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Survey Shows Third Of Britons See House As Pension

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http://uk.news.yahoo.com/20072006/325/brit...age-income.html

Britons hope houses may fund old age income

Reuters

Thursday July 20, 06:32 PM

LONDON (Reuters) - A survey of Britons showed a third of them expect to use their homes to help provide an old-age income, but many people may fall short as house sales may not give them enough money, consultants said on Thursday.
With house prices rising strongly in recent years and pension systems under strain from a greying population, unlocking property values to pay for old age has become a talking point in the financial industry.
At least 33 percent of citizens who have a defined contribution pension -- in which benefits depend on market returns -- expect to use brick-and-mortar assets to help finance their retirement, Mercer Human Resource Consulting said.
Mercer surveyed 670 people.
Selling a house to earn an annuity is unlikely to create the income that many people need, particularly if they have not put aside sufficient savings, the consultancy said.
"If people fail to save enough now and rely on selling their homes to provide an income they could be in for a nasty shock at retirement," Deborah Cooper, principal at Mercer, said.
"For most defined contribution scheme members selling a home to buy an annuity will provide little income, if any at all, once rental or repurchasing costs have been taken into account," she said.
An average house costing 173,000 could be sold to buy a pension annuity of 6,700 pounds a year after tax but the average annual rental cost of 6,800 pounds would wipe out such a rental income, Mercer said.

The artcile fgails to factor in timing and whether the wannabe retiree sells duing a boom or bust period.

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http://uk.news.yahoo.com/20072006/325/brit...age-income.html

Britons hope houses may fund old age income

Reuters

Thursday July 20, 06:32 PM

LONDON (Reuters) - A survey of Britons showed a third of them expect to use their homes to help provide an old-age income, but many people may fall short as house sales may not give them enough money, consultants said on Thursday.
With house prices rising strongly in recent years and pension systems under strain from a greying population, unlocking property values to pay for old age has become a talking point in the financial industry.
At least 33 percent of citizens who have a defined contribution pension -- in which benefits depend on market returns -- expect to use brick-and-mortar assets to help finance their retirement, Mercer Human Resource Consulting said.
Mercer surveyed 670 people.
Selling a house to earn an annuity is unlikely to create the income that many people need, particularly if they have not put aside sufficient savings, the consultancy said.
"If people fail to save enough now and rely on selling their homes to provide an income they could be in for a nasty shock at retirement," Deborah Cooper, principal at Mercer, said.
"For most defined contribution scheme members selling a home to buy an annuity will provide little income, if any at all, once rental or repurchasing costs have been taken into account," she said.
An average house costing 173,000 could be sold to buy a pension annuity of 6,700 pounds a year after tax but the average annual rental cost of 6,800 pounds would wipe out such a rental income, Mercer said.

The artcile fgails to factor in timing and whether the wannabe retiree sells duing a boom or bust period.

Quality....

People used to consider their homes part of a pension because they had paid for them at the point they retired.

They also needed a pension

Edited by apom

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http://uk.news.yahoo.com/20072006/325/brit...age-income.html

Britons hope houses may fund old age income

Reuters

Thursday July 20, 06:32 PM

LONDON (Reuters) - A survey of Britons showed a third of them expect to use their homes to help provide an old-age income, but many people may fall short as house sales may not give them enough money, consultants said on Thursday.
With house prices rising strongly in recent years and pension systems under strain from a greying population, unlocking property values to pay for old age has become a talking point in the financial industry.
At least 33 percent of citizens who have a defined contribution pension -- in which benefits depend on market returns -- expect to use brick-and-mortar assets to help finance their retirement, Mercer Human Resource Consulting said.
Mercer surveyed 670 people.
Selling a house to earn an annuity is unlikely to create the income that many people need, particularly if they have not put aside sufficient savings, the consultancy said.
"If people fail to save enough now and rely on selling their homes to provide an income they could be in for a nasty shock at retirement," Deborah Cooper, principal at Mercer, said.
"For most defined contribution scheme members selling a home to buy an annuity will provide little income, if any at all, once rental or repurchasing costs have been taken into account," she said.
An average house costing 173,000 could be sold to buy a pension annuity of 6,700 pounds a year after tax but the average annual rental cost of 6,800 pounds would wipe out such a rental income, Mercer said.

The artcile fgails to factor in timing and whether the wannabe retiree sells duing a boom or bust period.

IMO if these figures are true they will dissuade anybody saving for retirement.

Given these sort of returns it is easy to see why so many are considering second home ownership as a pension investment, what better is on offer?

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The artcile fgails to factor in timing and whether the wannabe retiree sells duing a boom or bust period.

And fails to consider liquidity in such a scenario.

1. There's an implicit assumption that there will be a company prepared to offer a lease back scheme. If the property investment market is in the doldrums that may not be an option.

2. If they all try to sell on the open market and move down the ladder there is a danger you could end up with a glut of properties.

Given a demographic bulge this is a particularly important issue which needs considered.

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http://uk.news.yahoo.com/20072006/325/brit...age-income.html

Britons hope houses may fund old age income

Reuters

Thursday July 20, 06:32 PM

LONDON (Reuters) - A survey of Britons showed a third of them expect to use their homes to help provide an old-age income, but many people may fall short as house sales may not give them enough money, consultants said on Thursday.
With house prices rising strongly in recent years and pension systems under strain from a greying population, unlocking property values to pay for old age has become a talking point in the financial industry.
At least 33 percent of citizens who have a defined contribution pension -- in which benefits depend on market returns -- expect to use brick-and-mortar assets to help finance their retirement, Mercer Human Resource Consulting said.
Mercer surveyed 670 people.
Selling a house to earn an annuity is unlikely to create the income that many people need, particularly if they have not put aside sufficient savings, the consultancy said.
"If people fail to save enough now and rely on selling their homes to provide an income they could be in for a nasty shock at retirement," Deborah Cooper, principal at Mercer, said.
"For most defined contribution scheme members selling a home to buy an annuity will provide little income, if any at all, once rental or repurchasing costs have been taken into account," she said.
An average house costing 173,000 could be sold to buy a pension annuity of 6,700 pounds a year after tax but the average annual rental cost of 6,800 pounds would wipe out such a rental income, Mercer said.

The artcile fgails to factor in timing and whether the wannabe retiree sells duing a boom or bust period.

Surely it's even worse for a lifelong renter? They will have been paying rent EVERY year up to retirement yet the average age for paying off the mortgage is 48.

So today's 40 something homeowner has about 20 years of 'rent' to invest towards retirement. Do a compound spreadsheet on this. (alternatively, many are turning to BTL) How can the renter compete?

Once the pension fails to cover the rent the retired renter will be turfed into squalid 'retirement flats' for the rest of their days...

In comparison, a retired couple who own a 3 bed house could downsize to a private flat (in a nice area) and have maybe £100k left over (in today's money) to have some fun/holidays. This doesn't even include the 20 years of saved 'rent' money.

Which do you prefer?

Edited by Without_a_Paddle

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Guest Charlie The Tramp

In comparison, a retired couple who own a 3 bed house could downsize to a private flat (in a nice area) and have maybe £100k left over (in today's money) to have some fun/holidays.

Yes, that is the rainy day part of my future plans although I can`t see myself taking up this option unless we need medical treatment in which case we would use the house equity to go private. I planned my retirement 25 years ago when I paid up my mortgage from a redundancy payment. If generation X think that their property is the sole investment vehicle for their retirement they are living in a fool`s paradise unless the property is over a million at today`s prices.

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If HP are going up by 50% in the next few years (or whatever the latest report says) then they're a great pension.

Depends on the timescale

50% over 10 years is 4.1% per annum

50% over 15 years is 2.7% per annum

50% over 20 years is 2.0% per annum

50% over 25 years is 1.6% per annum

I can currently beat all of those in an ordinary cash savings account.

Beware headline figures.

Dames :)

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In comparison, a retired couple who own a 3 bed house could downsize to a private flat (in a nice area) and have maybe £100k left over (in today's money) to have some fun/holidays.

But, um, if all the old farts are selling big houses and buying flats, that means the value of big houses will drop and the value of flats will rise until they meet in the middle (or flats cost more than houses, if the demographics really fall apart). The whole thing makes no sense when the retired population is rapidly increasing relative to the working population.

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Surely it's even worse for a lifelong renter? They will have been paying rent EVERY year up to retirement yet the average age for paying off the mortgage is 48.

So today's 40 something homeowner has about 20 years of 'rent' to invest towards retirement. Do a compound spreadsheet on this. (alternatively, many are turning to BTL) How can the renter compete?

Once the pension fails to cover the rent the retired renter will be turfed into squalid 'retirement flats' for the rest of their days...

In comparison, a retired couple who own a 3 bed house could downsize to a private flat (in a nice area) and have maybe £100k left over (in today's money) to have some fun/holidays. This doesn't even include the 20 years of saved 'rent' money.

Which do you prefer?

For me it's hardly worth buying now as the cost of servicing the mortgage over the long term would equate to the cost of renting until I die anyway. The only advantage would be that I could pass it on to my (currently non existent) children. But then the government clobbers you for tax anyway. Also if you own a property then as far as the benefits system is concerned you own an asset that you can sell to support yourself so you are not entitled to a raft of benefits as soon as you sign to buy. Also even if I did buy then that would be the house I died in as low inflation would ensure that I can't move up the ladder. This is a concept yet to sink in to the majority of the population, but it is starting to happen. I have many friends who bought 5 or so years ago, looking to expand their family and at the second rung, then realising they can't do it and can't sell anyway as the price they are asking for their FTB homes is out of reach of many FTBs. A mortgage is great is you bought a few years ago but a bad idea now, even if you could afford it.

As far as property as a pension goes, Bristol Business School did a study on this some time ago.

http://www.uwe.ac.uk/bbs/acad/acnew8.shtml

The potential perils of property as a pension fund:

Maintenance costs could not only increase as a result of post World War II properties coming to the end of their planned lives, but also as a result of changing weather conditions

The higher the value of a property, the more likely its price will fluctuate. This is because it moves further away from the relatively safe market of the first time buyer and into markets where supply and demand is more likely to depend on short term regional economic factors

The returns on buy-to-let properties are declining. People investing in buy-to-lets are investing cash into property precisely when its value is peaking and when rents are already falling. The gross yield has recently fallen to around 6% after tax, roughly equal to the cost of borrowing3

Betting on a housing shortage to keep property prices high is very dangerous. In areas of most acute shortage such as the South East, there is greatest pressure to relax planning constraints. This can have a dramatic effect on local property prices which can rise or fall quickly according to whether the properties are affected in a positive way, such as proximity to new amenities, or negatively, by things such as new traffic patterns

When you decide to capitalise on some of the equity in your property by selling up, it can be very difficult to exit the market at precisely the time you want and on your terms.

The costs involved in purchasing, maintaining and selling a property can be huge. This can include fees for estate agents, lawyers and surveyors, the cost of refurbishment and maintenance, and taxes such as stamp duty and council tax, which in certain areas have increased dramatically in recent years. In contrast to this, the costs associated with an investment portfolio such as fund management fees are much smaller

Also look at the demographics of the country

http://www.statistics.gov.uk/cci/nugget.asp?id=6

4/5 of the wealth in the country is owned by the over 50s. See that big spike at about 55 aka the baby boomers? So if they are hoping that their home is going to be their pension, then there will be an awful big influx of property onto the market at the same time. And what happens when oversupply hits the market? Prices fall!!

Edited by SCUMBAG

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Depends on the timescale

50% over 10 years is 4.1% per annum

50% over 15 years is 2.7% per annum

50% over 20 years is 2.0% per annum

50% over 25 years is 1.6% per annum

I can currently beat all of those in an ordinary cash savings account.

Beware headline figures.

Dames :)

Are you serious?

How can you beat a house going up 50% in 10 years with a cash savings account?

(assuming 5% interest rate for simplicity)

If you sold the house to rent then you have to deduct the cost of rent from your 'account'.

Also you get TAXED on any interest gained. Typically at 20% but this rises to 40% tax if you earn over about £32k pa.

The rent will go UP each year (typically) and you will start sinking backwards... your pot will get smaller not bigger.

Conversely, if you have little or no equity as a renter then where are you going to get the money from to put in the bank to match the growth of a house? Where does the money come from?

Edited by Without_a_Paddle

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But, um, if all the old farts are selling big houses and buying flats, that means the value of big houses will drop and the value of flats will rise until they meet in the middle (or flats cost more than houses, if the demographics really fall apart). The whole thing makes no sense when the retired population is rapidly increasing relative to the working population.

There are pensioners downsizing to buy flats today and it doesn't seem to be narrowing the gap between big houses and flats.

Also, you seem to be ignoring immigration. There are tens of thousands of 20-40 somethings arriving in the UK every month. This will carry on/increase as long as is necessary to keep the working population 'big'.

Edited by Without_a_Paddle

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Surely it's even worse for a lifelong renter? They will have been paying rent EVERY year up to retirement yet the average age for paying off the mortgage is 48.

So today's 40 something homeowner has about 20 years of 'rent' to invest towards retirement. Do a compound spreadsheet on this. (alternatively, many are turning to BTL) How can the renter compete?

Once the pension fails to cover the rent the retired renter will be turfed into squalid 'retirement flats' for the rest of their days...

In comparison, a retired couple who own a 3 bed house could downsize to a private flat (in a nice area) and have maybe £100k left over (in today's money) to have some fun/holidays. This doesn't even include the 20 years of saved 'rent' money.

Which do you prefer?

I guess it would depend on what a renter does with their money.

If they are renting at a lower price than it costs to buy (as many are now)- and also save money by not having to do maintainance on the property (the landlords obligation) then the pension pot then could build up (assuming they dont pis* the cash against the wall) could be substantial. Remember the total cost of a house with a mortgage is more expensive than that it is bought for ( I dont know how to do the maths but £200,000 paid back over 20 years costs substantinally more than £200000)

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An average house costing 173,000 could be sold to buy a pension annuity of 6,700 pounds a year after tax but the average annual rental cost of 6,800 pounds would wipe out such a rental income, Mercer said.

That figure (of 6.7k) must be ********. You can get much £8.65k a year just by putting it in the bank (5%). Clearly you would get more than that with an annuity because you are using up the capital as well as the income dervied from it.

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That figure (of 6.7k) must be ********. You can get much £8.65k a year just by putting it in the bank (5%). Clearly you would get more than that with an annuity because you are using up the capital as well as the income dervied from it.

You won't get more than that for the annuity and that's what's fckued about annuities. Far better to sell it when you think you have 15 years to go and spend the income and the capital, so when you either become too old to spend money or die, there's nothing left..... - annuities rates are only so low because we have to (mostly) buy them and because we got tax relief on the investment in a pension so will accept a lower rate - other than that, they are useless....

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Surely it's even worse for a lifelong renter? They will have been paying rent EVERY year up to retirement yet the average age for paying off the mortgage is 48.

Average FTB is said to be over 30 these days so unless they pay off the omrtgage in less than 18 years they are going to have it probably until they are 55 or older. Then they have 10 years max. (allowing for age discrimination) to earn income without mortgage or rental costs.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
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      • Even
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      • up 5%



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