News Review: Equity Release


1966 wasn’t all about football by


Andrea Rozario director general, SHIP


For many people in the uK, when you say 1966, they don’t think of the first controlled rocket assisted landing on the moon nor the rousing speeches by dr martin Luther King Jr, but of england’s victory over West germany in the FiFa World cup. they are less likely to remember that 1966 was the first anniversary of the equity release plan. indeed, Home reversions (now Hodge equity release) launched the very first such product in the uK in 1965 and the industry has grown significantly since this fledgling reversion product. However, while the


equity release industry has grown over the last 45 years, people’s interest in retirement savings has not and the current set of retirees is likely to be faced with some tough financial decisions. indeed, the aviva real retirement report launched in mid- may revealed that 68% of adults intended to work beyond retirement age with 60% citing improving finances as the primary reason for making this decision. However, as the amount of


equity a customer can take out of their home is tied to longevity, more products will need to be developed which cater for this growing


market. in late may, more 2 Life started lending again and launched a new product which offers enhanced terms for customers with medical and lifestyle impairments. it will be interesting to see what the take-up is on this and whether it is a business model that more providers choose to follow. as well as the new product offering, it was heartening to see a provider re-enter the market as we have seen some high


profile


withdrawals over the last couple of years. LV=’s recent appointment of an equity release business development manager also caught my attention as this type of investment shows their real commitment to growing the market. other good news that we


received over this period was the support from the association of mortgage intermediaries, association of Financial advisers and the Personal Finance Society for the SHiP benefits campaign. this is a really important issue as we believe


that many


consumers (and indeed advisers) are unclear as to how equity release interacts with state benefits and, therefore, choose not to take out one of these plans. once we have collated the feedback we have received from many members


of the


intermediary community, it will be presented to the dWP (department of Work and Pensions) with a call for clear definitive guidelines to be published.


10 mortgage introducer JULY 2010


While the emergency Budget did not specifically mention equity release, it did announce a number of measures that have the potential to significantly impact the sector. Chief amongst these are the increase in VAT from 17.5% to 20% and the review of public sector pensions. Over 55s in the UK often have a relatively fixed income with spending weighted towards VAT-able products and significant equity in their homes. The changes outlined in the budget mean that they will suffer from VAT increases eating into their income and then their families will be hit by death duties when they receive their inheritance. In addition, those people who have been relying on a comfortable public sector pension when they retire could face a nasty shock and will need to seek additional sources of retirement funding. Equity release would seem the logical answer to many of these issues and we believe that the Government changes will lead to more and more people considering equity release as an integral part of their pension planning.


advisers are vital to the


equity release purchase process and are the largest distribution channel for these products in the uK. it was therefore interesting to note that the Financial Services authority (FSa) announced that they had launched a consultation


on whether they should review equity release, long term care and mortgage’s every three years to ensure they remain ‘up to date and relevant’. this move would


– admittedly – add significantly to the training and compliance burden that many firms carry but would go a long way to ensuring that consumers are receiving the best and most current advice possible. the consultation is open for three-months and it is a real opportunity for those who will be affected by this change to voice their thoughts on what this would mean. on the topic of advice,


the consumer credit counselling


Service


(cccS) has launched a service offering free whole of market equity release advice. that this respected organisation has recognised the positive impact that equity release could have on people with significant debts is heartening and i look forward to other similar organisations engaging with the industry in this way. now on to politics. it


will be interesting to see how the conservatives and Liberal democrat policies evolve. one issue that they do appear to agree on is the current process of compulsory annuitisation and they are currently looking to abolish this process. However, as Just retirement recently pointed out, this actually only affects 2% of retirees. it might be a quick easy win rather than a sign of real co-operation.


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