Yorkshire Post - August 2007
Contributor : Jonathan Fry

An Englishman's home is his castle - or so the old proverb goes. It is also, increasingly, his pension plan.

For thanks to the boom in property prices over the past ten years and the corresponding decline in the value of personal and company pension plans, many people in Britain are seeing their home as the ultimate asset in providing for their retirement.

Of course, to release the capital accrued in property, home owners have to be prepared to take one of two possibly unpalatable decisions - either to downsize to a smaller house at a period in their lives when they should be able to enjoy the fruits of a lifetime's investment in a larger house and a circle of nearby friends and neighbours, or to sell off part of their home in an equity release that will provide a regular income but reduce the size of the estate they can leave to their children or chosen beneficiaries.

Evidence, if it was needed, that the British people are prepared to 'sell the family silver' in order to have a comfortable retirement comes with new research published by the personal finance website Fool.co.uk.

A survey of more than 1,100 adults showed that three out of 10 homeowners - that equates to seven million households - are prepared to use their homes to supplement their pensions. What is more startling, and very short-sighted in my opinion, is that one in four people see rising house prices as a reason to cut their pension contributions.

The most popular option for releasing capital on a property is to downsize, with 50% of the survey respondents saying that was their intention. One of the benefits of this route is that, providing the home is the main residence of the householders and not a second home, all profits realised are exempt from Capital Gains Tax. Downsizing may also allow householders to move to a preferred location, perhaps to be nearer to their families or a favourite holiday spot, either at home or abroad.

Another way to raise income on property is to sell part of your home to an insurance company or to borrow against it. This is known as equity release and it can help to provide a more comfortable retirement for those who don't wish to move house. Reducing the value of equity in a property can also offset the threat of Inheritance Tax, which will be levied at 40% of any estate valued at £300,000 or more.

While downsizing is fairly straightforward, those considering any form of equity release are advised to seek independent financial advice, for the products on offer vary considerably in their value and long-term effects.

The most desirable route, however, is to be able to release wealth held in property by choice, rather than by necessity, and that is why pensions planning advisers will generally try to ensure that homeowners retire with the income they need to live comfortably without being forced to sell off all or part of their home, especially if such a decision has to be taken at a time when the property market is not as buoyant as it has been of late.

© Yorkshire Post 2007