Pensioners: your duty to downsize?

Lynda Blackwell, Head of Mortgages at the Financial Conduct Authority, hit the headlines recently by suggesting that Ministers should encourage older homeowners to downsize in order to free-up larger houses for families further down the ladder.

Citing a ‘supply issue’ as a factor contributing to the housing crisis, Mrs Blackwell asked at a recent mortgage lenders’ conference whether there needs to be “thought given to trying to encourage older persons to actually move away”.


But although her comments have been described as ‘insulting’ and ‘unhelpful’, downsizing is something that many pensioners are considering – if not for the reason of helping the Joneses get little Jonny into the right catchment area.

Instead, our research* shows that property is increasingly picking up the slack from pensions as a source of retirement income, with 15% of pre-retirees planning to downsize from their main homes as a way to help fund their retirement. So, other than needing the cash are there any other reasons why people may be tempted to downsize?

Well yes – because there’s now an argument to combat one of the most common reasons people keep their homes: to pass it on as an inheritance to the next generation.

That argument comes in the form of new tax rules which mean you might be better to ‘spend’ your house and ‘save’ your pension as a future legacy for your loved ones. Adrian Walker, Retirement Expert at Old Mutual Wealth, explains:

“The Government’s changes to the taxation of pension savings on death (which came into force on 6 April 2015) mean savings left in a pension are transferable to beneficiaries with zero tax for those who die before 75, or at the beneficiaries’ marginal rate thereafter. There are also now options for those savings to be drawn down when the beneficiary needs it rather than being paid as a lump sum which will be in their estate. Property, on the other hand, would typically be included within the individual’s estate, making it potentially liable for inheritance tax at 40%.”

Add to that the potential benefits of having more money to cover costs such as long term care, a chance to pay off debts, and reduced living expenses, and it’s easy to see why downsizing appeals to some – regardless of the Government watchdog yapping at their heels.

If you’re thinking about releasing equity from your home, or for help with retirement or inheritance planning, it’s vital to speak to your financial adviser who can provide tailored advice based on your personal circumstances and tax situation.

*Old Mutual Wealth Redefining Retirement Report, in association with YouGov, September 2015.