Pensions or Property?

Abstract

Saving for retirement is fraught with risk and uncertainty. For those not privileged by participation in a defined benefit pension plan, the issue is made complex by problematic decision rules: the options available are variable in terms of their costs and possible consequences, there is considerable uncertainty surrounding the anticipated outcomes of different options, and it is quite unclear whether conventional savings instruments are better or worse than simply relying upon housing and property. In this paper the problem of saving for the future is conceptualised and interrogated against respondents' views and opinions as reported in the Money section of The Sunday Times. Those interviewed are representative of a distinctive segment of the UK working population and face, more than most, the prospect of being largely responsible for their retirement income. Due regard is paid to the age and reported incomes of respondents in relation to their professed intentions just as consideration is given to their apparent risk predispositions. It is noted that many respondents preferred property over pensions across the four years considered-from the peak of the bubble through to the onset of the age of austerity. An interpretation of this preference is offered, emphasising the control of risk apparent in many people's perceptions of the value of property.

What ever happened to asset-based welfare? Shifting approaches to housing wealth and welfare security

“…Critically, housing markets in the pre-GFC era became intertwined with the logic and practice of welfare switching. With the demise of post-war Keynesianism, new forms of market rationality necessary for sustaining asset-based welfare emerged circulating around newly constituted 'homeowner investor subjects' (see Clark, 2012;Langley, 2006;Smith et al, 2009). For Watson (2009), for regular homebuyers the calculations of everyday life came to mimic those of professional investors: 'how to treat life itself as a series of investment decisions; how to position the households' assets on the right side of pricing trends; and how to plan for the long term by being able to continually trade up the value of assets' (p.45).…”

Homeownership-Based Welfare in Transition

“…Before the crisis, it had been assumed that equity held in the home represented a relatively liquid asset (Clark 2012) that households could tap into when needed (Smith et al 2009), specifically in case of unemployment or retirement when income was reduced. Home purchase, as the basis of asset-based welfare, represented a relatively straightforward process, typically involving a mortgage arrangement and its repayment over the life-course.…”

Mapping financial literacy: cognition and the environment

“…The cognitive difficulties of making judgements about the significance of current events in relation to future prospects and the significance of local cir cumstances with respect to global prospects are well known. In the face of market risk and uncer tainty, people retreat to that which they know best (Clark 2012a). This does not mean that most peo ple, most of the time, cannot look beyond imme diate circumstances and events to future prospects and other geographies (Doherty 2003).…”

“…Whether either mode of reasoning is robust in the face of market turmoil and systemic risk remains to be determined (empirically). Over-confidence in the robustness of formal models of the economy and fi nancial markets can have significant costs, perhaps more so than naïve responses that reinforce risk aversion (Clark 2012a).…”

“…If the sampled op tions only need a modicum of financial knowledge and understanding, it seems reasonable that people would neither value it nor, for that matter, seek to understand its underlying principles. Providing fi nancial knowledge and understanding may have no discernible effect on decision-making, unless it is tailored to people's perceived options and their cir cumstances (Clark 2012a).…”