An equitable solution to retirement income?
An industry report has recently warned that pension saving may need to be made compulsory in the near future.
The government is trying to stop people relying on the state to support them in retirement.
Britain may soon have to force many workers to start saving for retirement in order to cut the soaring pensions bill which is set to reach £120 billion in around 20 years time.
Therefore, at the moment, policymakers are grappling with the consequences of an ageing population and pensioner poverty.
This has therefore highlighted the need for property owning pensioners to unlock wealth in their home rather than try to push costs on to future generations.
A House of Lords Committee has published a report ‘Ready for ageing’, in this report it suggests that “it is reasonable to expect those who have benefited from the property boom to support their own lives”.
Recent statistics show that home ownership rates are high among older people and property makes up a large proportion of the wealth of many pensioners.
Key Retirement Solutions pensioner property equity index has also found that retired home owners have total property wealth owned outright of around £756.36 billion.
Many industry experts have suggested that equity release has the potential to raise the living standards of many hundreds of pensioners who are, at the moment, struggling to survive on low incomes as they may only qualify for a few, if any, benefits.
A recent consumer survey of attitudes towards equity release found that there is a significant level of interest among older home owners which is equal to hundreds and thousands of the 7.5 million pensioner households.
While equity release remains more expensive than conventional mortgages, costs have however come down along with most other interest rates recently. Many of these loans typically cost 7 per cent or more.
Although it is now possible for some home owners who are aged 75 or more to borrow at 5% variable (with a typical arrangement fee of £495), those younger home owners aged 55 and over could also borrow at a rate of 6.3% fixed (with a typical arrangement fee of £555).
Whilst these rates may seem high in comparison to many mortgage deals that are around at the moment, it is worth noting that equity release lenders receive no interest payments until an unknowable date in the future when the home owner either dies or leaves the property.
Equity release is a complex area, especially because it requires dealing with older more vulnerable people and factors such as income needs, inheritance tax, social security benefits and social care need to be taken into account.
It has therefore been proposed that the government should work with the financial services industry to encourage the growth of a safe and also easy to understand equity release market.
However, property often proves an emotional subject in many families, the fact is that many adult children now anticipate and even actively count on receiving an inheritance that equity release will erode or destroy. It is therefore important to include family members in any discussion about possible equity release plans.
If you have anyone in your family whom you think may benefit from equity release, then please get in touch and we will be happy to discuss their particular requirements.