More young, affluent individuals than ever are focusing on housing to boost their pensions, with some even planning to use property wealth to fund their whole retirement.
The majority of people in employment today hold a personal or workplace pension, which they pay into over the course of their working life and then receive upon retirement. It can be a more tax-efficient way of saving up a pot of money to take when you stop working, or reach a certain age.
As with any investment, there is some level of risk involved and the final amount is normally not guaranteed. If your pension is invested in riskier assets, it can see huge amounts of volatility impacted by external events, which could put a dent in your final amount.
Of course, while the UK property market certainly isn’t risk-free, its ongoing performance and track record over the past decades has seen it remain a hugely popular place to invest your money. And it’s not only high-net-worth individuals who use property wealth as a way of boosting their retirement fund, but this is the biggest group of people who are highly likely to do so.
UK house prices have risen exponentially over the years, even through the peaks and troughs of various recessions and financial market wobbles.
One study from Mortgage Advice Bureau recently demonstrated that house prices have risen by more than 2000% in the past 45 years, and the average property has seen around £30,000 added to its value over the past year. For those looking for a place to invest their money over the long term, it can therefore be a hugely attractive asset class to consider.
Using your property wealth later in life
Having a range of savings, pension and other investment options can be an ideal way of ensuring you have a well-balanced pension when you come to retire, but the majority of high-net-worth individuals (HNWIs) (84%) say they will use their property wealth to fund at least part of their retirement.
That’s according to a survey by Saltus, which looked at how 1,000 people with investable assets over £250,000 are distributing their money in preparation for the future.
What’s more, 70% of respondents said they would fund at least 25% of their retirement with property investments. This is hugely significant when considering the fact that HNWIs are likely to have more expensive lifestyles to maintain upon retirement.
Those respondents with the highest level of wealth are more likely to use property as their sole means of funding their retirement, with 7% of those with assets of £3m or more saying property wealth was their only pension source. Meanwhile, 54% of respondents in this wealth bracket will use property wealth to fund most of their retirement.
Planning early
It’s never too early to start thinking about retirement. While inevitably some of the respondents in the survey are likely to own family or inherited property, others will invest in property themselves throughout their lifetime, which can then pay off in the future.
The survey found that younger people are actually more likely to rely on property wealth to fund their later years; demonstrating how the strength of the UK property market in recent years has boosted peoples’ confidence in it as a place to invest.
Of the 25-34-year-olds in the survey, 40% said they plan to use up to 50% of their property assets to fund retirement, while almost a third (30%) said property would account for 75% of their pension pots. Only 7% said they wouldn’t use any housing wealth for their retirement.
Michael Stimpson, Partner at Saltus, said: “There really is no substitute for careful financial planning. The best retirement plans are ones where people have been clear about their aspirations and have worked towards their goals in a careful and methodical way in the context of other demands on their spending and saving.
“It may not be an easy win, but it is the best way to retire in comfort and with peace of mind after a lifetime of hard work.”
