Although many in financial services might have missed it, the Equity Release Council’s (ERC) recent Spring Market Report heralded something of a turning point.
Property is now being fully recognised, and utilised, as a safe and reliable way to resource people’s retirements in the UK.
The numbers are revealing. Two years ago people aged over 55 released 29p of housing wealth for every £1 released in flexible pension payments. Roll forward and this ratio has nearly doubled. In the last quarter of 2017 the figure was 56p per £1 of pension payments.
Clearly this is a significant step forward for the equity release market.
For the first time annual lending has risen past the £3bn mark. The ERC has found that equity release is attracting twice as many new customers as five years ago, meaning that 67,000 people in the UK now use the product.
The big three
The drivers for this are myriad, but three are prominent.
Although the housing market has notably slowed, the growth in the value of the average home has soared over the past decade. Today there is an unprecedented £4.6trn of property wealth. This has given people a pocket of wealth and, quite rightly, they want to access it.
Secondly, for many the defined benefit pension no longer exists or, if it does, often represents a lower proportion of overall pension income.
Instead, the risk of accumulation through defined contribution pensions falls to the individual. Likewise, with the advent of pension freedoms, risk for decumulation is also something an individual must contend with and in a period of relatively low annuity levels.
Thirdly, there has been an unprecedented level of innovation in equity release as product providers seek to accommodate the evolving needs of their customers.
As a result, features such as drawdown, early repayment charges and increased loan to values, now mean that the flexibility is such that they are well geared to serving the financial needs of those in retirement.
Best yet to come
But the real watershed moment has yet to be reached. The way we conduct financial planning for retirement needs to be reassessed. If, as we are witnessing, people use their homes to generate over half of the income they need in retirement, then this needs full and proper consideration in the way they are advised.
The basis of conversations need to adapt. Planning needs to take a holistic view and conversations framed differently.
Retirement Advantage recently undertook research to understand the psychological attachment people have to their property. Advisers should seek to understand the way people think about their property if they are to have objective conversations about them. It’s a different conversation to the one that is purely about a pension, and being prepared for that is crucial.
Last but by no means least, IFAs should consider gaining the right qualifications that will equip them to advise on equity release. If they do, and appropriate opportunities to recommend equity release arise, it will benefit both clients and the advisers themselves.
Alice Watson is head of product and marketing at Retirement Advantage Equity Release