The role of housing in retirement could thanks to Covid-19, take on more importance given that, many close to retirement, have had their plans severely disrupted.
Based upon what has happened to markets and earnings, headlines are appearing that say those approaching retirement should expect to work now until 70 or beyond. That, of course, assumes someone is willing to employ them until then.
The latest unemployment statistics make grim reading. The largest job losses were in the 16 to 24 age group. The next largest was in the 50 to 64 age group. The government has announced a number of schemes to help younger workers to get back into the employment market.
Over 50s who lose their job have historically found it difficult to find employment. If they do not manage to regain employment, no more contributions will be going into their pension savings; and they may not be able to fully pay off their mortgage.
In the meantime, state pension age will be increasing – it has recently gone up to 66 and will increase again between 2026 and 2028 to age 67. Those currently under 60 who lose their jobs could face a bleak few years.
By that time the earliest age to draw on pension savings will increase to 57. We all need somewhere to live in retirement, and if we do not own our house, we have to rent. A couple of years back Royal London estimated that on average £180,000 more was required in a pension pot to pay rent throughout retirement as against owning a house outright.
A house also provides an asset that has value. Some of that value can be extracted by moving to a cheaper house or by using an equity release plan. This has the same inherent value as an insurance policy provides. If the worse happens there is something to fall back upon. So, what is the value of that reassurance?
Other sources of income
This insurance will become more important as more people become reliant upon defined contribution pensions and receive less defined benefit pensions. Market changes could mean that sustainable pension withdrawals have to be reduced creating a need for other income to supplement pension income.
Now, for everyone there is always an unexpected event requiring money to be spent on the family or home. That is fine assuming we are able to work until we retire, we retire with a sufficient pension pot and our mortgages have been paid off.
Those aged 50 to 64 who are currently losing their jobs may not be in that position. Hopefully, many of them will find employment soon and their current position will with hindsight be looked upon as a temporary blip. But, what about those who are not able to find employment?
Are they receiving guidance on their rights and entitlements to state benefits? Will they have sufficient National Insurance contributions to achieve a full state pension when they reach state pension age? Are they aware of what their mortgage provider will permit regarding mortgage holidays? Are they aware of the equity in their house and how it can be used? Have they spoken to PensionsWise to understand their pension options?
They are in a very complicated position. Each person will have a different situation and the financial position of others in their household could affect them. Making the wrong decisions could be costly, not only resulting in the payment of unnecessary tax but also leading to the loss of valuable state benefits.
Stephen Timms MP as chairman of the House of Commons Work and Pensions Committee recently commented on the small take-up of guidance provided by PensionsWise. However, such guidance is of little value if does not cover all the major financial issues that are affecting the individual.
If we are going to improve financial resilience in later life it is important that as people come towards the end of their working life they are informed of the role of housing in retirement, the benefits they could be entitled to and impact of housing and pension options on tax and benefits.
Hopefully, Stephen Timms’ committee will come to the same conclusions. Those with little or no understanding will muddle through. Those with some understanding will seek the expert advice they need.
Bob Champion is chairman of the Air Later Life Academy