News Review: Equity Release


State pension won’t fund retirement


by Andrea Rozario, director general, SHIP


the past month saw the department of Work and Pensions outline major reforms to the state pension. in the green Paper A state pension for the 21st Century it announced plans for a single-tier State Pensions of £140 a week, set above the current guarantee element of pensions credit. We have long been concerned that people are missing out on benefits or additional funding sources that could help them during their retirement due to the complex and confusing system currently in place. thus the move to simplify the system and make information more accessible is extremely welcome. However there are several


points that need to be addressed. Firstly the single- tier pension is unlikely to be in place for several years, providing little comfort for those in immediate need. With unemployment at significant levels, those aged over 55 who planned to work into their 60s or even 70s may find that this is no longer an option. indeed, Panorama recently aired a programme which looked at how this age group are finding themselves squeezed out of the job market as they struggle to complete with younger people with lower salary expectations. a further point to consider is that although the


new system is likely be good news for those without a full national insurance record, it doesn’t take into account the contributions of those who have put in more and worked for a longer period. therefore, while on one level the introduction of a single-tier is fairer, it doesn’t reward those who have contributed more. they may still find themselves in need of a supplementary income in retirement, through which options such as equity release or downsizing could well be considered.


Top up income that said, older people who do own their home have the security of a significant asset that can be used to help them out, on top of support from the state. equity release can provide a real boost to those struggling on a lower income but for those who are fortunate enough to have a decent amount in the pension and savings, it enables them to provide their loved ones with some much needed help. research carried out by


SHiP found that the cost of the average first-time buyer’s home has increased by 558% since 1983, illustrating the huge leap in prices that has left many younger people unable to get on the housing ladder. Furthermore the average deposit needed to buy a first home is £31,474 – over £10,000 more than the entire value of such a home in 1983 (£20,819). By releasing the equity from their home grandparents can offer younger relatives a pre-inheritance.


12 mortgage introducer MAY 2011 this is just one way in


which the equity from a home can be used – amongst a multitude of others as we are always keen to stress. equity release is an option that could well be considered by those who either want an additional income to perhaps pay for a holiday, treat family members or carry out household renovations. However at the


“Equity release can provide a real boost to those struggling on a lower in- come to provide their loved ones with some much needed help”


other end of the scale for those struggling with care bills or debt repayment, equity release can be a lifeline.


indeed, SHiP’s


figures for the equity release market for the first quarter of 2011 reveal an increase in both the value and volume of drawdown mortgages. Since Q4 2011 the value of drawdown products in the market has increased


from £106.7m to £108.2m and the number of customers from 2,349 to 2,570. this could be indicative of customers favouring products that will enable them to take a bit at a time – to perhaps pay for one off expenses, with the ability to drawdown further amounts when needed.


Dilnot Commisson earlier this month Lord Warner, member of the dilnot


commission,


expanded upon his previous comments about the elderly considering their largest asset – their home – as a way of paying for social care. He had previously said


that the government would not be able to help everyone through the entirety of their retirement and more specifically pay for all of their care needs. He recently continued by saying that “the issue won’t go away” and that you would have to be “one of life’s perennial optimists to think that the economy is going to roar up there and the state is going to become Father christmas again and actually solve all this through public funding”. although this is a slightly


blunt way of putting it he is absolutely right. With longevity increasing it is likely that we will see the number of people needing later life care increasing enormously and it will just not be possible for the government to support everyone through this. therefore people will have


to consider options privately and should seek advice in order to work out the best choice for them – which may or may not be equity release. Whatever route they decide to take, Lord Warner is right – at a time when a person needs to consider care for themselves or their family, they should not also face the distress of worrying about paying for it.


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