Could your home be your pension fund?

Holly Thomas / 29 September 2014

Should you rely on bricks and mortar to fund your retirement? A record number of people say so, according to a new study.



One in 14 of people yet to retire – the equivalent of around 2.5 million individuals – admit they are planning on selling their primary residence to fund their retirement. This represents an increase of two percentage points from the research in 2013.

In total, 16% of people – nearly six million – say they are planning to rent or sell property to fund their retirement, up from 13% last year and the highest such figure since 2009, according to research by Barings Asset Management. And the growth in house prices means many now see their home as a pension fund.

According to the most recent predictions from estate agency Savills the property market continues to soar. As a result of accelerating house prices, it has revised up its forecast for the current year, and its prediction of total growth by the end of 2018 to 25.7% from 25.2%.

Property v pensions

It is hardly surprising that growing numbers of people are shunning pensions in favour of property. Returns from company and private pension schemes are uncertain, as they depend on how investments perform whereas property is still on the rise.

Many want to downsize or cash in using equity release, which is an option for those who are happy to access cash locked in their homes. But downsizing is not always as easy as it sounds. A house half in size will not be half the price – if you want to stay in the same area. 

Investment experts are concerned with how risky it is to rely on one source of income to last your retired years.

Rod Aldridge at Barings said: "It is worrying that the number of people relying exclusively on their property to fund retirement has increased again.  

"Property can, of course, form part of a diversified investment portfolio but this year’s research indicates that more people are investing in property as a retirement source and this could mean they are too concentrated in the asset class.  Property prices can be volatile so relying on your home to provide all your income to fund retirement is risky."

Indeed, you might not be able to sell property at the time and the price that you need. Most pension policies, however, provide a wide range of investment options so it is easy to diversify your holdings and so reduce risk.

Why save in a pension?

A pension is still crucial say experts. The tax breaks alone are compelling. You get initial tax relief, so your investment is given an immediate boost. This is particularly valuable for higher rate or additional rate taxpayers, who will benefit from 40% or 45% initial tax relief – especially if they might be basic rate or even non taxpayers in retirement.

New rules coming in next year that allow you to access your savings in a pension fund will make pensions more attractive to those who opt not to choose an annuity. Studies show that people are warming to pensions, with a report from the Association of Investment Companies showing that 44% feel more positive towards pension schemes due to the impending changes.

It's been suggested that a number of people could choose to use their pension pot to purchase a buy-to-let property and live off the income. Again, this is a compelling idea when you compare the yields to that of a savings account these days.

But remember: there are many things to consider such as stamp duty, legal fees and estate agents' fees, as well as the fact that owning a second property isn't tax efficient, since you will have to pay capital gains tax on any increase in value when you sell.

Aldridge added:"The level of risk involved in expecting to fund your retirement through the use of a volatile asset such as your own home or from other properties such as buy-to-let should be fully appreciated and understood.

"Investing for your retirement is about long-term planning and as people are living longer, more emphasis needs to be put on how a lengthier retirement will be funded. 

"It is imperative that people diversify their investments through a range of assets which can, of course, include property."

Seek help

Putting retirement plans in place is not something you have to do alone. You can get advice from a professional. 

If you don't have an adviser, search for one in your area at unbiased.co.uk or contact Saga's financial planning service, which offers a bespoke investment management service.

While you will have to pay for advice, it's a good investment if it will get you the comfortable lifestyle you want in retirement.

Learn more about Saga's financial planning service here...

The opinions expressed are those of the author and are not held by Saga unless specifically stated.

The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.