14 October 2005
A study saying that England's pensions crisis has been overstated makes the 'unrealistic' assumption that thousands of pensioners would sell their homes for retirement income, experts have claimed.
Scepticism surrounds a report on retirement resources by the Institute for Fiscal Studies, published on October 12, because it suggests that a crisis could be largely avoided if people aged between 50 and 65 realised 50% of the value of their homes.
Carl Emmerson, co-author of the IFS study, acknowledged to Public Finance that the think-tank made the 'ambitious' assumption that thousands of retirees would sell 'significant' levels of property to fund their retirement.
'We worked on the basis that the generation currently aged over 50 would realise 50% of their property value and we also calculated other forms of retirement income and wealth, such as investments and inheritances,' he said.
If you withdraw the calculation for property wealth realisation, Emmerson said, then the figures for those individuals deemed 'at risk' of having inadequate retirement resources rise closer to those of the [government's] Pensions Commission.
Property equity release schemes allow older people to turn some of the value of their homes into cash – a lump sum or regular extra income, for example. Age Concern has estimated that the UK market could be worth £5bn annually by 2010.
But Sonia Sodha, a research assistant at the Institute for Public Policy Research, said the IFS's assessment of their potential use was 'totally unrealistic'. 'Where is the incentive?' she asked. 'Equity release schemes often have discouragingly high fixed costs attached.'
The IFS presented its year-long study, The adequacy and distribution of retirement resources in England, as a reality check on pensions in advance of the final report by the Pensions Commission, which is due out in November.
Commission chair Adair Turner will recommend ways of preventing a retirement crisis amid claims that 11 million Britons are not saving enough.
The IFS study claims that 'the vast majority of the next generation of pensioners will have resources in excess of adequacy benchmarks typically used in the [current] policy debate.'
Just 9.8% (750,000 people) were at risk of inadequate incomes as defined by Turner's commission, the IFS claimed. Turner has estimated that between 38% and 43% are at risk.
PFoct2005
