UK sleepwalking into retirement income crisis

2nd May 2018

Kevin Woods details the Equity Release Council research showing millions of us will run out of money in older age

Recent research from the Equity Release Council has revealed that the pensions trend away from generous final salary based schemes towards more preset contribution based plans will see millions of workers with insufficient income in retirement.

An employee contributing 8% into a scheme, and thereby accumulating a fund of £380,000, will end up with only a fifth of the pension of someone doing the same job, but with a defined benefit scheme, the £380,000 pot only buying an annuity of £12,000 p.a. at present rates.

However, whilst pension schemes have been changing in this way, British homeowners have seen the value of their properties rocket: total homeowner equity topped £2.6 trillion last year, with £1.8 trillion belonging to the 55+ age group.

It is therefore not surprising that equity release has burgeoned correspondingly: it was the fastest growing segment of the mortgage market in 2016, for the first time surpassing £2 billion. And the trend is set to continue: the second quarter of 2017 alone saw £700 million lent through equity release.

Equity release offers an infinitely flexible solution to income shortfalls: homeowners may use the money released as a vital extra income source, a way of helping younger relatives, or a method by which to purchase that long sought after holiday, house extension or luxury.

Recent years have seen many positive changes to the equity release market - customers may now opt for flexible repayment, for instance - but there is still opportunity for it to play a more central role in retirement finance.

I hope that government policy makers will acknowledge the benefits of equity release, and that the financial sector and Westminster will redouble their efforts to ensure that the next generation of retirees can enjoy a comfortable and worry-free older age.

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