Recent pension reforms have sparked debate over just how much of the £3.6tn of private pension wealth will hit the housing market.

We estimate that around £120bn of current defined contribution pension wealth is held by people aged 55 to 64, with a median pot worth £25k. This is half the value of annual residential property transactions, yet there are two important factors to consider when working out how likely it is that pension wealth will be used in the property market.

The first is the distribution of pension wealth. Once income tax liabilities are taken into account (we have assumed no other income), it is only the top 7 per cent of pension holders that could afford to buy an average-priced property outright. The map below shows the accessibility of property to pension investors across the UK, with the north of the country offering the most opportunities.

Secondly, is investing your pension in residential property an attractive option? This will be determined by the availability of pension wealth but also linked to current property holdings and potential income tax liabilities. Holders of larger pension pots are more likely to already be invested in residential property and so may be less likely to concentrate their investments in the sector. Keeping both factors in mind, we estimate around 1 per cent of defined contribution pension wealth held by those aged 55-64 could end up as an additional investment in the housing market each year. That equates to £1.2bn and around 10k transactions per year, but just 0.5 per cent of recent market turnover. At these levels, there is likely to be a limited effect on national house prices, but some potential pressure in lower value markets.

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