James Coney  

Leave property out of pensions dashboard

James Coney

James Coney

If there is one financial question every British person knows the answer to, it is how much their house is worth.

We are utterly obsessed with property prices. What is more, our attitude towards property has led to many people to make some very bad financial choices.

And these are just two reasons why housing wealth should not be included in the new pensions dashboard (another more obvious reason being: a property is not a pension).

Of course, it is the Equity Release Council that is pushing the idea that property wealth should be part of this new service.

It is not that I do not think equity release should in future play a key part in retirement planning. Quite the contrary, with huge questions still over social care costs, for many people it will be a vital means of securing extra income in later years.

With proper independent financial advice that looks at all assets and savings, transparent fees and charges, and family members at the heart of the discussion from the start, equity release can be incredibly valuable.

But wrapping property up with pensions sends the wrong message. It gives a false impression of your actual savings, and that is particularly poisonous in a pension dashboard.

There are so many questions about how you value the asset.

What will the value on the pensions dashboard be? Will it be what is it worth today?

Will it be the price minus the remaining mortgage? If so, then it is unlikely to take into account the actual price plus interest that you are paying on it.

Assuming what the value of a home will be in 20 years time is also incredibly dangerous.

Your residential home is firstly something you have to live in, so selling is at the whim of supply and demand, and in many cases the foibles of one or two people bidding for it.

Then you have got to factor in other costs.

Many people today find downsizing incredibly costly because of stamp duty; they do not want to pay the cost themselves and often cannot find anyone that wants to buy their home because of the tax.

For that matter, it seems likely to me that stamp duty is actually creating a mini boom in equity release.

Why pay the one-off upfront tax charge to downsize, when you can spread out a separate cost across your remaining days with a lifetime mortgage?

The point of a pensions dashboard – for all its failings, which I have gone through here before – should be to give a completely rounded picture of your savings.

It should be used as a spur to save more, and help set a target for retirement. Having housing wealth included in there gives a false picture.