Royal London warns of retiree ‘downsizing delusion’

Its latest report shows that the average person downsizing from an average detached house (worth £310,000) to an average semi-detached house (worth £197,000) and using the proceeds to buy an annuity would secure an annual income (from annuity plus state pension) of £13,700.

However the typical UK full-time worker has an annual wage of £27,400, meaning their income would slump by half on retirement.

Additionally, Royal London is highlighting that 'the nest may not be empty', as children are staying at home for longer, and many retirees may still be paying off their mortgages.

One in three mortgages now lasts to age 65 or beyond, and of these, one in three is to a first-time buyer.

Additionally, people's planned retirement date could well coincide with a period of low house prices, which could also mean that there's nothing to downsize to.

Royal London also believes that many Brits are invested heavily in their homes, and ultimately decidethey don't want to move out of it to a far smaller property just at the point when they would be spending more time in it.

Evidence suggests that out of larger family homes that are freed up by those over pension age, five out of six are released because of the death of the owner – only a tiny minority are freely downsized.

Steve Webb, Director of Policy at Royal London, said: “Hoping to live off the value of your home could be a ‘downsizing delusion’ for millions of people. In most of Britain, the amount of money you could free up by trading down at retirement to a smaller property would generate a very modest income. Someone who chose to save for later life through their home rather than through a pension could easily see their income halve at retirement.

"If they opt out of workplace pension saving they are also missing out on tax relief on pension contributions and a valuable contribution from their employer. Even with today’s record house prices, very few people could fund a retirement by selling up and moving to a smaller property. In addition, house prices can be volatile, not least in the light of the recent Brexit vote, and depending on the value of a single asset – your home – to fund your whole retirement is an incredibly risky strategy.”