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Pension pressures set to rise as older homeowners face £18k a year shortfall in retirement

Updated: Mar 18, 2022

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Pension pressures are set to rise as many people access their pension savings early, running the risk of falling short when it comes to retirement, according to a new report.

The retirement income “older” homeowners anticipate they’ll need per year is around £35,196, according to a new report by the Equity Release Council and Key. The research - titled The pension/property paradox: moving beyond tunnel vision in retirement planning - found that these people face a reality gap of £17,984 a year in retirement.

The anticipated required annual income is 16% than the average income of a full time UK employee, and more than double today’s average of £17,212. Amid the findings, the report shows that pension pressures are set to rise, as many people access their savings early while generous final salary pensions are expected to be extinct for most people by 2050.

A number of reasons why homeowners over the age of 55 are unable to increase their pensions savings have been cited. These include the challenges of rising living costs (30%), prioritising mortgage repayments over pension savings (24% ) supporting financial dependents (22%) and earning less money so unable to afford to save more (24%).

The research has found that not only do these factors have an impact on pension contributions, but they are prompting the early erosion of savings pots. Findings show one in six (16 percent) homeowners aged 55 or older who are yet to retire have, or plan to, dip into their pension savings early. This gap comes at a time when pension income growth has stalled, increasing by £7 a week over the last decade, and amid saving pressures escalating across the UK.

The research has also looked into the shortfall across different regions of the UK, with Yorkshire and the Humber being home to the greatest reality gap.

In this region, older homeowners are likely to see a shortfall of £27,723 between what they anticipate needing and the retirement income they’re likely to achieve, according to the report.

This is followed by London, where there’s an estimated potential shortfall of £19,856.

The South West comes in third place at £19,531, while those in the North East face the fourth biggest reality gap - a shortfall of £18,772.

Furthermore, the report has shown that paying off a mortgage often competes with retirement savings when it comes to older homeowners’ biggest financial priority - stifling pension contributions and resulting in an increased likelihood of these borrowers being “asset-rich, cash-poor” in later life.

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 shortfall.

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.”

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“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.”

If you are looking for advice on how to release funds for your retirement, please contact us today.

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