We tested consumer perspectives with a group of over a thousand people aged 50 and over. These consumers seem somewhat optimistic about the lifestyles that await them in retirement despite our research findings on the scale of under-funded pensions, including 70% of them expecting to travel in retirement, 30% of them seeking to help their children financially and 22% of them planning to pay off their mortgage.
Overall their expectations of required retirement income was realistic, being typically two thirds of salary. However, three quarters had either not done any planning for retirement or not refreshed their plans for a number of years. Despite this, half were confident that they would have sufficient income in retirement, with 70% expecting their non-pension saving to provide at least a fifth of their income, with half expecting to use the value in their home to boost their retirement income.
For those who did expect an income shortfall in retirement, this was an average of £11,400 per annum. Aside from continuing to work, down-sizing was seen as the most likely option and the average respondent thought that just over £100k could be raised from their home. There was an expectation amongst some that they would receive much more income than current annuities or drawdown can facilitate. This re-enforces our observation that for many people, down-sizing alone will not meet the income shortfall and additional saving is required.
Of note was the group’s hostility towards using equity release. Only 14 people (out of the thousand) were planning to use equity release as a means of boosting retirement income. For those that subsequently realised that they may have an income shortfall to address, only 6% would use equity release. Whilst 80% were aware of equity release and two thirds claimed to understand it, collectively they only managed to answer on average 3 out of 13 true or false questions correctly on equity release, indicating a significant lack of understanding. Whilst we are not advocating equity release as a solution, it may be appropriate for people that need to access capital from their home and for whom down-sizing is not the best option. It is therefore important for these people that their lack of understanding of how equity release works be addressed.
TISA (2016) Can housing wealth save the day? 752 Durham, North East England Preston Farm Business Park