Some people soon to be retired are likely to have very little provision by way of savings in their later years. With medical advancement increasing life expectancy, the demise of final salary schemes plus the pension rules allowing earlier access for those who ‘want to enjoy it now whilst they can’, lends support to a view that many will simply not be able to afford retirement.
A solution to this may be to exercise some of the wealth retained within a property as many will have larger wealth in their homes than in their savings. The long-standing route for the property would be to pass onto family upon death, and that the pension plans would be there to provide the income required for retirement.
Unfortunately, the latter is becoming quite hard to deliver for a lot of people, mainly due to inadequate planning in earlier years. Add into the mix that pensions can escape IHT issues (Inheritance Tax), but property may not, which means it has been more important to take property into account when considering retirement plans.
Releasing the wealth from a property can either be done by downsizing or equity release, but many people think that by using equity release this will result in them losing control over their home, whilst a lot of others state that borrowing in retirement is not what you should do. Many people would have lived in their home for a number of years, thereby become emotionally attached to it, and therefore reluctant to harm the asset in their decision making.
” Parents are keen to pass assets to their children such as a home, but on death, the home is sold to realise cash indicating that it’s about passing on the wealth rather than the physical asset. “
Downsizing may not be as easy as it seems as the amount of money released after expenses, buying the smaller home, renovation costs and general upheaval may result in a sum far less than originally envisaged. If parents still have adult children living with them (as they try to get onto the property ladder themselves) that too could create further complication.
The mechanism of equity release is becoming more and more popular with very rapid growth seen in the market responding to changing customer views and needs. The innovation of new products and new fixed charging structures have helped customers access the market with a more embracing approach.
Equity release has often been seen as a last resort approach, but primarily due to a lack of retirement planning years before.
Retirement conversations need to happen much sooner to potentially avoid later life hardship through lack of provision. Parents are keen to pass assets to their children such as a home, but on death, the home is sold to realise cash indicating that it’s about passing on the wealth rather than the physical asset.
With generally lower pension provision and increasing need for long-term/social care, it means people should consider how wealth within their properties could be used as part of a retirement plan.
Lloyd Fernley – [email protected]