My house is my pension

Property in the UK has proved to be an excellent investment over the past 30 years and everyone is urged to get on the property ladder as soon as possible.  Yet, in many other countries, most notably the US,  property is regarded as an expense rather than an asset.   So how does this impact on your pension plans?  You may have invested in a “buy-to-let” property as part of your pension plan and you should treat that as any other asset in assessing the likely return.

Similarly, it is fine to regard the equity from your main family house as a possible part of your pension pot but it is not sensible to rely on it totally because your equity may not go as far as you expect. Pensions are expensive  to purchase. For every £1,000 you need in income per year, it’s a good discipline to assume it will cost you £25,000* – so £100,000 equity would only provide c£4,000 in annual income!

There are some other issues to think about:

  • Your house may well be the main family home and you and your children may regard it as part of the family inheritance – this would disappear if you use to buy a pension.
  • There is no guarantee that you will be able to sell your house when you want to – or at the price you think it’s worth. The market over the past two years have demonstrated that.
  • It can be expensive to sell a house when you take stamp duty and moving costs into consideration – and you will still need somewhere to live.

In recent years many people have turned to equity release products to help them manage this issue and they can be a useful way of releasing some equity while continuing to live in the house.  If you are thinking of going down this route you do need to take independent financial advice.

*£25,000 is not intended to be an accurate figure, the real figure will depend on your circumstances and the price of pensions when you decide to buy one.  It’s just a useful number to help you to realise how little income you might possibly get from what looks like a large sum of money.

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