Image copyright Getty Images

Downsizing your home to give yourself an income in retirement is unrealistic, according to the former pensions minister, Steve Webb.

As many as three million people who are planning to rely on their homes for a pension are in for a shock, he said.

In a report for the insurance company Royal London, he said most people doing so would experience a slump in living standards on retirement.

He said the idea amounted to a "downsizing delusion".

Moving to a smaller property is not as easy as many people think - either because they may still have children living with them, or because they are still paying off the mortgage, he said.

And on average, those who do manage to downsize are likely to see a 50% cut in their income when they retire.

Image copyright Getty Images Image caption Steve Webb was the pensions minister in the coalition government

London and South East

"In most of Britain, the amount of money you could free up by trading down at retirement to a smaller property would generate a very modest income," said Mr Webb.

If someone sold a detached house for the average price of £310,000, and traded down to a semi-detached for £197,000, they would have £113,000 with which to buy a pension, he calculated.

That sum would buy an annuity that pays out £5,700 a year, without annual increases for inflation.

Including the value of the state pension, that would make an annual income of £13,700, half the average wage of a full-time worker in the UK.

In Scotland, Wales, Northern Ireland, North East England and Yorkshire and Humberside, where house prices are below average, the payout would be even lower.

However, downsizers in London could expect to receive 66% of their pre-retirement income, while those in the South East could expect 61%.

Annuity rates

One Independent Financial Adviser (IFA) said that relying on a home to provide a retirement income was rarely sensible.

"My advice to clients is always to spread their investments, not put all their eggs in one basket - especially a single property," said Stephen Roberts, of Robson Lister Wealth Management.

"Saving through a pension which can be invested across a range of assets is a much wiser long-term strategy."

Those paying in to a workplace pension benefit from employer contributions, as well as tax relief of at least 20%.

In addition, experts have warned that house prices are likely to be volatile, especially in the light of the vote to leave the EU.

Annuity rates, which have been dropping for many years, have fallen a further 3.5% since the vote, lowering potential income further, according to pensions expert Tom McPhail of Hargreaves Lansdown.