Old-Age Provision and Homeownership – Fiscal Incentives and Other Public Policy Options

Investing in personal pensions and in private homeownership are the two main investment decisions consumers make over their life cycle with profound implications for their old-age arrangements. With the demographic change ahead, these two sources of additional old-age income will gain in importance in the future. As the Household Finance and Consumption Survey (HFCS) shows, real assets account for the main share in total household assets, with private homeownership representing the asset type which carries the greatest weight for most of EU Member States. In comparison, voluntary pensions and whole-life insurance play only a minor, in many countries even an insignificant role in households’ asset allocation. In addition, there is a positive correlation for both classes of assets with income and age. To enable low-income households in particular to increase participation in both private homeownership and private pensions, Member States apply a broad variety of policies. They can be classified as market-creating, market-correcting or market-compensating social policies. They complement both traditional policies to correct for market failures in financial markets as well as traditional redistributive social policies. However, to date, there is no coherent approach to either objectives or instruments adopted or to the interrelationship between promoting private homeownership and personal pensions within single Member States, let alone across the EU.

On the basis of available EU-SILC data, this paper examines the relationship between old-age poverty and residential property in the EU member states. The descriptive section of the paper provides a comparative analysis of poverty indicators across EU states and different groups of the elderly population as well as a comparison of the elderly populations’ homeownership rates. The following sections look at the poverty risk and homeownership rate of the age group 65+ in conjunction, clustering the EU states according to these characteristics. For this purpose, an aggregated poverty risk index is developed, which includes both monetary and nonmonetary poverty indicators. The cluster analysis accounts for five groups of EU states, two of which (Latvia, Romania, Bulgaria, Croatia, and Lithuania followed by Estonia, Portugal, Greece, Poland, Slovenia, Italy, Hungary, and Ireland) can be considered target markets for pension products such as equity release schemes.

Ireland’s profile traditionally saw high rates of home ownership, a mix of public and private pensions, annuity style mortgages, a favourable pensioner support ratio and a modest replacement income on retirement. As the country emerged from the financial crisis, housing supply has lagged behind demand, with many individuals and households moving into a heated rental residential property sector. Meanwhile pension coverage has declined. Now, policymakers are examining the multidimensional parameters of ageing to prepare for future dependency patterns and projected greater outlays to secure acceptable retirement income levels. This chapter explores the trends and structural context in this domain, thereby providing a map on which policy options can be plotted, all in pursuit of a consensual and sustainable pathway.

Dutch pension and housing markets occupy a unique position in the European Union. Historically, they have a universal rather than a selective bedrock. In a situation where most jobs were permanent, the pension system produced adequate retirement income across the (working) population. While income levels were irrelevant for the allocation of social housing, access to mortgage finance was relatively widely spread as witnessed by the skyrocketing mortgage debt and a number 1 or 2 position in the ranking of mortgage debt as share of GDP across Europe. The future promises putting more responsibilities on the shoulders of the citizens, making access to pensions more risky and access to homeownership more difficult, especially for those with a lower income.

Recent reforms to pensions in the UK have been driven by low levels of retirement savings, increased life expectancy and public expectations of standards of living in later life. The government has introduced auto-enrolment of employees into occupational schemes for the purposes of increasing the numbers of those saving for retirement. To lessen budget deficits, they are also seeking to introduce measures, which will make non-pension savings more attractive. The government’s desire to reduce budget deficits has made the future of State Pensions uncertain, and the onus of retirement provision is increasingly moving towards individuals. Consequently, more people are looking to use their house as a retirement asset. There has been a significant rise in the demand for mortgage products in the 65+ population, and an increasing number of consumers are taking out mortgages that will extend into their retirement. However, the existing mortgage market in the UK is not equipped to support the changing pattern in consumer needs. In addition, the changing political and social environment in the UK has created uncertainties in housing and mortgage markets. In this chapter, we report and explain current developments in pensions, housing and mortgage markets in the UK. Our analysis indicates that each of these sectors has reached a turning point necessitating significant responses from stakeholders and policymakers.

After a period of profound changes undertaken at a structural level, the Italian pension system is now facing the new challenge of sustainability posed by the demographic changes to be experienced by its population in the future. This chapter argues the integration between the public and private sector is of prominent importance to ensure a decent standard of living at retirement for the whole population in the future. By performing a parallel analysis of the actual pension system and the housing and credit market, this chapter also emphasizes the potentials for developing pension schemes based on individuals’ own residence. At the same time, it also shines light on some of the barriers that may be encountered in the development of this process.

In Hungary the transition process led to a very high private homeownership rate while markets for private pensions are still in their infancy. After 2007, mortgage loans denominated in foreign currency have severely affected large parts of the population. Mortgage and credit markets are recovering only slowly from the global financial crisis. However, the current policy and macroprudential regulations have created an environment which stimulates homeownership by several incentives. This may provide a greater long-term stability on the mortgage markets. Thus, the present developments seem to benefit the accumulation of housing wealth, although it is questionable whether this will be sustainable given the demographic changes.

The German economy faces the challenge of a rising pension gap due to above average population ageing. Although the government tries to close this gap by subsidising personal pension schemes for the accumulation of both financial assets and owner-occupied real estate property for retirement (Riester and Rürup pension plans), these incentive programmes have had only limited success in reducing old-age risk of poverty so far. Homeownership rates have remained lower than those in the EU, and the two main historic instruments of housing policy focused on public incentives for private investment through the home subsidy scheme and social housing were both discontinued at the start of the twenty-first century. Because of a traditionally functioning public rental system, conservative mortgage lending and a tenure-neutral housing policy, the incentives for consumers to acquire homeownership as a strategy for old-age pension provision have been low, while rental markets are well developed. Therefore, there is little scope for using homeownership for old-age security.