Could your investment in houses replace your pension?

In UK, when the property industry is doing well year by year at their fastest pace, the pension system appears to be in catastrophe.

The Office for National Statistics revealed last month that , the amount of employees giving into an occupational pension plan had dropped to the minimum level ever.

Faster house-price growth

Every human wants to lead a relaxed life after retirement, but without proper savings not many of us will attain this. But in recent time due pathetic annuity rates and lack of retirement savings are forcing more people to depend on their homes as a source for the income.

Meanwhile, as per Halifax analysis, over the past year property price ranges have improved at nearly twin the rate of inflation. The increase in house price is making feel better for the individuals who have happened to be getting unsatisfactory pension estimates.

The house owners (who have repaid their mortgage loan by the age of sixty five) will now be owning properties value many 100 thousand pounds with the house price growth which would play as a security in old age.

Transforming your property into money

But the doubt that arises is, could money made in the housing market really make up for diminishing returns from your pension? If so, how easy is that?

However, there are different ways to generate cash out of housing property. One way would be renting the own house partially or completely. If in case of grown up kids and moved out then one would not be needing all the space so in that case partial house can be given as rent or can rent the complete house by moving to a less expensive , a smaller house. Other ways could be selling the own property and moving to a less expensive property.

Downsides of downsizing

Using the house you live in as part of an investment strategy can be a risky business always. Some say that own house should be viewed as a place to live rather than an investment because there might be people who have done well in making money by trading their own house but with a risk factor involved. The latest research by retirement planner MGM Advantage also warns the same.

The analysis is done by considering how much equity could be saved in different parts of UK, by moving from a own property to a smaller house.

The places like London and the South-east is considered to be more profitable in downsizing when compared to other parts as the house prices were higher in these areas.

Capital gains

Below are the different capital gains by downsizing in different places.

In Greater London where it is said to be little more profitable, for example, one could generate a typical income of £1,342 a month if a couple can release nearly £240 ,000 by downsizing, as soon as additional charges like solicitors’ expenses and also stamp duty were deducted.

However in other places in the United Kingdom, the approach might provide a lot less. In Northern Ireland, for instance, the couple makes under £25 ,000 by downsizing which might give a month-to-month annuity earnings of only £139.

In Scotland, the normal downsizer makes about £50,000 – which might offer £282 monthly – as well as in Wales around £70,000 or £400 monthly.

Distribute your risk

Andrew Tully at MGM Indiviual Finincial Advisers say: “Using the home to offer the earnings for your retirement life is an alternative for individuals that do not have any additional financial savings.

“But for all those individuals who have banked on downsizing to offer a pension, these types of numbers could appear as a surprise.

“With annuity rates continue to be really low, along with other minimal risk choices paying hardly any interest, in that case maybe this will work as a caution to upcoming generations depending on their property for their pension.”

Tully adds that anybody who is actually capable of must save in other respects, for example with ISAs or personal pensions.

“Anyone thinking about downsizing will have to consider cautiously how that funds are going to be utilized to offer a frequent earnings in retirement life. For those who have different options for earnings, after that this might be much less of a problem.”