Seven million homeowners say property is their pension pot

Seven million homeowners plan to use their home to supplement their pension, according to research by personal finance website Fool.co.uk.

The study also reveals that three out of five people are currently contributing something towards their retirement. However, more than half do not think their retirement pot will be enough when they stop work. People aged between 34 and 57 are some of the most disillusioned about the size of their retirement fund. Two-thirds of this age group reckon that they won’t have enough to retire on when they hang up their boots.

Consequently many people believe that their pension pot may have to be shored up by unlocking the value in their homes. One out of two homeowners say they plan to downsize when they retire, and two out of seven people intend to release equity from their home.

Forty-year-olds are some of the most likely to consider equity release schemes. One in three people in this age bracket plan to free up the value in their homes when the time comes to stop work. This may explain why over half of people aged between 42 and 49 consider maintaining mortgage payments to be more important than making pension contributions.

The findings demonstrate how rising property values have influenced the way that people perceive traditional pensions. One in four people deem that rising property prices are valid reasons to contribute less into their pension. People between 42 and 57 years are some of the most likely to reduce pension contributions. Interestingly, most people in this age group think that shares and property may both grow by between 6% and 11% over the long term.

David Kuo, Head of Personal Finance at Fool.co.uk, says: “Given the housing boom of the last few years it's not surprising that some people have turned their backs on traditional pensions and focused instead on the value of their homes.

“However, it is vitally important to maintain a proper balance to ensure that we are not overly dependent on any one investment. It is tempting to think that we can ignore other investments just because the value of our home has gone up significantly.

“When retirement time arrives, it is much better to be able to choose whether we want to downsize or release equity rather than be forced into a decision that we may live to regret.

“They often say that a man’s home is his castle, and it seems that for seven million homeowners the home is also a pension fund. But building castles in the air is a dangerous strategy, especially if we haven’t put down solid foundations first.”