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Report warns on high-risk pension strategy

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  • 09/09/2003
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Fears have been expressed about the growing number of people who are relying too heavily on property...

Fears have been expressed about the growing number of people who are relying too heavily on property to provide their pension, according to a new report from Prudential.

The ‘Safe as Houses’ report claims too many people are risking their retirements by using their homes as their sole pension fund.

It argues this is a high-risk strategy that could easily backfire, leaving savers facing financial hardship and poverty in later life.

The report suggests there could be a significant fall in property prices in certain areas of the country and that a balanced portfolio of savings, pensions and property is the only answer to saving for retirement.

It also warns about soaring maintenance costs on post-World War II properties that are coming to the end of their planned lives.

In addition the report draws attention to the declining returns on buy-to-let properties, where the gross yield has dropped to 6% after tax.

It claims that 55% of 25 to 34 year olds are looking at investing in property for their retirement, compared with 47% of those aged 35 to 44 and 40% of the 45 to 54 age group.

John Malone, Prudential’s national mortgage manager, said: ‘In these volatile times, it is important to have a balanced portfolio and not to overlook the benefits of investing in stocks and shares.’

‘Between 1975 and the first three months of 2003, shares outperformed the growth in house prices by nearly 1% each year. The returns would have been even higher if the investments had been in a pension fund, for example, enjoying tax relief of 20% or more.’

He added that the trend for using property to provide income in retirement will prompt a growth in the equity release market, which could see between £4m and £5m being freed up through these schemes every 12 months. Last year £850m was released through such agreements.

More than 150,000 people already have an equity release scheme, but within a few years there could easily be approximately 84,000 new customers every 12 months.


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