Property should supplement stakeholder pensions

Equity tied up in homes through home equity loans will not be enough for people to rely on when they retire, new research warns.

A report by the Pensions Policy Institute (PPI) entitled 'Property or Pensions' suggests that people will be forced to save additional assets if they are to secure a decent retirement income, the ifaonline website reports.

The PPI warns that despite more wealth being held in housing than in stakeholder pensions, not all of this can be transferred into income as equity release products generally allow only 20 per cent of the house value to be achieved at age 65.

Housing wealth is not evenly distributed, with most houses worth less than £130,000, while only 10 per cent of homes are worth more than £330,000, the report adds.

This is the amount of money needed for equity release to provide an income of at least £100 a week, according to PPI.

Director of the PPI Alison O'Connell says people believe saving for retirement through residential property is an alternative to saving in pensions, but only the wealthy few are able to invest in a second home.

Ms O'Connell says for most people, a home is seen as a retirement investment, as reducing the cost of living compared to renting means saving.

"Today's average levels of pension saving (around 7-8 per cent of salary a year) could only be enough to fund a two-thirds final salary retirement income for a forty year old if he or she can release equity from an average value house and retire at age 67," Ms O'Connell adds.

"For most people, property will be at best a complement to occupational or personal pensions, not a substitute."