Maximising Retirement: Why firms should embrace property integration to help secure their client's futures

Retirement planning has always been a critical aspect of an individual's financial well-being. However with the decreasing pension provision in the UK, people are recognising the importance of incorporating their property into retirement plans.

As the dynamics of retirement change, property is assuming a more prominent role in securing financial stability.

So in this article I discuss the drivers behind the diminishing pension provision in the UK, delve into why property has gained importance, and then consider the need for retirement advisors to take a more detailed view of an individual's property circumstances.

What factors have contributed to the decreasing pension provision in the UK

The traditional model of retirement relied heavily on workplace pension schemes and state-provided pensions. However, there has been a gradual shift towards placing greater responsibility on individuals to save for their retirement. Several factors have contributed to this:

• Shifting demographics: An ageing population and increasing life expectancy have strained the sustainability of traditional pension systems. With fewer workers supporting a growing number of retirees, the financial burden on pension funds has become increasingly challenging.
• Changing employment patterns: The rise of the gig economy and the prevalence of short-term contracts have resulted in irregular income streams and limited access to workplace pension schemes for many individuals.
• Decline of defined benefit schemes: Traditional defined benefit pension schemes have become less common as employers seek to manage costs and shift the risk onto employees through defined contribution schemes.

The growing importance of property in retirement planning

Amidst the declining pension provision, property ownership has emerged as a crucial asset in retirement planning. Between 2001 and 2021 the average UK house price increased by 216%, whilst there are now more homeowners that own their property outright, than those with a mortgage.

Moreover, as mentioned above, the onus is now commonly upon the individual to save towards their pension. Currently however, average UK total pension wealth for individuals aged 55-64 was estimated to be £358,000 in 2020, falling significantly short of the recommended target of £480,000.

This indicates a gap in private pension savings, leaving individuals reliant on other assets, such as property, for retirement security.

What retirement advisors need to take into consideration

It has therefore become crucial for retirement advisors to have a comprehensive understanding of an individual's property circumstances, both from the asset and liability perspective. In doing so, the following scenarios can be addressed:

• Equity release options: Advisors need to assess whether individuals have the potential to release equity from their property to supplement their retirement income. This involves understanding the property's current value, mortgage obligations, and considering the implications of equity release products.
• Downsizing potential: Advisors should evaluate an individual's property to determine if downsizing is a viable option. This includes considering the local property market, potential proceeds from downsizing, and the impact on an individual's lifestyle and future needs.
• Property Investment: Some individuals may consider investing in additional properties as part of their retirement strategy. Advisors need to assess the risks and rewards of property investment, including rental yields, maintenance costs, and potential market fluctuations.
• Estate planning: An individual's property plays a significant role in estate planning, including inheritance tax considerations and passing on assets to beneficiaries.

An inevitable change that brings opportunities for advisors

The decline in pension provision has prompted individuals to reassess their retirement planning strategies, with property ownership emerging as a vital component.

Consequently, it’s clear that any key financial decision an individual makes needs to account for their current property circumstances, given the impact it may have on their future years of retirement.

Interestingly, however, only 16% of UK financial advisors are currently classed as Holistic.

Therefore, in order to account for this shift in the personal wealth and retirement landscape, financial planning and wealth businesses need to arm advisors and indeed customers with up-to-date property information and data insights.

This article was written by Chris Barnett, Account executive at PriceHubble. Chris is based in London and brings over 8 years of experience in the finance and investment industry, and drives the expansion of PriceHubble's innovative solutions for real estate and finance professionals in the United Kingdom.