Race against time: Equity release in an ageing world

Explaining the benefits of equity release is becoming more important as life expectancy rises, explains Andrea Rozario.

The retirement landscape is changing at a rapid rate, but attitudes to what constitutes a normal retirement don’t seem to be keeping up.

For years, we have been warned that rising life expectancy will have serious knock-on effects to people’s wellbeing in later life – but as usual we are slow to react. It is a curse of human nature to be lackadaisical in the face of crises that seem to be far off over the distant horizon.

When it comes to ageing, we are making the same mistakes we are with global warming. We nod our heads and agree that it’s a major issue, but then carry on as normal. But the effects of ageing are on our doorstep now and we must react appropriately.

According to official statistics put together by the government in 2015, by 2020 there will be 12% more people aged 65 and over than there were five years previous, and this 12% hike is huge compared to the overall population growth of just 3%.

This makes those over the traditional retirement age the fastest growing demographic of all age groups, and in three years there will be 1.1 million more individuals at retirement age than there were in 2015.

The challenges this huge age growth force upon us are manifold – health and housing being two critical tasks to manage – but the issue of finance is one of the most concerning.

With the retired and retiring becoming the fastest growing age group, the government will have to scramble to make up the deficit in income tax receipts somehow.

But monetary shortfalls will hurt elderly individuals and families, too. Most will come to realise that their pension will not stretch far enough to support them for their whole retired lives, as many will live on for 25 to 30 years or even longer.

By 2020, there will be 40% more centenarians than in 2015 and the true damage will be done to the wallets of people up and down the country.

Till debt do you part?

With not enough money to live comfortably in retirement, retirees will have to look to other forms of finance – but the feeling towards taking on debt in retirement is overwhelmingly negative.

According to research from Retirement Advantage, three quarters of people over the age of 55 believe that taking on debt in retirement is not “normal”.

However understandable the desire to stay debt free in later life may be, the simple fact is that thousands of pensioners will be faced with the decision to either re-enter the labour market, downsize or seek alternative finance. For most, finding another job or downsizing is very unattractive, so finance avenues must be explored.

Despite most people thinking that taking on debt in retirement is somehow abnormal, equity release continues to grow and help more people have the retirement they want.

Record breaking years are coming thick and fast and I expect this trend to continue thanks to the hard work of everyone in the industry and the effects of the ageing population. Our customer pool is growing and will continue to grow for the foreseeable future – but there are hurdles to tackle.

Hitting home

Regardless of the success we have had in recent years, the reasons people continue to turn down equity release are troubling, but not irrevocable.

The top two reasons people do not go forward with equity release are “I don’t want to lose control of my property” (19%) and “I want to pass on my property as inheritance” (17%). These two responses are equally frustrating and emboldening as they are easily dealt with.

Homeowners cannot lose control of their property because there are a number of safeguards, and thanks to the evolution of the lifetime mortgage, customers who want to protect their inheritance can ring-fence allotted equity with a number of providers.

Getting these facts across to homeowners is our number one battle, and with our customer pool swelling thanks to the impacts of the ageing population, winning this battle is becoming more important by the day.

Andrea Rozario is chief corporate officer at Bower Retirement