Pensioners urged to not ‘rely’ on property to fund retirement

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Those approaching retirement are being reminded that solely relying on property “could bring a nasty shock” in light of the current economic climate. Households are dealing with the ramifications of the cost of living crisis which has seen inflation and mortgage rates rise. With recent changes to capital gains tax as well, over 60s looking to fund their retirement plans are being told to be cautious if they do so through selling their property.

Helen Morrissey, a senior pensions and retirement analyst at Hargreaves Lansdown, broke down why future pensioners may no longer be able to rely on their property to pay for their retirement.

Ms Morrisey explained: “‘My property is my pension’ is a common response when people are asked how their pension saving is going.

“Property’s stellar returns in recent years have pushed up house values massively, leading many people to think it’s the ideal way to fund their retirement whether that be through buy-to-let or selling up and downsizing to a smaller home.

“However, it’s more complicated than first thought and people should think carefully before putting all their eggs in one basket and deciding to fund their retirement through property rather than a pension.”

The finance expert noted that the UK’s ongoing cost of living crisis and the consequent soaring interest rates are placing unprecedented pressure on homeowners.

According to the Halifax House Price Index, house prices were down 2.3 percent in November.

This represents the third consecutive month of falls, and the largest since the financial crisis in 2008, which shows property is becoming less of a secure investment for homeowners.

In a survey conducted by Hargreaves Lansdown, one quarter of Britons said they planned to downsize their home in retirement.

Furthermore, 37 percent of those polled said they would not downsize, while the rest shared they were unsure of their plans.

Some of the reasons provided for not downsizing included families being attached to the home, it being too expensive and being unable to get enough income from a house sale to make it lucrative.

New data from Zoopla also highlighted that sellers are having to turn to cutting their asking prices to secure a sale for a property.

Some 16 percent of Britons admitted that they would never make enough from downsizing to make it worthwhile for them as the cost continues to rise.

As well as this, homeowners looking to pay for their retirement via buy-to-let need to factor in higher streets on stamp duty on their second property and ongoing maintenance fees.

Those who choose to sell their property ahead of retirement will also have to factor in capital gains tax into the equation.

This tax currently sits at 18 percent for basic rate taxpayers and 28 percent if they pay higher rate tax on gains above £12,300.

Notably, Chancellor Jeremy Hunt’s Autumn Statement confirmed that this threshold is being cut down to £6,000 from next April and £3,000 the following year.

According to Ms Morrisey, those approaching pension could be left with sizable tax bills if they choose to fund their retirement this way.

She added: “Property will play an important role in many people’s retirements but there are pros and cons that need to be factored in, alongside key pension benefits such as employer contributions and tax relief.

“Relying on property at the expense of your pension could bring you a nasty shock come retirement if hidden costs and taxes come to bite you and leave you with less to live on than you thought.”

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