Chris Prior is manager, sales and distribution, Bridgewater Equity Release
The whole notion of what a pension is, and what it provides a retiree, is being vociferously challenged and has been for some time. The whole system of having to purchase an annuity from a pension fund has been consigned to the dustbin of history by this year’s Budget, and following on from this we have the announcement by George Osborne at the Conservative Party Conference that the so-called ‘death tax’ will be abolished. Which begs the question whether annuities will survive at all?
The set in stone pension norms of yesteryear are being eroded fully and the watchwords are now ‘flexibility’ and ‘accessibility’. Essentially, individuals are being trusted to do what they want with their pension funds, which represents a real sea-change for the pensions industry, advisers and, most importantly, those reaching retirement.
The implications of these changes and developments are clearly far reaching and amongst the sectors that are being affected by this is equity release. The real fallout remains to be seen but it will certainly have an impact on potential equity release customers. I’m quite certain that some consumers who would have been prime candidates to take out an equity release plan may feel they no longer need to because of the pension changes, however I’m equally certain there will be others who will have to accept they need to boost their retirement income levels in order to continue experiencing the same standard of living.
Confronting the bare facts of the matter, we can see that demand for equity release is unlikely to tail off anytime soon, in fact it is only likely to grow. The reason for that can be found in the fact that most people’s pension pots are barely more than £20k and this means, even with the added flexibility now afforded to them, it’s unlikely they will be able to live comfortably on this amount for a considerable amount of time. Add in the fact that people are living longer into retirement and cost of living increases remain a real concern and you will be quite clear that most people are not going to be using their pension pot to buy a Lamborghini.
So, while we might say on the one hand that retirees taking cash from their pension pots may delay them looking at equity release in order to fund their retirement income shortfall, on the other it is still likely that they will need an income top-up from somewhere at some stage. Plus, there is also the added danger that this new-found freedom will mean some people ‘burn’ through their pension pot in double-quick time – what are the implications for these individuals? It is doubtful they can expect a State bail-out and therefore they too may be looking at the equity release option in order to get their finances back on track.
This should, undoubtedly, lead these individuals to professional advisers and hopefully to your door. Those who are reaching retirement soon, and indeed those already retired, are probably looking at the raft of changes and new developments and wondering how this affects them, their own pension arrangements and how they continue to fund their retirement.
It is for this reason that advisers should now be on the front-foot, ensuring their services are fully to the fore because, quite frankly, the implications for these individuals of not taking advice could be serious. Financial advice has never been so important – just one example is how these changes and any move towards an equity release plan might affect the tax they have to pay. There could be considerable tax implications for individuals plus there is also the issue of ongoing benefits and how these are impacted by such major decisions.
So, advisers are in a prime position to support consumers in making sense of these developments and ensuring they do not disadvantage themselves by making the wrong decision at the wrong time. The need for advice for those in later life has never been so great, so let’s make sure the message of where to go to secure that advice is heard loud and clear by all who need it.