Older homeowners face £18,000 retirement income shortfall

Older homeowners are anticipating they’ll need an annual retirement income of £35,196 - a sum 16% higher than the average income of a full-time UK employee and more than double today’s average of £17,212.

Yorkshire and the Humber is home to the greatest reality gap, with older homeowners in this region likely to see a shortfall of £27,723 between what they anticipate needing and the retirement income they’re likely to achieve. The region is followed by London (£19,856) and the South West (£19,531).

Rising living costs (30%), prioritising mortgage repayments over pension savings (24%) supporting financial dependents (22%) and earning less money (24%) are all cited as reasons why homeowners over-55 are unable to increase their pensions savings.

These factors are also prompting the early erosion of savings pots, as one in six (16%) homeowners aged 55+ who are yet to retire have, or plan to, dip into their pension savings early.

The report shows 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.

31% of homeowners who have increased their pension savings in the last year have been able to do so as they’re no longer paying off their mortgage. Among those who still have a mortgage, almost half (44%) report that paying off their mortgage has, or is likely to, limit their pension savings potential.

Valued at a combined £11.21 trillion, private pensions and property account for more than three quarters (77%) of household wealth.

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.

Despite this, just 19% of older homeowners who have sought information, guidance or advice on later life finances were prompted to consider accessing property wealth as an option.

David Burrowes, chairman of the Equity Release Council, 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.”

Will Hale, CEO of Key, added: “Today’s report shines an interesting spotlight on an issue that the vast majority of us will face at some point in our lives. 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.

“Indeed, taking a holistic approach to retirement planning and ensuring access to good specialist advice will mean that more people are able to enjoy a comfortable retirement.”