Scottish Widows reveals equity release attitudes

Amanda Jarvis

March 10, 2006

The research highlights:

– Only one in four retirees expect to have enough money to do all the things they want to in retirement
– Only four out of ten rule out never having to try to raise extra funds in the future
– Property is the most popular source for additional funds amongst retirees needing extra cash, with half saying they will downsize to a smaller house and a third saying they would release funds from their house via an equity release product
– Average amount of funds required is £48,000
– Those who rule out equity release schemes do so because of a desire to leave an inheritance (four in ten) or a lack of trust in the products (four in ten).
– Five out of ten retirees claim their estate is worth £275,000 or more
– Only one in six have taken significant steps to reduce IHT liability

The report reveals how many people in retirement believe their ‘golden years’ will be comfortable, and how those that have concerns about their future income plan to go about raising extra funds.

The report has four key conclusions:

– Many retirees expect to need to find extra money at some point in the future

Only one in four of those currently in retirement expect to have enough money to meet all of their needs in their old age. With 11 million pensioners in the UK, this leaves over eight million who readily admit to a possible shortfall in their income in the future.  

When asked how they would go about making up this shortfall it appears the majority would look to raise money, rather than cut expenditure, with three million considering selling their home and moving to a smaller property, two million saying they would release funds from the home via an equity release product and another half a million considering selling their home entirely and renting.

Not only is there a growing number of retirees who acknowledge they may need to withdraw equity in their home in the future, there is also set to be a marked increase in the number of eligible households – in terms of equity stake and product providers’ age requirements – rising by 13 per cent over the next five years and as much as 58 per cent by 2030.

– The ‘magic figure’ those seeking to raise funds are after is £48,000

The report then goes on to identify the size of the shortfall – and the amount of money retirees who wish to release equity from their home would draw.  Of those who would consider using equity release in the future, three out of ten would draw up to £50,000, with a similar amount drawing between £50,000 and £100,000.

– Trust in the products is still a barrier to some

Despite all the good work Safe Home Income Plans (SHIP) has done and the onset of regulation – trust in the product is still an issue for almost four out of ten of those who say they won’t consider equity release in the future (just over half of retirees in total).  

– The bequest motive

The report also reveals that the public do not necessarily understand how equity release can be used to assist with inheritance tax planning. Overall 54 per cent of retirees would not consider equity release, yet this only increases to 56 per cent for those with children. This is despite the fact that over half claim to have an estate or around £275,000 (the current inheritance tax limit) with only 16 per cent admitting to having taken any significant steps to help mitigate this risk.

Murdo McHardy, head of product development and marketing at Scottish Widows Bank said: “Whilst not for everyone, lifetime mortgages are potentially an excellent product to help transform the lives of those who may have benefited from house price inflation but who have low income in retirement. It also represents a valuable planning tool for the growing number of people being caught in the inheritance tax trap.  

“The Scottish Widows Bank report shows that the market is set to grow with more people predicting a short fall in their retirement income, and more homes eligible for equity release products. However the industry needs to help consumers understand the product better and how today’s lifetime mortgages bear no relation to the products sold in the past.”

Ray Boulger, senior technical manager at John Charcol said in his foreword to the report: “As more and more people retire with a worse pension than they expected, often significantly so, but also with a lot more equity in their property than they would have expected only a few years ago, the potential for equity release to enhance many people’s enjoyment of their retirement is apparent.

“The need for greater understanding of the benefits and risks of equity release, and the increasingly wide choice of products, has never been greater. It is the responsibility of advisers, product providers, the regulator and the media to work together to make sure that those who may benefit from equity release are fully aware of the opportunities it offers for a more fulfilled retirement together with a full understanding of its risks.”

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