Georgina Smith is managing director of Stonehaven
For many, leaving an inheritance to ensure financial security for their children and grandchildren is becoming increasingly important.
Recent research showed us that 37% of over-55s want to be able to leave something to their loved ones, while 42% want to ensure they have enough financial wealth in retirement to allow them to step in and help their children or grandchildren when they need it.
In a climate where pensions have not necessarily met expectations for many retirees and savings are insufficient, funding aspirations can be a worry.
Having financial security will be a struggle for thousands of retirees and the thought of leaving an inheritance may seem a distant dream to some.
In order to maximise the pension pot, financial advisers are now being urged to consider their client’s home in the asset mix when planning for retirement.
It’s no secret that house prices have significantly risen in recent months, leaving a generation of house buyers struggling to get a foot on to the property ladder.
It is issues such as this along with increased University fees which leave grandparents and parents wishing they could step in and offer some financial help with an early inheritance.
For those who find themselves asset rich but cash poor, releasing equity locked up in their home through a lifetime mortgage could reduce a retiree’s financial strains and those faced by their families.
Currently around 30% of Stonehaven’s customers release equity from their home to gift to their family, suggesting a trend of gifting an inheritance early when it is needed most.
There are products available which allow client’s to reduce, or even stop, the impact of interest roll-up. Some products allow one-off payments and there are also more structured products available, where the client chooses to make a monthly interest payment.
If they opt to make the full interest payment for the life of the loan, the outstanding balance will not increase over time. This means that the client knows where they stand, and only the initial loan amount is owed at the end of the mortgage term – leaving the remaining value of the property to the benefactors. In some cases, the children may choose to cover the interest payment.
Another product feature available allows the client to choose a percentage of the value of the property to be ring-fenced and available to the client or their estate after the lifetime mortgage has been cleared. This is known as a Protected Equity Guarantee. The amount that can be released from the home is then calculated based on the value of the unprotected portion of the property.
The recent changes to the pension’s landscape announced in this year’s Budget will dramatically change the way we all financially plan for our later lives.
The Chancellor’s vision to allow retirees to withdraw their lump sum has created a flexible system which, if used wisely, will help provide a more financially secure retirement which still allows for aspirations to be met, such as leaving an inheritance.
With product features which can be tailored to a client’s needs, a lifetime mortgage could offer a solution to those with family members they wish to support financially.