The younger generation is more likely to place their trust in residential wealth
Research has revealed that more young people believe they will use property to fund their old age rather than their pensions, although few have reached the stage of taking out a mortgage yet.
All generations over 27 say they are more likely to rely on pensions as their main source of wealth in retirement – especially those aged 60 to 78.
Young people who intend to use their homes as a source of retirement income may not have realistic expectations given the nature of today’s housing and mortgage market, suggests Standard Life, which conducted the survey.
Property and pensions: “Relying on just one asset for your retirement can be risky,” notes Standard Life.
Standard Life says both properties and pensions have their advantages as a source of retirement income, but points out that many people are still likely to have to pay rent or mortgages later in life.
The survey found that only one in ten people aged 27 or under currently have a mortgage – although some of those asked were too young to have one – and one in five believe they will continue to pay off a mortgage in retirement.
Source: Standard Life
“The fact that people closer to retirement age prefer annuities gives us an insight into what most people end up doing when it comes to retirement income,” says Dean Butler, managing director of direct retailer Standard Life.
“For young people it is perhaps understandable that their initial focus is on property given the significant barriers to getting onto the housing ladder today.”
But he adds: “Relying on just one asset for your retirement can be risky, so it is sensible, if possible, to build a more diversified portfolio made up of different funding options and not to overlook pension benefits either.” “Rainy day” savings are also easy to access.
Standard Life surveyed more than 6,000 people and ranked the answers to be nationally representative.
Relying on pensions in retirement
Butler says the benefits of pensions are tax relief on contributions, free employer contributions, and the potential to benefit from investment growth.
However, private retirement savings cannot be accessed until age 55 currently, and this will rise to age 57 in 2028, he adds.
Butler explains that people with a pension they have to invest themselves — a modern defined-contribution pension — should evaluate how long they should last and how much they should take out each month in retirement, unless they buy an annuity that provides a guaranteed income for life.
Use of property to finance old age
“In terms of property, there is the option of selling before the minimum retirement age, but for most people, their property will be their home – so to get any money, they will have to downsize, move to a cheaper area or Consider issuing shares,Butler says.
He says equity release can be valuable for people who don’t have any other assets, but it’s important to take financial advice first.
“In retirement we need a source of income and a place to live.”
“The natural impulse when thinking about our retirement is to prefer something we understand like real estate – after all, most of us live somewhere,” says Rob Bergman, investment director at RBC Brewin Dolphin.
“Pensions can seem like a vague concept, with benefits lying years in the future, but that would be a mistake.”
He points to the benefit of pension tax relief, saying: “Even for basic rate taxpayers, every £1 you put into a pension costs you just 80p, with the differences being more pronounced for higher rate payers.”
“Add to this the fact that these savings can then be placed in a tax efficient pool, with no liability to income tax or capital gains tax, with any taxes only due when you withdraw from these pension benefits.
“Finally, multiply this by one more.” Powerful forces in the investment world, compound returns, The savings you make today can grow by 50 years or more in this environment – and the arguments for saving pensions are great, especially for savers who use their telescopes rather than their microscopes to look for opportunities.
Borgman stresses that none of this is meant to discredit the property: “We all need a place to live, after all.”
“However, in retirement, we also need a source of retirement income as well as a place to live.
“The right answer then is to try to find a balance between the two and for younger generations to understand that even modest amounts of money saved today have a significant impact on the long-term value of their pension fund and, therefore, the choices they can make as they approach retirement.
Some links in this article may be affiliate links. If you click on them we may earn a small commission. This helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to influence our editorial independence.
(tags for translation) Daily Mail