With the Financial Conduct Authority (FCA) consulting on intergenerational differences, the need for a coherent industry debate around alternative sources of finance in later life is more pressing than ever.
Accessing property wealth can help bridge the gap between generations, as well as providing older homeowners with an alternative source of capital or income to fund retirement shortfalls or social care costs.
Longer retirements, but smaller pension pots
The UK is ageing rapidly – currently 18% of people are aged 65 years old or over, a number which is estimated to grow to 24% by 2038, while the average person in the UK can now expect to live until 79 for men and 82 for women, according to official government statistics.
Not only are UK retirees living longer lives, but the decline in people benefiting from generous defined benefit pension schemes over the next 10 years means smaller defined contribution retirement pots will have to stretch much further.
The average English person’s pension pot projected to be worth £117,300 at the age of 65 producing an annual income of just £12,600, according to figures from PensionsBee.
Anticipating potential shortfalls in retirement income retirees will need to consider all sources of accumulated wealth including investments or assets to supplement this retirement income and maintain their quality of life.
Property wealth is emerging as an option that can help supplement the income of the next generation of retirees. Accounting for 40p in every £1 of over-65s wealth, and 47p among over 75s, an increasing number of older homeowners are turning to their properties to offer them additional financial support in later life.
Our recent report: Beyond Bricks and Mortar: the changing role of property in later life financial plans, highlighted that more than half of homeowners aged 45 years and over (51%) now see money invested in property as part of their later life financial plans. This is reflected in the growth of the equity release market with a total of £1.85bn housing wealth being unlocked in the first six months of 2019.
Older generations are challenging the traditional idea of inheritance.
Data from Key shows that almost a third of equity release customers (30%) are opting to pass on their property wealth to younger relatives while they’re still alive.
Whether it’s supporting their university education or first step onto the property ladder, grandparents and parents are looking to gift their wealth while still alive. This ‘living inheritance’ enables younger relatives to not only benefit from the money at a time in their life when they need it the most, but it also allows older generations to witness the benefits their inheritance can bring.
Supporting the social care crisis
The ever-increasing cost of social care was a key point in the FCA’s paper and is a factor behind unexpected retirement costs for older generations.
While money invested in property is viewed by all cohorts over 45 as part of their inheritance plans (64%), individuals also view their homes as part of their plans to pay for care (35%).
With the very oldest and fastest-growing group of our population also happening to be those most in need of care; politicians, industry, charities and academic institutions all need to work together to find a solution to the UK’s care funding crisis.
While there may not be a silver bullet solution, equity release can play an important role in helping individuals meet the cost of care.
It can provide dual benefits in tackling the care crisis not only providing a source of funding for older generations to meet their care costs, but crucially, by supporting adaptations and new technologies in their own homes, people can live independently for longer – which most desire. As ever, it is critical that consumers receive regulated and qualified financial advice when doing so.
In 50 years’ time, there is projected to be an additional 8.2 million people aged 65 years and over in the UK – a population roughly the size of present-day London. As the UK’s population continues to grow, more needs to be done to help guide UK retirees on the range of financial options available to them.
The Equity Release Council, the trade body for the UK equity release sector, believes that we should celebrate the fact that many people are now living longer lives. However, sustainable solutions across generations can only be possible if we act constructively together.
In order for individuals to make an informed choice, it is crucial they have a complete overview of their accumulated assets to ensure they make the best decision when planning how to fund their retirement. Understanding the potential of their housing wealth to support their later life financial plans is part of this. This is why we welcome moves to bring together different elements of financial guidance, like the Money and Pensions Service has done.
The Council is calling for cross-party efforts, such as a later life commission, alongside public guidance services to help people consider the potential uses of property wealth to address their financial needs in later life.
Jim Boyd is chief executive at the Equity Release Council