Retirement savings gap causes increasing numbers to consider equity release
According to research by The Investing and Saving Alliance (TISA), two thirds of people aged between fifty and sixty-five were saving too little for retirement before the Covid-19 pandemic, and the accompanying financial impact has only served to exacerbate that situation – writes Christian Leeming.
TISA’s ambition is ‘to improve the financial wellbeing of UK consumers by bringing the financial services savings industry together to promote collective engagement, to deliver solutions and to champion innovation for the benefit of people, our industry and the nation’.
Its research indicates that older generations could be forced to borrow or run the gauntlet of unlocking property wealth to make up the shortfall, amid warnings from the regulator about practices in the equity release market.
Stock markets have fallen since the start of the year, with the FTSE 100 index hit particularly hard; starting the year at 7,600 the index has shed 21% since January as Covid-19 has added to the collywobbles already created by Brexit.
With large numbers of companies postponing or scrapping dividends, UK markets have been particularly unloved; as a result those invested have seen personal losses and financial disruption worsening their under-saving problem.
In announcing its findings Ruth Moore, executive director at TISA, said the current situation is likely to accelerate the need to borrow during later life, calling for better support for homeowners seeking to fund their retirement by cashing in on the value of their property:
‘People are living longer, with higher levels of debt and lower levels of pension income, coupled with rock bottom savings returns,’ she said.
‘More needs to be done to fully support the growth of borrowing in later life if we are to prevent old age poverty and a reliance on the state pension, which simply isn’t enough to live a fulfilling life.’
If the value of their investments has gone down, the good news for those facing such a decision is that property prices have soared since the end of lockdown; pent-up demand being released and the desire for more space as the UK transitions to more home working have led to properties being snapped up.
one of the most important and long-term financial decisions consumers make in later life
According to the Halifax House Price Index, house prices rose for the third consecutive month in September with values 7.3% higher than the same time a year ago; the average price in the UK is now £249,870.
Agents report unprecedented demand for properties in smaller villages and seaside locations as people feel less inclined to return to the daily commute.
According to SunLife the average homeowner over 50 bought their current home 20 years ago and paid £113,365 for it; that property is now worth £240,681, potentially delivering them of the funds they require in retirement, and also of great interest to those that structure such arrangements.
Equity release – whereby over-50s can borrow some of the value of their home while continuing to live in it – is one option for those approaching retirement worried about the size of their pension pot.
However a recent review of the equity release market by regulator the Financial Conduct Authority (FCA) flagged up some problems, and in particular where equity release advice did not sufficiently take into account consumers’ personal circumstances.
The watchdog found that consumers’ reasons for looking at equity release were not always challenged by firms, and advisers were not always able to show that their advice was suitable; in a statement, the FCA said: ‘Deciding to take out equity release is one of the most important and long-term financial decisions consumers make in later life.
The consequences of their decision are likely to have a significant impact on their financial wellbeing for the rest of their lives and some of the costs can be less obvious but significant.’
As a result of its findings, TISA has called upon the industry to improve later life lending to better serve the increasing number of people who will need to use equity release to supplement their pensions; it wants later lifetime lending included in retirement planning and all matters relating to financial wellbeing for individuals and families.