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UK watchdog head cautions on using housing for retirement income

Friday, September 16, 2016 - 23:11

[LONDON] Savers should be wary of the cost of using housing or equity release mortgages to bump up their retirement income, the head of Britain's financial services watchdog said on Friday.

UK house prices have risen sharply in the past few years, as low interest rates have cut the cost of mortgages, increasing the appeal of housing as an asset for funding retirement plans.

Low interest rates have also put pressure on savings and annuity rates, encouraging the over-55s to take advantage of new pensions freedoms to withdraw their pension pots and invest them elsewhere.

But buying more houses was not a good way to boost retirement savings, Andrew Bailey, chief executive of the Financial Conduct Authority and a former deputy governor of the Bank of England (BoE), said in the text of a speech delivered to a pensions conference in Gleneagles, Scotland.

"Given the scale of uncertainty over long-run real returns on assets, I would not favour over-weighing to any one asset class," Mr Bailey said, adding the BoE's Financial Policy Committee, of which he is a member, had been concerned about "increasing levels of household indebtedness".

An alternative is a so-called equity release mortgage, which enables householders to take out cash against the value of their home, which would be repaid after they die or move into long-term care.

"The approach has an appeal," Mr Bailey said, but added the structure of equity release mortgages was complicated and could be expensive, saying economic uncertainty made it difficult "to write long-term financial contracts which embed assumptions on future returns".

REUTERS