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Baby boomers’ equity worth £543 billion

A new report published by Prudential and Datamonitor has revealed the crucial role that property could play in funding retirement, writes Linda Shorthose. According to the report a staggering 12.9 million people expect to use their property to fund at least part of their retirement, and 1.8 million will rely on it to make up over 50 per cent of their retirement income. As a result, property is now seen as more important than savings and investments in retirement planning.

There can be little doubt that the UK is facing a massive retirement gap. Over a third of people think that between £12,000 and £20,000 per year is sufficient to live comfortably in retirement. However, at current annuity rates, to purchase an annuity to give an annual income of £17,000 requires a pension pot of roughly £250,000, or nearer £350,000 for the annuity to rise in line with inflation. This is in dramatic contrast to the actual average personal pension pot of just £25,000.

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Experts believe that the huge amount of equity held by the baby boom population (currently aged between 50 and 60) could prove instrumental in alleviating the pension crisis in the medium term. The current baby boom generation holds £542.6 billion of equity in their property. Datamonitor estimates that by the time they all reach retirement age (2020), this will have risen to £1,425.4 billion.

Those in the 45 - 55 age group are most dependent on property to provide them with a sizeable proportion of their post-retirement income. This group, representing the younger wave of the baby boomers, already holds a great deal of wealth in property and has benefited more than most from home value rises. This appears to be reflected in their intentions of using this property to fund part of their retirement, with one in 11 people in this age group expecting property to account for over 50% of their retirement income.

Ali Crossley, Pru UK's Director of Lifetime Mortgages, said: "Property can form a great part of a retirement planning portfolio. It may be too late for some people approaching retirement to build up a supplementary source of income using a pension, savings or investments. However, the equity tied up in their homes could be instrumental in boosting their funds. There are many ways of releasing equity - and different options will be suitable for different people. Lifetime mortgages suit those who do not want to leave their home and who want to release chunks of money over time."

Crossley went on to say: "The market has seen a lot of innovation recently, and products can be much more flexible. This obviously makes them more attractive to consumers, as it allows them to minimise interest by borrowing what they need when they need it, rather than a single lump sum up front."