Equity Release Can Play an Increasing Role in Retirement Planning

With each interest cut made by the Bank of England, financial pressures grow for the millions of retired pensioners who rely on savings as part of their retirement planning. It’s not much better for those who are approaching retirement, as UK defined contribution pension schemes have lost a significant amount of money on the stock market in recent times.

With income from share-based investments in freefall, as companies cut dividends; and energy and food costs on the rise, some pensioners who have worked and saved all their lives are having real trouble meeting day-to-day living costs - with their retirement planning counting for very little.

To avoid this scenario, many older homeowners are turning to equity release to supplement their pension. By incorporating a home reversion plan or a lifetime mortgage - the two main sources of equity release - into their retirement planning, retirees can get easy access to the money that’s been built up in their property over the years.

In a recent study, consumers were asked what they would do to boost their income if their pension was between 25 per cent and 50 per cent lower than they expected. The most popular option was to sell assets, which was closely followed by taking a part-time job. The next preferred option was to take out equity release - whether a home reversion plan or a lifetime mortgage.

Home reversion equity release plans allow you to sell all or part of your home to a specialist provider in return for a cash lump sum or a monthly income - and you get to live in your home until you die or move. With a lifetime mortgage, you retain ownership of the property and withdraw money from the value of the property, with the lifetime mortgage provider being repaid when the house is eventually sold.

These equity release study findings represent the tip of the iceberg. Given current market conditions, we can expect to see a significant rise in the number of people incorporating equity release into their retirement planning and accessing capital - through home reversion plans and lifetime mortgages - to supplement their retirement income for a host of different reasons.

The equity release study also reveals reasons why people use home reversion or lifetime mortgage schemes - most people would use the cash to pay for nursing home costs, whilst others choose to help the family. But there are also some interesting differences in how men and women would use capital raised through equity release, whether via a home reversion or lifetime mortgage scheme. For example, men are more likely than women to pay off debts, whilst women are more likely than men to help the family out.

In short, the study helps to illustrate how equity release is fast becoming a key element of retirement planning for many individuals who seek to supplement their retirement income.