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Asset-rich, cash-poor retirees face frugal future, despite sitting on a property goldmine

Posted in: Research

New research out today has revealed that retirees are spending on average £8,000 more per year than planned for.  The study, commissioned by mutual OneFamily, also proved this figure is only going to get bigger over time.

This is despite two thirds of those aged 65 and over owning their home outright, compounding the issue of an asset-rich, cash-poor generation.  The research found that homeowners can access on average £77,000 through equity release – 3.5 times the median gross annual pay of £22,000 and enough to plug the gap between income and outgoings for almost a decade.

With the Brexit vote rumoured to cause a slump in the property market1, OneFamily expects this could drive applications for lifetime mortgages with homeowners looking to access cash at a time when downsizing isn’t a cost-effective or viable option in a slow housing market.

The exact impact of Brexit on the property market is unclear, however lifetime mortgages – which grew 21% in the first quarter of 20162  – allow homeowners to unlock valuable money at a difficult time while maintaining ownership of the property so they can still benefit when property prices begin to climb again.

Retirees with annuities have also seen incomes fall recently3, contributing to increased interest in lifetime mortgages as a way to make retirement more comfortable, according to OneFamily.

OneFamily, which launched a new range of lifetime mortgage products earlier this year, commissioned the Centre for Economics and Business Research to uncover the current and future expenditure of retirees, compared to their income.

It found those aged 55 and over estimate spending £23,773 per year in retirement, even though the average income of a retired, single household in 2016 is just £15,800. Worryingly, this trend is only set to increase over time, with cash-stripped retirees facing an annual expenditure of more than £65,000 in 2050 on an income of just £38,000 – a difference of £27,000.

A number of factors underpin the growing shortfall. For the younger generations, the research identified unrealistically high expectations of their income in retirement.  Life expectancy has also increased more quickly than retirement age, putting more people at risk of under-saving for retirement.

In the future, retirees will spend an increasing share of their income on housing, while the aggregate deficit of pension schemes is widening, putting more employees at risk of receiving a reduced pension pay-out.

OneFamily’s research found that many, including parents and grandparents still expect to be fulfilling the role of “Bank of Mum and Dad” into their retirement, with almost two thirds (64%) planning on providing financial support to other family members during retirement.

Contributing towards events like weddings and christenings (24%), helping to buy property (21%) and paying towards university tuition fees (20%) are the three main ways the “Bank of Mum and Dad” will be called upon.

While the majority of people expect to support family members in the future, more than a third (35%) do not have a plan in place at present. 12% answered they did not intend to make any plans at all.

Simon Markey, CEO of OneFamily said:

“This study further supports our entry into the lifetime mortgage market. It’s clear that lifetime mortgages will play an increasingly important role for home-owning retirees, as their planned expenditure continues to rise above expected income.

“Two-thirds of those aged 65 and over own their home outright, and so releasing some of the value wrapped up in their property through a lifetime mortgage is one way this asset-rich, cash-poor group can make their retirement more comfortable.”

The research from OneFamily found that the estimated total property wealth of home-owning retirees in England and Wales is more than £1 trillion.  This means that home owners in retirement could potentially unlock up to £300 billion in equity release from their property.

More information about OneFamily’s Lifetime Mortgage range

1. Cebr, (June, 2016) “AS IT HAPPENS: Analysis and Interpretation of Key Data Releases: Brexit”
2. http://www.equityreleasecouncil.com/news/record-start-to-2016-for-equity-release-sector-in-25th/
3. http://moneyfacts.co.uk/news/annuities/retirement-incomes-fall-10-in-just-one-year/