Over-60s property wealth three times more than DC pension market value

The growing dominance of defined contribution (DC) pensions and lack of adequate savings, compounded by increased longevity and cost of living increases, is highlighting the need for increased use of property wealth in retirement planning, Key Equity Release says.

Total residential property wealth held by the over-60s is estimated at £2.92 trillion - around three times more than the total market value of all DC pension assets in the UK at £950 billion, its analysis shows. Once buy-to-let property wealth is added, over-60s property wealth rises to £3.84 trillion. 

Property wealth typically represents more than 40% of total household wealth for the over-60s but is not being made full use of in retirement planning, Key believes. 

59% of over-60s currently have some DC pension assets with the median amount held estimated at £102,000 compared with average house prices of around £270,000. However, around a quarter of over-60s have DC pension funds of less than £25,000. 

DC pensions now dominate UK retirement saving with around 29 million holding them, while just 5.76 million have defined benefit pensions including 339,000 who are still paying into them.

Key believes the lack of adequate savings into DC pensions will drive expansion for the later life lending market. Products such as lifetime mortgages which enable older homeowners to refinance existing mortgage debt, fund home improvements, boost retirement income and help out family were once considered a last resort but are now set to become a central part of retirement planning for many customers.

Product innovation has also increased flexibility in the later life lending market, with many modern lifetime mortgages allowing customers to pay all, some or none of the interest, as well as make optional capital repayments, depending on their financial circumstances and objectives. Products also include important protections such as security of tenure and no negative equity guarantees.

Will Hale, CEO of Key Equity Release, said: “The colossal switch towards DC in the UK pension landscape dramatically demonstrates why property wealth is increasingly important in retirement planning.

“Over-60s approaching retirement with modest DC pension pots need to look at all their assets and consider all options for funding their wants and needs in retirement. Property wealth has to be part of the mix.

“With property wealth typically representing more than 40% of household wealth and the value of residential property wealth held by the over-60s massively outstripping the market value of all DC pension assets it is important that advisers and clients consider all their options."