Thinking ahead to retirement dreams

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For those approaching their mid-fifties, the question of pensions and the realisation of having planned suffieciently for thier future and particularly about the requirements for their future home and income becomes very real.

As those reaching 55 can now access their pension savings, they will no doubt have a clear idea as to what’s ‘in the pot’ and therefore what needs to be done for those retirement dreams to be a realirty.

One option for those needing a ‘top up’, can be to sell their house when retirement does come around. As well as the practicality of having a smaller and easier house to manage, downsizing might be necessary financially if a mortgage amount is remaining on their current home or if the individual needs to release equity from a sale to subsidise their retirement plans. If you were to downsize, you would be in good company, as almost four million over 55s have already downsized, or are planning to do so at some stage in the future. Herein lies two problems.

Firstly, there is a nationwide shortage of suitable smaller properties for older people to downsize into. A shortage of two-bedroom houses is trapping retirees in larger houses that they no longer want to live in. Potential downsizers have to face the fact that in a majority of geographic areas within the UK, there are more fourbedroom houses available in the market than two-bed houses. In the worst affected areas, the ratio is more than three to one. Across the country, there are significantly fewer smaller houses for sale and these are being fought over by three groups of people – downsizers, first-time buyers and those moving up the ladder. The lack of supply of smaller houses has pushed prices higher and for many it’s just not worth downsizing once the costs of moving and Stamp Duty are taken into account. This touches on the second problem with downsizing. Whilst the Government has sought to ensure that home-owners selling or downsizing their homes are not put at a disadvantage with respect to inheritance tax, there is at present very little in public policy to encourage older people to downsize. Why should anyone bother downsizing if you get clobbered with material levels of Stamp Duty when you do? In my opinion, capital lost in paying transactional property taxes would be much better employed in supporting retirement incomes. I am a firm supporter of those proposing tax concessions for ‘last-time buyers’.

So if downsizing is both difficult and expensive, what other options might are available? The mortgage industry has created two main types of products to support older borrowers.The fi rst is the rather specialist lifetime mortgage, which is more commonly referred to as ‘equity release’.This product is suitable for those that are ‘property asset rich but pension poor’ and who are not concerned about interest roll up gradually eating into their housing assets.

The second type is Retirement Interest Only (RIO) mortgages.These are more suitable for borrowers who have sufficient pension income to support interest only mortgages whilst in retirement i.e. who are ‘pension rich but cash poor’.

In this day an age, there is a much greater need for us to work until we are 65 (if not beyond), so looking into a RIO could give you the answers you need. EIther way, there are a number of excellent advisors in the city for you to ask the advice of.

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