Pension panacea failure will boost equity release
The auto-enrolment scheme that obliges companies to enrol their staff into a workplace pension has now been launched, but initial indications are that it may not be the cure-all the Government is hoping for.
Research carried out by CoreData for Skandia has revealed that 49% of people are unsure about whether to participate, while 16% have already ruled themselves out.
Just 35% definitely plan to take advantage of the scheme which would suggest the Government may fall some way short of its target of giving up to 11 million workers a private pension for the first time.
The reason for such apathy is unclear but may centre on the fact that many employees fear they will be signed up to low-yielding schemes laden with cumbersome fees.
Despite this apparent suspicion it does appear that the Government’s intentions to rectify the income in retirement crisis is genuine, but for many the damage has already been done in terms of the distrust that many people have in pensions’ reliability and the state’s ability to provide for them in their later years.
Many older homeowners already view property as their real nest egg and we have certainly witnessed a marked increase in the number of individuals using home reversions to increase their income in retirement.
Analysis of our own transactions show that while mortgage repayments and home improvements remain the two most popular usages, instances of homeowners accessing equity to ease their expenditure worries have soared by 125% in the past year.
With the rising cost of living seemingly showing no correlation to the austere times we find ourselves in, it is perhaps no surprise that older homeowners are exploring different ways to maintain their lifestyles.
Although take-up of the auto-enrolment scheme may improve over time, the initial reluctance is telling and suggests that the Government has much more work to do to address the pension shortfall.
It also has its hands full with addressing the issue of long-term care funding and it is no coincidence Bridgewater figures show the number of older homeowners using equity release for this reason also increased during 2011/12.
Despite this increase, it still represents a fairly small percentage of our overall home reversion business, but we would expect this to increase over time.
It is regrettable that it is taking advisers and the general public so long to wake up to the full potential and versatility of equity release, but it is certainly a case of better late than never for the sector itself.
It’s also worth pointing out that while no equity release market stakeholders would have wished for, or foreseen, the economic conditions or political dilly-dallying that has led to this surge in popularity, it is certainly encouraging that home reversions and lifetime mortgages are coming to older homeowners’ aid in this way.
With no pension panacea in sight, instances of equity release being used to supplement income in retirement can only go one way.