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Helping retirees to unlock housing equity could be life changing – Ellis

by: Steve Ellis, managing director of Legal & General Home Finance
  • 03/10/2017
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Helping retirees to unlock housing equity could be life changing – Ellis
Some eight million people in the UK expect to carry on working into their late 60s and even 70s; hoping that part-time work or an inheritance can help them to fund retirement.

A part-time job can certainly be beneficial for your retirement years by supplementing incomes and providing a social circle and purpose, but it worries me that so many older people expect to have to rely on working longer and hoping for a windfall to cover the costs of later life.

Retirements are now lasting upwards of 15 years for many people, with average life expectancy rising to 82 in 2015, according to the World Bank.

Unsurprisingly, this has left us with a question to answer – how can we fund a longer retirement?

The government has already announced plans to raise the state pension age to 67 in 2028, meaning many of us will face having to work full-time for longer, while private sector defined benefit pension schemes are closing rapidly.

 

Changing perceptions

Our perceptions of later life have also changed. The years after work are no longer seen as the end of our lives, but instead a next stage, a time for enjoyment and, in some instances, a time for wealth decumulation to help our loved ones. In order to maintain the lifestyle they want in later life, many older people are seeking alternative avenues to allow them to meet their retirement objectives.

For thousands of older people across the UK, the option of part-time work won’t be appropriate, and certainly many people won’t have an inheritance to rely on. For these individuals, it is vital that advisers, and the mortgage industry as a whole, show the way to release housing equity to fund retirement outcomes.

Housing wealth is one key area where retirement perceptions are changing. While the workplace pensions sector continues to suffer from an image problem, many consumers have seen the value of their properties rise dramatically in recent decades.

Since January 2005, the average price of a property in the UK has risen from £151,000 to £223,000, according to the Office of National Statistics. The question for these over-55s is – how can they access this wealth to do the things they want to do in retirement?

 

Consider all options

The lifetime mortgage market has seen staggering growth over recent years. It’s now a £2.15bn sector that we at Legal & General believe could easily hit £3bn this year. But when we compare this to the vast quantities of property wealth in the hands of Britain’s over-55s, there is clearly so much more potential.

When it comes to planning a client’s retirement, property wealth has to be part of the puzzle. We see the support of professional advice as central to growing the lifetime mortgage market and to helping consumers build a solid retirement plan, but we also want to see more advisers discussing accessing housing equity as part of this plan. This is a solution that we shouldn’t be shying away from.

Of course, it’s vital that all options are considered. Annuities offer consumers a stable income, while downsizing can be an option for those who might want to move. But for some people, namely those who want to stay in their home or want to release equity to enjoy later life, accessing their property wealth could be life changing.

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