If downsizing conjures up images in your mind of a retired couple standing outside a cottage with roses around the door, you are probably one of life’s optimists. The reality is that many retirees see the financial and emotional upheaval of selling and moving as so great that they would rather stay put.
The post-war baby boom generation has mostly done well out of property, able to upsize and ride a wave of generally rising house prices. But as they reach retirement, pension income is being squeezed by a combination of lower than expected investment growth and low current returns.
State help has been reduced over the years while those retirees relying on final salary pensions are a dwindling number.
A recent Just Retirement survey revealed downsizing was something that many of the retired have considered, but there was a distinct lack of enthusiasm which grew with age.
Fewer than half saw moving to a smaller house as a solution if they needed to raise some money or secure more income.
More in-depth discussions revealed people were put off the idea not just by the costs but also the emotional loss of selling the family home, and the hassle of finding somewhere suitable, close to friends and neighbours.
If moving is a step too far, what alternatives can advisers offer to clients hoping to stay in their homes while unlocking some value? Equity release is one obvious solution but the research shows consumers are largely in the dark.
Only one in 10 could name a provider unprompted and just under half (44%) admitted they would not know where to go to get more information.
Overall around one in five said they would go to a financial adviser to find out more. The number was significantly higher – 26% – for those who still had between five and one year to retirement and peaked at 39% for those in the final 12 months of working.
One clear conclusion is that financial advisers need to take into account a client’s entire asset pool – including the value of the home alongside other investments and pensions – so it can be included in the decumulation plan at an early stage.
The research found a clear difference between the £17,000 a year income those approaching retirement were hoping for on average, and the £10,000 those at retirement were achieving. This income gap is likely to become a more common theme in conversations with retiring clients.
Already we are seeing some advisers include equity release as an option for helping to fill the shortfall by using the drawdown facilities now available, a trend we expect to grow. Even where the immediate income is sufficient, housing equity should form part of the adviser and client conversation in developing a longer-term plan around income, inheritance or care.
People now reaching retirement are far less likely than those already retired to feel pressure to leave an inheritance, particularly if it means sacrificing their own living standard. They expect to use the resources they have built up, even if that means passing on money while still alive so they could see its benefits.
There around 10m over 65s in the UK and it is estimated they currently have equity in property worth about £750bn. This is a market that has the potential to deliver double-digit growth for decades.
Equity release may not be a client’s first choice to generate retirement income but for increasing numbers of people reaching retirement with insufficient pension assets, it will be the only credible solution.
The skills of financial advisers to create a long term plan to show their clients how to access property as well as pension assets will be increasingly in demand.
