News Review: Equity Release
VAT increases will eat into future retirement by
Andrea Rozario director general, SHIP
on June 22 the nation listened with anticipation as george osborne delivered his first Budget as chancellor of the exchequer. While the emergency
budget did not specifically mention equity release it did cover a number of measures that have the potential to significantly impact the sector. there were many announcements on pensions reforms, including changes to the basic state pension, extension of the state pension age and default retirement age, as well as further confirmation of the review into public sector pension schemes. Vat was also increased from 17.5% to 20%. i believe that the changes outlined in the budget could have a significant impact on the older generation. over 55s in the uK often have a relatively fixed income with spending weighted towards Vat-able products. the changes outlined in the budget mean that they will suffer from Vat increases eating into their income. those people who have
been relying on a comfortable public sector pension when they retire could also face a nasty shock as they approach retirement. also, recent data issued by the onS reveals that life expectancy at birth for those born in 2008 is projected to be 88.6 years for males and 92.2 years for
females. these higher levels of life expectancy mean that people are spending longer in retirement, nearly 30 years in some cases. these legislative and demographic changes could significantly boost the equity release sector as the older generation seeks out additional sources of income for retirement. given the pressures
on pension savings, the inclusion of equity release as a mainstream and equal choice for retirement funding is becoming more important than ever. equity release is no longer the product only suitable for those in distressed circumstances but one that feasibly should be included in normal retirement planning. However, in order for
this to happen we need to ensure that more advisers who work in the retirement industry have a thorough understanding of equity release, the different products on offer and how it can fit in with additional and traditional retirement planning. as well as providing intermediaries with more information about equity release plans we also need to ensure that advisers who choose to extend their advice to this area are aware of the wider financial planning implications for their clients. i
believe further
clarification is needed about the relationship between equity release and state benefits because the issues involved are complicated. i am concerned that at the moment depending on where customers turn to
10 mortgage introducer AUGUST 2010
for advice, such as the local citizens advice Bureau or department of Work and Pensions, they may receive different information which can be confusing for both advisers and customers. going forward i would like to see clear, definitive guidelines published for all, including dWP staff, advisers and the regulator.
“People are spending longer in retirement, nearly 30 years in some cases. These legislative and demographic changes could significantly boost the equity release sector.”
to help intermediaries
engage in this ongoing debate, SHiP recently urged advisers to complete an online form to find out exactly what advisers and their clients experience with equity release and how it might have affected their eligibility to certain state benefits. the aim of this campaign was to determine what issues are faced by customers and advisers and ultimately how these issues can be addressed to help intermediaries, customers
and any organisation that offers information on the subject, develop a clear understanding of the interaction between equity release and state benefits. the results of this survey will be published in the near future. SHiP is always supportive
of any initiative that encourages the provision of superior financial advice which is why i welcome the announcement last month that the FSa is reviewing long term care, mortgage and equity release qualifications. the proposal recommends that Ltc exams should be reviewed every three years. Financial markets are constantly evolving so these regular reviews will reassure consumers that all active members of the market are working to provide them with the most up-to-date advice. alongside the changes outlined in the budget, there has also been a recent change to the banking system that will continue to have an impact on the equity release market. the stringent capital and liquidity requirements are naturally a consideration for providers and in these times of economic difficulties these requirements further impact on decisions to move into new markets such as equity release. the equity release market
has not been immune to the credit crunch and the inevitable consequences of these tough economic times, but it is clear that the drivers for equity release are increasing. it is not a question of if but when.
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