Royal London has warned that property wealth in the family home is no ‘get out of jail free card’ for those with low pensions.

Some experts have recently suggested that property equity can be used to boost pensions and help pay for social care costs but this view is mistaken, according to the provider.

It says that with more than three quarters of all pensioners owning their own home, schemes to enable home-owners to tap into their housing wealth might seem like a solution to the pensions crisis.

But research from Royal London – ‘Will Housing Wealth Solve the Pensions Crisis?’ - shows that for most retirees, housing wealth is unlikely to tackle inadequate pension savings.  

It concludes that the challenge of 12m people not saving enough for their retirement will “not be solved” by assuming that those who fall short on pensions can simply live off the value of their home.

Data from the Wealth and Assets Survey looked at the pension income and housing wealth of nearly 7,000 pensioners across Great Britain. 

It examined how far those with poor pensions are sitting on significant amounts of housing equity. 

It concluded that while those with the highest pensions are almost all home owners, around a third of the poorest pensioners are still renting in retirement and have no housing equity to draw on.

The people with the most housing equity tend to be the same people who have the highest pensions. Among the poorest fifth of pensioners, the average housing equity is only around £150,000, compared with just over £400,000 for the richest fifth.

The main exception is lower income pensioners who may have a worthwhile amount of housing equity in London and the South East, particularly those who benefited from the ‘right to buy’ their council house back in the 1980s and 1990s.

Some divorced pensioners and some widows as well as those with inherited wealth may also be “exceptional” in combining modest pensions with meaningful amounts of housing equity, says Royal London.

Average housing equity levels among retired pensioners as a whole vary from just £136,000 in the North East of England to £399,000 in London. See table below:  

Source: Royal London calculations based on Wealth and Assets Survey, Wave 5 (2014-16) 

Even for those with housing equity, equity release providers will often only allow a pensioner to borrow only around a third of the value of their property if they take out the policy at retirement.

Releasing housing equity through ‘downsizing’ is likely to be unattractive for most;  the supply of ‘step down’ retirement accommodation is limited and often expensive, reducing the amount that can be freed up by downsizers, says Royal London.

Steve Webb, director of Policy at Royal London said: “Official figures suggest that around 12 million people of working age are not saving enough for their retirement. 

“It might be tempting to think that as long as such people are homeowners in retirement then they can top up meagre pensions by using the value of their home.  But this research shows that even owning a home is not a ‘get out of jail free card’ for those with poor pensions.  

“Many of those with low pensions also have relatively small amounts of housing equity, and lenders will often lend only a small percentage of the value of your home. 

“Whilst using housing equity will help some groups of poorer pensioners, particularly in London and the South East, for most there is no substitute to building up a decent pension for a comfortable retirement.”