Will Your Home Be A Good Pension?

Exclusive research by The Fool reveals that three in ten homeowners plan to use their home to boost their pension. This is alarming news!

In order to discover public attitudes towards property and pensions, Fool.co.uk quizzed over 1,100 adults in an online survey carried out in the last week of July.

Our exclusive research reveals that nearly three out of ten homeowners (28%) plan to use their homes to supplement their pensions. Given that there are around 25 million households in the UK, this means that a staggering seven million households plan to release equity from their homes in order to supplement their retirement incomes.

What's more, our survey shows that five out of nine people (55%) believe that their pension pot will not be enough to retire on. Workers aged between 34 and 57 are among the most pessimistic about the size of their retirement fund: two-thirds (67%) of this age group expect to be short of money when they hang up their boots.

Thanks to a decade-long housing boom which has seen house prices triple across the UK, it's no wonder that so many people consider their property to be their pension pot.

However, the 'wealth effect' of steeply rising property values has made us complacent, as only three in five workers (60%) presently contribute something towards their retirement. Even worse, one in four adults (25%) sees rising house prices as a reason to cut pension contributions.

People aged between 42 and 57 are some of the most likely to cut their pension payments, thanks to their increased property wealth. Talk about counting your chickens before they are hatched!

These findings explain why half of homeowners (50%) aim to downsize -- move to a smaller property -- when they stop work.

Another way to 'unlock' equity (the difference between the value of your home and any debts secured on it) is to sell part of your home to an insurance company or simply borrow against it, known as equity release. Of the people interviewed, two out of seven (28%) intend to release some equity from their homes to shore up their pensions.

To be honest, I fully understand why the British public has turned its back on traditional pensions and has instead put its faith in property. Since the turn of the century, the stock market has embarked on a three-year dive before recovering, and annuity rates have collapsed (an annuity is an income generated by a pension), as I revealed in Pension Incomes Down 72%. Meanwhile, over the same period, we've seen a huge increase in property values.

Recent Events Syndrome

However, we Brits may be suffering from Recent Events Syndrome, which dupes us into believing that recent trends will continue uninterrupted forever. Believing that property prices will keep climbing eternally could prove disastrous; for example, what would you do if property prices slumped just before you decided to retire? Could you make up any shortfall in your retirement income without selling your home at a knock-down price?

As with all things in life, sensible financial planning is all about maintaining a proper balance. Pinning all of your hopes on the future value of your home is a very dangerous game to play.

Instead, you should avoid putting all of your eggs in one basket by not being overly dependent on any one investment. By spreading your wealth across various income-generating assets, such as bonds, cash, property and shares, you reduce the risk that you'll come a cropper at a time when it'll hit you hardest.

Wouldn't you rather choose whether to downsize or release equity from your home, rather than be forced into a decision that you may live to regret?

Finally, I'll leave you with the thoughts of an older, wiser Fool: my chum David Kuo, Head of Personal Finance at Fool.co.uk:

"They often say that a man's home is his castle, and it seems that, for seven million homeowners, the home is also a pension fund. But building castles in the air is a dangerous strategy, especially if we haven't put down solid foundations first."

More:The Four-Step Guide To A Comfortable Retirement | Are You Banking On An Inheritance?