However, as an unavoidable symptom of this success, the elderly sections of society are increasing in number and the financial strain on those in retirement grows ever heavier. It is due, in part at least, to this ‘greying’ of society that financial solutions like equity release will become more popular and accepted in the mainstream.
At present, the amount of people aged 75 and over in the UK totals around five million, however, according to ONS figures by 2040 this number is set to double to 10 million. With an extra five million people set to make up the retired population, the way these people finance their retirement will become of critical importance to themselves and the state.
The use of housing wealth to fund post-work life is becoming a more popular solution among retirees in the UK, the record-breaking equity release lending figures of 2014 are testament to this fact.
An estimated £1.4trn worth of property wealth is currently owned by the over-60s, and this figure will increase further over the next few decades as the generational housing gap continues to widen. House prices surge onwards and more people retire every year needing to cover the cost of losing their working income. Logical sense dictates that the ‘elderly’ cohort turn to their housing wealth to fund retirement and, therefore, the equity release industry will continue to grow.
This April’s pension freedoms coupled with the increasing life expectancy of the general population, is another factor that should stimulate the use of equity release. For those who have not saved enough or miscalculated their retirement finances, equity release could act as a real financial safety net.
As pension pots continue to be stretched further by people living longer, many people will be forced to turn to their biggest asset, their home. Many people will downsize to cash in on their historic capital gains, however, many will also feel that downsizing is something that is just not possible in their current position, while many simply will not want to downsize. For these people, equity release will seem very appealing.
With the lengthening of life expectancy comes an unavoidable increase in the amount of people requiring care in later life. Astronomical fees charged by many care providers will impact many of us in later life, and with an ageing population that will require more care at home and in care homes, don’t expect these fees to go anywhere but up. Conversely, the increase in demand may well also drive innovation and choice which is no bad thing for the care sector or society.
This coming April, the government is due to begin a two-step implementation of care reforms through the Care Act. A £72,000 cap on elderly care costs is due to be introduced, but many will see their pension savings depleted by these care costs, living costs and some may have their savings wiped out before they need to have care. Despite this care cost cap being a step in the right direction, the cost is still enormous and the cap does not include ‘hotel costs’ – food, energy bills and accommodation – which is capped at £12,000 a year.
This means that a person in care would have to pay £100,000 over 3 years before the government cap applies. For most people, this is an enormous amount of money and people will have to fund their care somehow far before the government will provide financial assistance. This will surely force people to assess their financial position regarding their care costs, and many will turn to their housing wealth to help meet the costs.
