IT SEEMS the UK has a bit of an issue when it comes to retirement funding.

With the state pension age continuing to rise while pension provision continues to dwindle, many people expect to be unable to fund a comfortable lifestyle in their twilight years.

But, if the latest figures from the Equity Release Council are anything to go by, those approaching or already in retirement are finding a way of getting round that by releasing some of the cash tied up in the value of their homes.

According to the data, in the second quarter of this year those aged 55 and over withdrew a total of £701 million from their homes, the highest figure since records began in 2002 and a 36 per cent increase on the same period last year.

The sum was divided among 16,000 customers, meaning the average amount withdrawn, whether in a lump sum or as an instalment, was almost £44,000. This is roughly the same as an average house cost in 1987, when many of today’s retirees would have made their purchase.

Equity Release Council chairman Nigel Waterson said that the figures show that, with average UK house prices now sitting over 370 per cent higher at around £210,000, there is “an increasing appetite among older consumers to utilise bricks and mortar for funding retirements”.

“The retirement income pressures facing many savers in the era of defined contribution pensions and low interest rates are encouraging homeowners to consider a wider range of financial options,” he said.

“Housing wealth – often people’s most valuable asset – is an important part of bridging the gap between the comfortable retirement people want and the retirement they can afford from their savings.”

Jon Greer, head of retirement policy at Old Mutual Wealth, agreed, noting that the figures show that “housing wealth is starting to play a crucial role in personal financial planning”.

“A person’s home is not only their largest physical asset, it is also holds the majority of their wealth,” he said. “Property looks set to be a fundamental means for people to fund their retirement.”

Given the rapid rise in property prices over the past 30 years it makes sense that some homeowners, who may not have been able to save any cash during that time, would want to take advantage of the wealth that has accumulated in their homes.

However, it is vital that they understand how equity release products work - and in particular how they will affect any inheritance they plan to leave behind.

While some equity release products see homeowners sell all or part of their home to a provider while retaining the right to live in it, the most popular kind is a lifetime mortgage, which sees the money forwarded as an interest-bearing loan with the amount borrowed paid back either when the person dies or goes into long-term care.

As most will offer the option of letting the interest build up along with the principal, the amount borrowed can double in a 15-year period, further eroding any value left within the house.

While a homeowner would have to live well into their hundreds to lose their house in its entirety, it is understandable that using its wealth at all remains too emotive an issue for many to consider.

This was highlighted earlier this year when the Tory party proposed including property values when means-testing for social care costs. Though that proposal was swiftly taken off the table, Greer at Old Mutual said it is not beyond the realms of possibility that it could be resurrected in some form in the future.

“The Government have already begun looking at the role of housing wealth in people’s savings habits,” he said. “At the end of last year, Phillip Hammond noted in a Treasury committee meeting that housing wealth plays an ‘extraordinary role’ that is ‘bizarre’ and ‘distortive’ and that it needs to be looked at.

“It’s therefore not surprising that the Conservatives proposed turning to this wealth to bolster the collapsing social care system in their manifesto.

“While these proposals stalled for the time-being, the UK population may need to get used to using their housing wealth to pay for some part of their later life.”

There’s just one problem with that: not everyone has housing wealth to fall back on and even if they do could withdrawing it mean they are storing up problems for future generations?

With the younger generation in particular struggling to get on the housing ladder in the first place, such a move could mean they not only have to wait longer for the state pension than today’s retirees do but they may also be left with no inherited wealth either.