The UK faces a looming later life funding crisis as more people enter retirement without sufficient pension savings to maintain their standard of living, according to new research published by Fairer Finance.
The report highlights a growing gap between retirement income and living costs, driven by increased life expectancy, rising care costs, and weakening pension provision. However, the study points to a significant untapped resource that could help bridge this gap: housing wealth.
More than three-quarters of people in retirement currently own their homes, and Fairer Finance estimates that by 2040, 51% of households aged 60 and over could benefit from accessing this housing wealth.
Through later life lending products, such as equity release and retirement interest-only mortgages, households could collectively unlock £23 billion each year in 2025 prices. This, in turn, could contribute £21 billion in gross value added to the UK economy by 2040.
RETIREMENT HOUSING
Using new economic modelling, the report estimates that the median amount of housing wealth accessed per household over their lifetime could be £140,000. While downsizing is one way to release property equity, Fairer Finance notes that a lack of suitable retirement housing makes this impractical for many.
As a result, the analysis focuses on later life lending as the primary route for unlocking equity.
Despite its potential, later life lending is not yet a mainstream part of retirement planning.
The report identifies several barriers, including limited consumer knowledge, social stigma, high transaction costs such as stamp duty, and a fragmented regulatory system.
RETIREMENT ADVICE
Many people do not receive guidance on using their housing wealth from services like MoneyHelper or Pension Wise, and financial advisers are often unqualified or unprepared to incorporate housing wealth into retirement advice.
Fairer Finance outlines five recommendations for policymakers and regulators. These include expanding the supply of suitable retirement housing, reducing stamp duty for older downsizers, embedding housing wealth into public retirement advice, integrating property wealth into the future pensions dashboard, and reforming regulatory advice rules to ensure a more joined-up approach to later life financial planning.
With the Financial Conduct Authority set to begin a review of the mortgage and later life lending markets in June, the report concludes that now is a critical moment for action to support consumers and unlock the economic potential of housing wealth.
PERFECT STORM
James Daley, managing director at Fairer Finance, said: “It’s an inevitability that more people will need to rely on their housing wealth in retirement – and our new research shows the scale of the problem as well as the opportunity.
“The combination of smaller pensions, increased longevity and rising care costs threaten to create a perfect storm which will leave millions of people unable to maintain their living standards in later life.”
INCREASINGLY MAINSTREAM
Lorna Shah, managing director, Retail Retirement, L&G, said: “At L&G, our own research also indicates that equity release will become an increasingly mainstream source of income for retirees, in part due to the growth in property wealth.
“As Fairer Finance sets out, the financial requirements of those in retirement will vary at different stages of their lives. These needs can range from paying off an existing mortgage, gifting to family, or making home improvements.
“Our research also highlights the increasingly important role equity release is expected to play in care-related expenses in the future.
“For many, releasing equity from their home could be one of the most significant financial decisions made in retirement. Financial advice is critical in helping homeowners take a balanced, holistic view of the options available to them.”
