If you think the pension freedoms are popular, have a look at equity release!
Soon to be the nation’s most versatile condiment
The Equity Release Council has published its Spring 2019 Market Report. (1) And the numbers are significant:
2018 saw:
- £3.94bn record lending
- 46,397 record new customer plans
- 82,791 record total customer activity
Every 6 minutes a customer used equity release.
The £3.94bn of equity release lending in 2018 compares to £7.83bn taken via the higher profile “pension freedoms” (i.e. flexible payments from pensions) (2).
While the total use of the pension freedoms is currently greater than equity release, equity release is winning the growth race.
Since the introduction of comprehensive reporting of pension freedoms data in Q2 2016, this market has grown by an average of 0.71% each quarter – rising from £1.77bn in Q2 2016 to £1.90bn in Q4 2018. Over the same period, equity release has grown by an average of 7.1% each quarter – more than doubling from £514m in Q2 2016 to £1.08bn in Q4 2018.
Commenting, Alistair McQueen, Head of Savings & Retirement at Aviva said:
“These equity release numbers are encouraging. If you thought the pension freedoms were popular, look at the growth of equity release.
“Property and pensions together represent nearly 80% of private wealth in the UK (3). As our life expectancy reaches record highs (4) and our savings ratio hits record lows (5) it is understandable that people are increasingly turning to their property wealth to fund their longer later lives.
“Here are five first steps I’d recommend to someone considering equity release.
- Reframe your retirement expectations: The days of working one day and stopping the next are increasingly a thing of the past. As are the days of simply using our private pension wealth to purchase an annuity to fund our life in retirement. We’re adopting a much more flexible approach to retirement in terms of how we retire, when we retire, and how we fund our retirement. We should open our mind to this greater flexibility to ensure we are best placed to thrive, not just survive, in later life.
- Consider your full wealth: Our pension savings and our property will increasingly represent equal amounts of wealth as we approach retirement. And for many, property will be our biggest asset. With this greater diversity of wealth, we should increasingly consider all our assets as we plan our lives in retirement.
- Secure professional advice: If we want to use equity release we’ll be required to secure professional financial and legal advice to guide our way. This is important because taking out equity release will reduce the amount of inheritance you are able to leave. It may also affect your tax position and entitlement to welfare benefits. As we look at our wider retirement options, we’ll increasingly find value in securing professional advice for all our retirement planning. For many, this investment up front will reap rewards in the years that follow.
- Discuss your plans with your family: As a nation we don’t relish discussing our finances with others, including members of our family. If, however you plan to use equity release it’s wise to share these plans with your family. Your family may be assuming they’ll be able to use your property wealth to fund their lives. You may have different plans in mind. A common understanding today will help avoid confusion and upset tomorrow.
- Consider all your plans for your housing wealth: Some of us may see our home as a means of funding our retirement; some may see it as a means of paying for later life care; some may see it as a means of updating our existing home; some may see it as a source of providing inheritance; some may see it as a means of helping younger members of their family on to the housing ladder; and some may see it simply as a home. The demands on our home may be numerous. Consider all these potential demands before taking your next steps. You’ll need to ensure there is enough home to go around.