The best pension plan? Rehabilitate your home.

The energy saved in renovating a home may be more interesting as an investment than the interests that you may obtain from an endowment policy for retirement.

 

The efficiency obtained in the energy saved could be up to 1.675 Euros per year in a standard house.

 

Is money, invested in a bank better, or at home is better than anywhere?

Often we hear that investing in the rehabilitation of a home means to spend an important amount to obtain energy savings that in the best of cases will not pay off until after 13 years. These expectations of return are assimilated in time to the contributions to a pension plan, which leads to think if in general can be the rehabilitation an investment comparable to this product in the face of retirement.

In order to test the economic performance of a person who is hesitant to invest in a pension scheme or in energy efficiency in his home, the “La Casa que Ahorra Foundation” has commissioned the Catalan Institute of Construction Technology (ITeC) an energy study on rehabilitation planned as an investment.

 

 If you are 50 years old…..

This work is based on the hypothetical case in which a 50-year-old person with an old house, has available 7,500 Euros to invest and contemplate two options: to contribute those initial savings in a pension plan with an expectation of 3.2 %, which was the average obtained for the period 2005-2015, or invest that money in reforms (insulating, windows and improving the hot water installations) so we have an old 73 square meters house somewhere in the Coast and we wish to improve our Energy Performance Certificate (EPC) to progress from an energy rating of “E” to a “C”.

We have calculated what happens if the money that would be used to pay for the rehabilitation was used on a supposed contribution to a pension plan under current market conditions. The capital will remains 15 years in the fund, at which time it is decided to gradually recover it for 15 more years. 

 

A question of numbers.

In this way, a parallelism is established with a balance of inflows and outflows in the pension plan during these 30 years, and another for the rehabilitation. Both, the investment product and the rehabilitation are registering entries year after year: in the pension plan it translates into interest whereas in the rehabilitation are savings on energy. "Now," says the study, "rehabilitation is at a disadvantage compared to the plan, since the latter generates benefits from the outset."

In the simulation of rehabilitation, a multi-family house consume about 6,894 kWh/year on heating (667 Euros) and 1,264 kWh/year on refrigeration (158 Euros), or what is the same, a total of 825 Euros were spent at current energy prices this means 68.75 Euros per month (I personally never pay less than 100€). After rehabilitation, and moving from letter E to C, the energy costs are reduced by 294 Euros per year. In progressive calculations the study applies an annual growth of 2% to energy prices (which is rather conservative for Spain).

From the second to the twelfth year, the capital of the plan is growing, feeding on interest while in the case of rehabilitation, housing is able to consume 64% less, although the accumulated savings have not yet managed to pay the bill for the reforms.

 

After the 13th year comes the crunch..

In year 13 (variable in each case), interest continues to increase the pension plan, accumulating a total of 11,252 Euros, and the balance of the rehabilitation goes from negative (-7,500 Euros) to positive (318 Euros) , So we can say that finally the energy saving has paid the bill for the reforms and starts to be profitable.

But the highlight of this simulation is on the year 15, when the pensioner would reach the age of 65 and retire, and therefore constitutes the peak of the pension plan (with a total of 11,984 Euros) and start to capitalize on this product, which is decided to bail out in 15 annual instalments of approximately 1,000 euros. In parallel, the rehabilitation of the apartment has already allowed energy savings equivalent to 700 Euros per year (1,705 euros).

 

 And it goes on and on…

After collecting the last annual term of the pension plan in year 30, the fund is definitively exhausted (zero euros). From that moment on, the owner of the plan will continue to face the high energy costs of his home without rehabilitation. In contrast, the owner of the rehabilitated apartment will continue generating energy savings of approximately € 1,000 per year (€ 14,055 in total since the year 13 when he starts producing the first profits until the year 30, the last one studied).

 

This piece of research work from “La Casa que ahorra Foundation”, developed by the Market and Sustainable Construction departments of ITeC, try to show that there are other form of investment for retirement on the market that may be more profitable, and one of them could be energy efficiency which can be applied to the most precious of our goods, our home.

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