The Tax Incentivised Savings Association (TISA) is in talks with the Financial Conduct Authority (FCA) to ensure the financial services industry includes realistic information in its advice and guidance about how property can be used to support a pension.
TISA has had several talks with the regulator so far, with director Charles McCready saying that it has been “very responsive”.
He said the association’s concerns stem from a growing percentage of the population that take the view “my house is my retirement” but who perhaps do not know how much money either downsizing or relying on equity release will deliver.
McCready continued: “Some 27% of millennials believe their house will cover their retirement, while a considerable number of those in their 50s will have under-saved and be wanting to use this as an asset towards retirement income. But the amounts realisable may not be as big as many think.
“If someone makes £100,000 from their house and buys an annuity at a rate of 5% they will receive £5,000 a year in income. That is probably not enough for most.”
TISA is urging the FCA to consider creating rules that would ensure those offering guidance and advice also provide information to consumers and clients around how much they can realistically expect to generate from their house.
McCready also explained the body does not advocate using property as a pension mainstay and that other investment options should be explored.
“The savings options for millennials are more limited than they have been for other generations,” he said. “It is a challenge for them to get onto the property ladder, and they will be paying off student loans and be in the rental market for six years longer than they were in the 1970s as first-time buyers are now 30 years old on average compared with 24 years old 40 years ago.
“This has an impact on their wealth and on how much they are able to save. This group is arguably more in need of guidance and advice than previous generations.”
Although advisers currently recognise a principal property as part of a general wealth profile, they tend not to look at how it might be used as part of a retirement plan. TISA would like to see this change.
The recent Financial Advice Market Review report considered how guidance and advice might look, but TISA’s discussions with the FCA have taken place since the publication of the report. The organisation also has a working group looking at the subject and plans to release a white paper in the summer.
McCready added: “The government has a general interest in the role of housing in retirement and the FCA has become very responsive and innovative around customer care. There has been a sea change – it is very cognisant of how the financial services industry can be altered to improve client outcomes.”
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