pensions freedom will solve the UK’s housing ‘shortage’

Killerseven

A few weeks ago, I mentioned in a blog post that Britain’s housing shortage is less about lack of houses than the way we use houses – see here for the detail, but the upshot is that a huge number of people live in houses with quite a lot of spare rooms. A good many of these people will be ‘empty-nesters’ – those whose children have left home, but who haven’t downsized.

Perhaps they haven’t quite got around to it or perhaps they just don’t want to. So there is a view that a large part of the UK’s housing problem could be solved if only the retired could be persuaded to sell up and move on.

This isn’t the kind of thing politicians can (or should) suggest. But I wonder if they might not find that one useful side effect of the new pension rules will be that pensioners start stampeding their local estate agents. Why? Inheritabilty.

Given the new rules on inheriting pensions which of the following are you likely to spend first in retirement?
The cash inside your pension
All the cash outside your pension
Vote
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The new rules allow you to leave anything remaining inside your pension wrapper on your death to your heirs tax free (they pay their own marginal rate of income tax on withdrawals but no inheritance tax (IHT), or the old ‘death tax’).

That means that if you own a house and other non-pension assets that take you above the nil rate band for IHT (£300,000 for a couple, £600,000 for a married couple), and you want to leave as much money as possible to your kids, you are better off spending the cash from those assets before you start on your pension: the more you can keep in the pension wrapper, the richer your kids will be.

As Martin Bamford of Informed Choice tells The Times: “if other assets are available to provide cash for retirement such as Isas or property that can be downsized – capital gains tax-free – to release cash, then preserving the value of the pension pot and spending this last makes a lot of sense”.

The current conventional thinking suggests that by allowing people to take out lump sums that they might use for Buy to Let, the new pensions freedoms will make the UK’s housing shortage much worse. But think a little more deeply into the problem and you might conclude that it will make things rather better.

http://moneyweek.com/merryns-blog/how-pensions-freedom-will-solve-the-uks-housing-shortage/

chewmylegoff

Doub it. It doesn't really make much sense as IHT is 40% whereas income tax tops out at 45% and if your heirs have jobs it is likely that most withdrawals from your pension they make after your death will therefore be taxed at 40%, 45% or potentially more as a future govt may increase the highest rate.

Seems unlikely that granny will sell her 5 bed detached house in Surrey and move into a flat to avoid IHT at 40% when her heirs will prob pay 40% income tax on withdrawals from her untouched pension anyway...

Loughton_Monkey

I will certainly not lose sleep over this one!

There are, however far, far, more important things to worry about. I am considering the following scenario. OK, not the most likely, but it could happen all the same......

1. The conservatives win the election with a comfortable working majority.
2. They continue to stabilise the economy, grow, and pay down the debt.
3. Even further, they successfully instigate some massive house building programs that make house prices completely stable.
4. We return to full employment, delivering a 'real' boost to wages, meaning that houses become affordable to most.
5. Europe solve its Euro problems, starting to become affluent just in time for British manufacturing to lead the supply, thus putting us back in the black.....

Then consider the implications.....

Money Week will find that nobody whatsoever has the appetite to read their crass, idiotic, doom-mongering articles which make Daily Star journalism appear articulate by comparison. It might go out of business. What will that do to the posts around here?

BobQ

Unfortunately it is so easy to reduce this to a financial decision as if that is all that matters to the people concerned of which I confess to be not far off becoming one.

Incentives for me to sell up largely come down to what makes my life easier. I still work, it takes time to sell and buy. I am not as fit as I used to be, it takes a lot of effort to arrange. Downsizing causes me to have to devote time to deciding what to get rid of, time I do not have. I have become used to having space available, the extra cost of having it is easily affordable, how would I adjust to not having it. Maintenance is manageable so why sell up to save a relatively small sum. I have plenty of room to park, why move to somewhere small where I may not. I can invite people to stay, I have the space.

When I retire I will be more likely to downsize, but cost is not my main consideration.

MrRee_2

The Tories win with a working majority? Are you nuts?

Labour are the only party to redress the balance and allow the working man access to the wealth being held by the minority, and no tax on that being paid!

BobQ

Loughton_Monkey wrote: »

I am considering the following scenario. OK, not the most likely, but it could happen all the same......

1. The conservatives win the election with a comfortable working majority.
2. They continue to stabilise the economy, grow, and pay down the debt.
3. Even further, they successfully instigate some massive house building programs that make house prices completely stable.
4. We return to full employment, delivering a 'real' boost to wages, meaning that houses become affordable to most.
5. Europe solve its Euro problems, starting to become affluent just in time for British manufacturing to lead the supply, thus putting us back in the black.....

If I were a betting man I would concentrate on the first two given good odds. The next two are fantasies since keeping people in low paid jobs and unable to afford houses is a core principle of the Cameronites, and I doubt whether you could get odds for the last one.:)

Loughton_Monkey

BobQ wrote: »

If I were a betting man I would concentrate on the first two given good odds.:)

I was only fantasising.

Just out of interest, I googled the current Ladbroke odds.

No overall majority 5/1 on!

Strangely, a Tory overall majority is 11/2 whilst poor old Ed is a mere 12/1

The strangest one, though, is the 750/1 overall Green majority. Who would waste even a £1 on this?

Generali

My feeling is that when the pensions system is shown to be bankrupt (state pensions are a state sponsored Ponzi scheme in a very literal way), that is when Granny is going to be forced to sell her house.

You can't expect to work for 30 years and then spend 30 years with your feet up on an index-linked pension of well over half your salary from an unfunded pension scheme.

lisyloo

I get your point, but the 30 year figure is a bit out.
Many of today's elderly started work at 15 and some at 14.
My mil worked for 58 years.

I can't think of very many categories of people who would have an expectation of only working 30 years and getting a full pension. If you graduate at 22 and work til 55 then that's 33 years and no-one expects to retire at 55 unless they've got a funded pension scheme.

Still I agree pension provision is expensive.

Generali

lisyloo wrote: »

I get your point, but the 30 year figure is a bit out.
Many of today's elderly started work at 15 and some at 14.
My mil worked for 58 years.

I can't think of very many categories of people who would have an expectation of only working 30 years and getting a full pension. If you graduate at 22 and work til 55 then that's 33 years and no-one expects to retire at 55 unless they've got a funded pension scheme.

Still I agree pension provision is expensive.

My Mum worked as a teacher. With time off for kids and part time working she probably did 30 years. And she retired late.

lisyloo

Does she get "well over half" her salary in pension?

If she does I think it's an exception for that age group of women with final salary pension schemes, rather than a common expectation.