Even though the housing market is in a slump and house prices have taken a direct hit, there are still millions of people in Britain who feel they will make enough money on the sale of their property to give them the funds they need for their retirement.

Property prices have fallen an estimated 16% in the last year according to Halifax, one of the leading lenders in the country, but this has not diminished homeowners’ faith in the housing industry. About 5 million people are still relying on the sale of their homes to fund their retirement needs.

In a study conducted by Foster Denovo in relation to an employee benefits study, it was found that more than one-third of working adults in Britain do not have a private or company pension plan. Even more scary, about one-quarter of those aged 25 to 44 do not even have any plans in place for the money they will need after they retire. They do not own property or have any amount of savings to help them. About 11% of this age group said that they had not even thought about planning for retirement and that they had no idea how they would be able to cope financially when this time came.

According to Ian Bird of Foster Denovo, “With lower house prices, people who rely on the equity in their property may find themselves having to massively downgrade in order to have sufficient funds to support their retirement.”

He went on to say, “The lack of awareness and insight amongst consumers when it comes to pensions is a cause for extreme concern. Believing that you will work to a certain age is all very well, but it isn’t always realistic. Many people find themselves unable to work in later years, usually for health-related reasons. Thinking that you can ’save later’ is not always an option.”

A report released recently by the Royal Institution of Chartered Surveyors showed that in home sales, sellers are settling for lower prices in the negotiation process with the buyer. Typically, sales have been about 11% less than the asking price and have often been as much as 26% below the asking price. This fact is important for those homeowners who are planning to sell a larger home and downsize in order to obtain the money they need to live on after they retire.

Tim McPhail, an independent financial advisor with Hargreaves Landsdown, advises, “Relying on property to fund a pension, can and has worked in the past but it is a very high risk strategy. At the very least you should save in some sort of pension plan too.”

If you look at figures from the Land Registry, you will see that downsizing from an average sized home selling for £236,000 to a flat costing £142,000 would net a profit of £92,000. However, solicitors’ fees and the stamp duty have to be paid out of this profit.

At the present time homes selling for less than £175,000 are exempt from the stamp duty. Using the profits achieved from such a sale over the span of a 20-year retirement means an income of about £6000 per year for one person and £3000 each for a couple.

“The problem”, according to Steve Rumbles, a fund manager at BlackRock, “is that using a property as a means to fund retirement leaves you relying on the health of the property market, which can be very cyclical. Also if something goes wrong with the property, both home and retirement income are affected. Faced with a depressed property value an individual either has to carry on working, or accept a much reduced income in retirement.”

Ideally, working adults in Britain should be setting aside money for their retirement at a percentage of their income equivalent to half their age. A person at age 30 should be investing about 15% of his/her income for retirement. The earlier you start, the better off you will be financially when you are able to retire.

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