How pensions freedom will solve the UK's housing 'shortage'

'Empty-nest' retirees have been blamed for contributing to Britain's housing shortage, says Merryn Somerset Webb. But the new pensions rules may fix that.


Can pension reforms solve Britain's housing shortage?

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 childrenhave 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.

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That means that if you own a house and other non-pension assets that take you above the nil rate band for IHT (£325,000 for a couple, £650,000 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.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.