Advisers: “home should be part of pension mix”
Seventy four per cent of advisers think that more retirees should consider their property as part of their asset mix when looking at funding their retirement, according to research published by Stonehaven.
According to the survey, advisers’ believe that retirees should include their home when reviewing their asset pool as a result of the pension reforms announced by Osborne last year, giving retirees more control over their pension funds. The view is that greater pension freedom will encourage more retirees to spend more of their pension pots, and turn to the equity in their homes to supplement their income instead.
Recent figures from the Equity Release Council show that equity release hit its highest annual lending level ever recorded last year, with a figure of £1.4bn. However, from April 2015 these figures could be dwarfed as the majority of advisers surveyed agreed that retirees will start to view withdrawing property income to fund their retirement as normal (88 per cent).
Enhancing quality of life is expected to be the most prominent reason for growth in the equity release market after April 2015. 73 per cent of advisers predict that retirees will use the capital locked in their homes to enjoy luxuries such as travel; 70 per cent believe covering day-to-day living expenses after exhausting their pension funds will also be a common motivation.
Using equity release as a primary income is the second most popular reason for unlocking equity in property (70 per cent). With additional freedom to withdraw pensions as and when it is needed, many retirees will use up their pension pots faster than expected, as they try to keep up with the rising costs of living.
Just over half of advisers (51 per cent) believe that an increasing number of retirees exposing themselves to the risk of the stock market will drive a heightened demand for equity release products, as income drawdown and underperforming funds diminish the value of their investments. Retirees could see equity release as a means to mitigate their market risk exposure, by providing them with the ability to top up underperforming investments and restore their level of income.
“We are entering a period of uncertainty in the pensions market as retirees are afforded new freedoms to spend their savings as and when they wish,” Alice Watson, product and communications manager at Stonehaven, said.
“While this flexibility is good news for savvy retirees, recent research has shown that a number of retirees may choose to use their pension pot for luxuries and gifting to family instead of using it for an income over the long-term. Retirees may find that their calculated expenditure cannot keep up with the rising cost of day-to-day living or that buying a well-earned holiday in retirement is stretching their finances a step too far.”