Welfare gains by combining home ownership and pension as financial Lego

Many Dutch people accrue wealth through their pensions and home ownership, but this is largely a passive activity. The wealth piles up and cannot always be mobilized at desired points in their lifetime. Things could be different. The Dutch government encourages more active financial planning on the part of households. The possibilities afforded for taking such financial decisions, however, are still limited and, moreover, unknown. The opportunities and risks of various lending and selling constructions are complicated and difficult for consumers to oversee. Yet on the other hand, homeowners could see their pension income grow by up to 25% if they could mobilize the wealth now carved in stone sooner.

LEGO blocks
In this 17th edition of the Netspar Brief, Dirk Brounen (TiU), Eduard Ponds (TiU), and Niels Kortleve (PGGM) outline a number of home ownership–pension combinations and discuss the impact they could have as “financial LEGO blocks” for achieving greater flexibility in financial planning. In particular, they examine the options for cashing in on home equity and the attendant advantages and disadvantages, as well as costs and risks. In addition, the authors offer a new perspective on the future and provide some recommendations for the various actors on how to devise workable and successful home equity–pension combinations.