"The combination of smaller pensions, increased longevity and rising care costs threaten to create a perfect storm which will leave millions of people unable to maintain their living standards in later life"
- James Daley - Fairer Finance
More than half of UK households are expected to rely on housing wealth to maintain their living standards in later life, potentially unlocking £23bn annually by 2040 and delivering a £21 billion boost to the UK economy.
These figures come from new economic modelling by consumer group Fairer Finance, which highlights a growing dependency on property wealth as pension savings fall short. The research shows that nearly four in ten future retirees are on course to fall below the minimum recommended living standard based on pension income alone.
Fairer Finance’s report calls for urgent action from the government and the Financial Conduct Authority (FCA) to break down the barriers that prevent older homeowners from accessing equity in their homes and to integrate housing wealth into mainstream retirement planning alongside pensions.
New economic modelling
New economic modelling within the report shows the scale of the problem and considers how housing wealth can be part of closing the gap.
Figure 1 below illustrates how people might access their housing wealth to maintain their living standards in 2040. The first peak, at age 65, reflects the initial need for income before people receive the state pension. The second peak is partly driven by some people repaying their residential mortgage in their late 60s. Some people in their 70s, 80s and 90s experience care-related cost shocks, which increases their need for income and, therefore, usage of their housing wealth.
To address these challenges, the report outlines five key recommendations:
1: Build more downsizing-friendly homes in locations where older people want to live.
2: Cut stamp duty for downsizers to encourage mobility and free up larger homes.
3: Normalise the use of housing wealth through guidance from services like MoneyHelper and Pension Wise, alongside government-led public awareness campaigns.
4: Create a single financial view for consumers, combining pension and property assets.
5: Reform financial advice so all later-life lending options are considered and product bias is removed.
On point five specifically, the FCA should:
· Ensure that equity release advisers are obliged to consider all forms of later-life lending.
· Build more explicit consideration of housing wealth into the FCA rulebook, such that financial advisers assess the role that housing wealth may play for customers in funding their retirement.
· Ensure that advice on mainstream mortgages to people from the age of 50 onwards explicitly considers retirement planning, including later life lending options. This may be through referring people to retirement dashboards, midlife MOTs, or other professional advisers which bring together all sources of retirement wealth.
· Allow for targeted support to assist consumers in considering their use of housing wealth as they plan for retirement (whilst ensuring that equity release remains an advised sale).
· Use the levers of Consumer Duty to ensure the UK has a vibrant and competitive later-life lending market, which offers fair value to consumers and creates the conditions for product innovation. In advice markets, the FCA should use Consumer Duty to eliminate product bias – and ensure that consumers are supported to achieve the best outcomes for their needs, regardless of which part of the advice market they are engaging with.
“It’s an inevitability that more people will need to rely on their housing wealth in retirement – and our new research shows the scale of the problem as well as the opportunity," explained Fairer Finance managing director, James Daley. "The combination of smaller pensions, increased longevity and rising care costs threaten to create a perfect storm which will leave millions of people unable to maintain their living standards in later life."
He continued, “But with around 75% of the population owning a property as they reach retirement, many people are sitting on – and sleeping in – a significant store of wealth. As things stand, there are a number of social, economic and regulatory barriers which stop housing from being part of the mainstream retirement planning conversation.
"For those who want to downsize, there is a lack of suitable and desirable retirement housing. Whilst when it comes to borrowing in later life, the silos in regulated advice markets mean many people are not being presented with all their options. If we’re to head off a later life funding crisis, policymakers need to start taking action to bring down these barriers now.”
Jim Boyd, chief executive of the Equity Release Council added, “Fairer Finance forecasts property wealth taken in the form of later life lending could inject £21 billion into our economy each year from 2040. This substantial amount has the potential to act as a real economic stimulus supporting businesses and improving the living standards and spending power of our rapidly ageing population. 45,000 UK jobs are already directly funded through money released from bricks and mortar – the growth of later-life lending can potentially take this to another level.
Boyd concluded, “Whether an older person speaks to an equity release adviser, a mortgage adviser or a financial adviser, how they want or need to use their housing equity should be part of the conversation. Today’s report challenges us to develop a system that treats housing wealth as a core part of retirement planning, removes regulatory barriers and gives people the confidence to use it wisely.”
“This report from Fairer Finance highlights the increasingly important role that property wealth will play in helping many people achieve a rewarding retirement," comments Lorna Shah, managing director of retail retirement at L&G.
“At L&G, our own research also indicates that equity release will become an increasingly mainstream source of income for retirees, in part due to the growth in property wealth.
“As Fairer Finance sets out, the financial requirements of those in retirement will vary at different stages of their lives. These needs can range from paying off an existing mortgage, gifting to family, or making home improvements. Our research also highlights the increasingly important role equity release is expected to play in care-related expenses in the future.
“For many, releasing equity from their home could be one of the most significant financial decisions made in retirement. Financial advice is critical in helping homeowners take a balanced, holistic view of the options available to them.”
