Equity Release steps in when other pension savings run out
In the last few days before the new pension freedoms take effect Richard Espley, Head of Equity Release considers the changing pension landscape and the role that Equity Release will play in this.
“The growth of Equity Release has been widely reported and the industry is gearing up for even more activity following the introduction of the new pension freedoms in a few weeks’ time. There are a number of reasons why there has been this increase in the popularity of Equity Release.
“In the past those approaching retirement were often able to put their finances in good order but nowadays many wannabe retirees still have credit card debts or overdrafts or an outstanding balance on their mortgage – perhaps as a result of taking an interest only mortgage. For those people accessing the equity they have tied up in their homes can make the difference between comfort in retirement or living on very limited means.
“Also public perception of Equity Release has improved – the Equity Release Council sets high standards for the industry with its strict code of conduct and also there’s also the reassurance that the Financial Conduct Authority regulates Equity Release.
“Looking at our current clients who have chosen to release property equity and the reasons why they did this you can see that for many, Equity Release has funded a lifestyle. Two thirds of those taking an Equity Release used the payout to improve their home or garden, sometimes making alterations to enable them to live there on into their final years. Others have used the money released to support family members and their aspirations – helping younger family members to get on the property ladder themselves or to go to university.
“However an increasing number of those taking Equity Release are now doing so to cover the costs of everyday living. It was recently reported that the annual income required by a pensioner had jumped to £11,200 and showing that pressures on household budgets continue into retirement. Whilst the over 65s have billions in property equity soaring energy bills and other everyday living costs – food and travel for example have left many pensioners struggling to make ends meet.
“In the new world post pension freedoms there may well be an increase in people adopting a different strategy to sustain a comfortable retirement whilst making best use of all their assets. There will be those who find that their ‘pension pot’ on its own it will not generate a sufficient income. These people may use the savings built up over their working life to supplement this income but those too may not be sufficient to deliver a reasonable standard of living over their whole lifetime.
“Taking an Equity Release part way through retirement means that the funds released can then be used to supplement their pension once their savings have been exhausted. Statistically life expectancy is increasing and so I foresee that this strategy might become commonplace in the years to come.”
Content correct at time of publication