Personal PensionAug 27 2015

Over half a million will use pension to pay off mortgage

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Over half a million will use pension to pay off mortgage

Over half a million people (631,000) in the UK intend to use all or part of their pension to help repay their mortgage balance, according to Partnership.

The specialist insurer surveyed 3,035 people aged 40 to 70 - 1,541 people in 2014 and 1,494 in 2015 - about how they intended to repay their mortgage.

It found that while 71 per cent will meet their obligations via monthly repayments, with 25 per cent opting to do so via additional lump sum contributions, up to 9 per cent plan to use either their entire pot or tax-free cash.

This is actually lower than the figure recorded last year - falling from 14 per cent in 2014 - as more people look at more traditional methods to repay the outstanding balance on their mortgages.

However, 8 per cent (or 561,000 people) said that they intend to rely on an inheritance to repay the outstanding balance on their property and 7 per cent (491,000) confessed to not knowing how they will meet their obligations.

Andrew Megson, managing director of retirement at Partnership, said that while it is still shocking that over half a million people in the UK intend to use all or part of their retirement savings to repay their mortgage, it has fallen from over a 1m in 2014.

“This is fascinating as it suggests that the pension freedoms which allow people to access their entire pension in cash have encouraged people to take a more holistic view of how they use their pension rather than focusing on one-off expenditure.

“The work that the lenders have done in communicating with interest-only mortgage customers about their options and obligations is also likely to have had a positive impact as it will have encouraged more people to move to capital repayment.”

This follows research by Old Mutual, published earlier this week, that revealed almost one-third of retired people were still carrying debt at the point they gave up full time work.

Research conducted on their behalf by YouGov amongst 1,649 UK adults found that the average amount of debt held at the point of retirement was £34,500, but 19 per cent had debts of over £50,000 and almost one in ten had debts of over £100,000.

Mortgage debt is most common, with 21 per cent of people still owing money on their house when they retire, while 14 per cent owed money on credit or store cards and 6 per cent had unsecured loans.

The research suggested that the average amount withdrawn in cash from pension funds by retirees since the April at-retirement reforms is £28,000 - with 19 per cent of retirees using some of that money to pay off debt.

peter.walker@ft.com