Ten years ago equity release was an afterthought and for those already retired, with 70 being the average age of a typical customer. The main reasons for this was that the majority retiring at this time would be 65, have reasonable final salary pensions and would take their tax free cash.
During the years that followed they would use the tax free cash to subsidise their lifestyle to an equivalent level as to when they were working. Inevitably over and over the story was the same: dwindling savings and a need to replenish them.
Lifestyle is a matter of choice and for those who had a reasonable lifestyle throughout their working life it is something which they continue to value long into their retirement years. Therefore over the past few years there has been a significant change in the trend of what makes a typical equity release customer. The main one has been a drop in the average age to 68 and although this may not seem significant, it is the first time there has been such a drop.
This can be attributed to a number of factors. The first is that the retirement provision which many have is reducing as pension returns have been lower than expected, with many being forced to retire earlier either through ill health or redundancy. The second is that there is an increasing trend of higher divorce rates later in life which are fragmenting and in some cases decimating the finances of many. The third and more pressing is that the cost of living is increasing at rates way ahead of the levels of increase in many people’s savings and retirement provision. The fourth is the fact that more and more providers are now making their plans available from age 55.
What is gradually being seen is a greater reliance on equity release – both through necessity and through choice – as part of a retirement funding strategy, and according to the Consumer Credit Counselling Service (CCCS), for the first time, clients over 60 have the highest levels of debt; it is they that are increasingly seeking help – now equal to the number of under 25s who have already go to them for help with their finances.
Much of the debt comes in the form of mortgage payments carried into retirement and credit card debt. There is a trend of using credit cards to supplement retirement living which puts an increasing strain on income. So whilst the trend appears to be for capital requirements, equity release in many ways generates additional income through the repayment of debts and outstanding mortgages.
In the years ahead there will be an increasing need for equity release to feature more in the retirement planning strategy, as it is likely there will be a considerable change in retirement funding with the diminishing number of final salary pensions available. In addition there is also the baby-boomers who are now approaching their retirements with poor provision and increased debt levels, when compared to those currently in retirement.
Increasingly equity release can be seen as an ‘at’ or even ‘pre’ retirement planning tool due to its availability from age 55. Funds released can be used to invest, attracting tax relief at their highest rate, or for indirectly generating income through debt repayment.
However, with increasing debt levels in the pre-retirement sector, equity release will have an extensive part to play in financial planning. The final point to make is that it’s not for every customer, but you may be surprised by those who see equity release as an ideal solution.
Daniel Collins writes on a number of topics on behalf of a digital marketing agency and a variety of clients. As such, this article is to be considered a professional piece with business interests in mind.
