Long-term trends in the way people have been building up their savings and wealth over their working lives, and its implications for retirement, are rapidly coming into focus for those aged 50 and over.
Whilst home ownership has boomed for this generation, pension saving has been in decline. As a result, millions of Britons are going to be reliant on equity in their property to top-up state and any private pension to provide an income in retirement.
But how realistic is it for them to rely on their homes in this way? We set out to identify the scale of under-saving for retirement, the role housing might play in boosting retirement incomes, and whether people really understand how it might work in practice.
The findings are not encouraging. There are almost 11 million people in the UK aged between 50 and state pension age, who will most likely be entering retirement between now and 2030.
RELYING ON BLIND LUCK
Two thirds of them are facing different degrees of retirement under-saving and over half are relying on 'blind luck' rather than financial plans.
Those with good defined benefit or well-funded defined contribution schemes are in the minority, with everyone else likely to have under-saved and the self-employed being at particular risk.
On the plus side, our research points to 8.9 million people from this cohort with equity wealth within their home. For 2.5 million of this group that equity is worth between £1,000 and £125,000, while a further 4.7 million have between £125,000 and £375,000.
While this sounds reassuring, the reality is that even if it were possible to release £150,000 in equity, it would only provide an income of between £4,500 and £7,500 per annum, depending on the annuity or drawdown option selected.
We surveyed over 1,000 people aged 50 and over, to understand their goals for their lives post-retirement and how they might use the equity in their home to help finance these.
Generally, people were optimistic, with 70 per cent wanting to travel, 30 per cent seeking to help their children financially and 22 per cent planning to pay off the mortgage.
Expectations of their income in retirement to achieve this - typically two-thirds of salary - were realistic in terms of aiming for the right target. However, three quarters had either not done any planning for retirement or not revised their plans for a number of years.
Despite this, half were confident that they would have sufficient income in retirement. Furthermore, 70 per cent were expecting their non-pension savings to provide at least a fifth of their retirement income, even though our other research indicates that most of them have nest eggs that will provide much less than this.
DOWNSIZING COULD BE A SOLUTION
For those who did expect an income shortfall in retirement, predictions on average put the figure at £11,400 per annum. Aside from continuing to work, downsizing was seen as the most likely solution to meet the shortfall, and the average respondent felt that £100,000 could be raised from their home.
This would provide an annual income of between £3,000 and £5,000, much less than the £11,400 they were seeking to achieve. This reinforces our findings that, for many people, downsizing alone will not meet the income shortfall and additional saving is required.
Given that so many people are either planning to use their home equity, or will do so out of necessity, we believe it is critical that financial guidance and advice considers home equity alongside other savings.
This would help people to take a holistic view of how to fund retirement, ideally without needing to use their home. As our figures demonstrate, it's crucial that those banking on the home for an income in retirement get a good understanding of how much this will actually provide.
It was also interesting to note the negativity of our survey respondents towards equity release.
Only 14 people out of the 1000 surveyed (1.4 per cent) were actively planning to use equity release, while for those who subsequently realised they might have an income shortfall to address, only 6 per cent said they would consider it.
This is partly due to a lack of education, as whilst two-thirds claimed to have good knowledge, when tested with a series of questions they revealed a serious lack of understanding.
It's not for us to advocate equity release as a solution, but this knowledge gap needs to be addressed if we are to enhance consumer options, bearing in mind that whilst few people want to use equity release, many more may not have a choice.
Four key recommendations have emerged from our work on how to help people plan for their retirement rather than leaving it to chance.
First, we need to enhance consumer awareness about the likelihood of a retirement income shortfall and the actions that can be taken to mitigate it.
This means both government and industry rapidly engaging in greater consultation to agree an approach that collectively helps people who are underfunded and entering retirement by 2030.
We then need to provide holistic financial guidance that includes using property/housing wealth to fund retirement as part of financial planning, so that consumers can consider all their sources of savings and wealth that will support them in retirement.
Alongside this, the advice industry should offer financial planning advice that takes the value of the individual's home into account and so provides a more holistic valuation of their retirement income.
Lastly, we need to make access to wealth in the home mainstream, as the need to do so is almost certainly going to grow significantly in the next few years. Consumers will therefore need greater access to products that let them boost their retirement income as an alternative to downsizing.
Our research is unequivocal - we need to address this issue now. The number of people wanting or needing to access wealth locked up in their home is going to become more pressing and we need to provide the support and solutions today that will help make their retirement more comfortable.
Charles McCready is a director at TISA.