24 July 2006
As many as one in three people with defined contribution pension
schemes are relying on the house they live in to form an important
part of their retirement income, according to the preliminary
results of a survey by Mercer Human Resource Consulting.
Mercer warns that, while a minority of people will be able to
downsize their properties and use the extra capital to buy a
substantial annuity, selling a home to fund retirement will not be
a viable solution for most.
According to Mercer, analysis shows that an average UK house
costing £173,000 could be sold to buy an annuity worth about
£6,700 a year after tax. But with average annual rental costs
at £6,800, this annuity would provide negative net retirement
income. Even in the West Midlands, where average rental costs are
lowest relative to house prices, annual retirement income after tax
and rent would only be £1,900.
The same analysis showed that someone choosing to downsize from
an average semi-detached home to an average terraced house would be
able to buy an annuity of just £1,100 a year after tax.
According to the survey, 55% of respondents think a company
pension scheme is the best way to save for retirement although only
41% think their employer is doing enough to help them prepare
financially for retirement.
