Property wealth has a role to play, but the notion that pensioners should cash in pensions to jump on the buy-to-let bandwagon is concerning.
David Thomas of the Personal Finance Society put it best at our Great Retirement Money Debate last month, suggesting the promotion of buy-to-let adverts is ‘frightening’ and should be of concern to the pension industry.
Even with a guaranteed rental agreement, where property management is carried out by a letting agency at a fixed annual rate, the pitfalls far outweigh the benefits. During the period of the agreement, elderly landlords will receive a below-market rate of return, thereby missing out on a large chunk of potential rental income. Once the agency contract ends, many are unlikely to want to take on the property management themselves in later life, particularly if their health is waning.
Annuities provide the security of a permanent income which can form the bedrock of retirement planning. These products still have their place, but they may simply not offer enough to fund the retirement people want, especially as an average pot reaches about £25,000.
Equity release takes positives from both annuities and property investment. Specifically, through innovative products, it can offer regular drawdown payments, providing the security of a permanent income without the effort required for buy to let. It also allows over-55s to take advantage of their home, with house price growth often reducing the effect of interest accrued.
Instead of putting retirement income at risk, equity release lets people tap into housing wealth with safeguards and protections. Industry and government should encourage more consumers to consider its value.
Nigel Waterson is Chairman of the Equity Release Council
