Home is pension for a third of retirees despite falling house prices

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The stock market turmoil has had a devastating impact on the pensions of those who are approaching retirement.

A report from insurer LV= shows that 36% of over-50s still working say they will need to delay their retirement for financial reasons, and 16% would rather not think about their retirement finances at all.

House prices have also been falling, but two million over 50s - a third of retirees - are now relying on equity in their home to supplement their retirement income. They have been dubbed he HIPpies generation ('Home is Pension'). The number is up from 1.5 million people in 2010.

The volatility in stock markets in recent months has had a considerable impact on investments and retirement savings. Nearly half of those approaching retirement are considering alternative sources of income for their retirement in light of the stock market falls. And only a fifth of over-50s believe that they are financially on track to retire as planned.

Over a third (35%) of homeowners over 50 estimate that the value of their home has fallen in the last three years by an average of £24,651, totaling £56 billion. Despite this, an increasing number are planning use the equity locked up in their home as part of funding their retirement. Over half said they would downsize to a smaller home, while a fifth would move to a less expensive area. Another fifth said they would use an equity release product.

The fall in property prices has forced many of 2011's HIPpies to consider alternative options. Over a quarter are trying to save extra money where they can to offset the drop in value of their home, although this figure was considerably higher at 35% last year. Many over-50s whose property has fallen in value are also looking at ways to maximise the amount of equity that could be released. A quarter are planning to wait for their property to increase in value again before using its equity, and one in 10 are focusing on making improvements to their home to help increase its value.

Despite the recent volatility, 54% of over-50s would still recommend that their children invest in property for their retirement. Just below this is recommending saving into a pension plan (53%), followed by cash savings (43%).

Vanessa Owen, LV= Head of Equity Release, said: "The UK economy is still facing an uncertain future, with rising inflation, low interest rates and volatility in global stock markets, so it is understandable that those approaching retirement are feeling vulnerable. Combined with the fact that for many, their home is their biggest asset, releasing equity from a property is an option that an increasing number of over-50s are now considering."

For those who would like to stay in their own home and not downsize or move, they can do so by using a suitable 'equity release' or 'lifetime mortgage' plan. However, this is a decision that should only be taken after careful consultation with family members and a professional financial adviser.

Weathering the storm
Although some homeowners are worried about an interest rate rise, research from LV= shows that nearly a third of homeowners aged over 50 said a rate rise would be welcome, as the higher interest on their savings would outweigh any negative effects.

At the other end of the spectrum, more than one in four wouldn't welcome a rate rise as they would have to reduce their pension contributions to make sure the higher cost of servicing debts such as mortgage repayments, credit cards and loans could be met. This figure is down on 2010 which saw a third of over-50s fearing a rate rise.

With the pressure of low interest rates on savings and increased cost of living, almost one in five over-50s have run down their long term savings over the last year by an average of £342 a month or £4,104 a year.
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