Increase in State Pension Age

In a controversial move on 20 June 2011, Government Ministers voted in support of plans to equalise the state retirement age for men and women.  This change means that the age both men and women can begin to draw from their pension allowance will rise to 65 by November 2018, and then to 66 in April 2020.  

This means that some 330,000 women face an extra wait of up to two years before receiving their pension - and  those born between 6 April 1953 and 5 April 1960 will be hit the hardest. It is estimated that Britons in their 50s are expected to out of pocket by up to £15,000 each as a result of the reforms.  In addition, 35% of women over 50 were seen to have no pension savings, with 22% planning to rely totally on a state pension.  

A report by Age UK found that 68% of women surveyed are "concerned" about the increase in the state pension age - and, as women historically have less personal pension provision than men, this further exacerbates the problem.  Now, more than ever, it is vital for both women and men to speak with a financial adviser to explore alternative ways to supplement their later-life nest egg until they reach retirement age if they do not wish to remain in full time employment for longer than they originally hoped.
 
Due in part to the fall in return on savings and investments of those who are retired, as well as a growth in unemployment affecting many people nearing retirement, over the past four years, there has been a continuing downward trend in the average age of people taking out equity release plans. Indeed, in this period,  Ashfords' figures show that the average age of clients taking out equity release plans has dropped from 74 to 67.  With the increase in the state pension age, it would come as no surprise if the average age of people taking out equity release plans were to decrease further. 

Equity Release products such as lifetime mortgages and home reversion plans could be one way to support people aged 55 and over who are struggling due to this change in the state pension age.

If, however, people are considering taking out an equity release plan, it is vital that this is done in conjunction with expert financial advice, to ensure that all of the options have been explored. It is only by consulting with a specialist independant financial adviser who is familiar with retirement planning that you can be sure all of the options have been reviewed.  The holistic advice provided by such an adviser will give you the peace of mind that what you are doing is appropriate to your financial circumstances.  By simply speaking with somebody who is tied to a particular institution/product you may find that your circumstances are being adapted to fit what they have to offer, rather than looking for options that fit your circumstances. 

The equity release industry, even today, is tarnished with horror stories stretching back several decades which are no longer relevant but remain in people's memories.  Schemes such as shared appreciation mortgages sold by Barclays and Royal Bank of Scotland remain at the forefront of people's minds (although these products are no longer available), and misleading reports such as those in recent years by Sir Trevor Macdonald and The One Show add to the confusion.  Today's equity release schemes are regulated by both The Financial Services Authority and the industry's self-regulatory body SHIP ("Safe Home Income Plans) and the financial advisers who advise on equity release have separate qualifications that must be achieved before they can advise on these products. 

There are a number of options that those approaching or in retirement can consider as alternatives to equity release (often propounded by critics of equity release), such as downsizing to release money from your property, which in some circumstances is indeed appropriate  However, many people would rebut this by saying that the costs of moving properties, as well as moving away from established neighbours and friends to sometimes a less desirable (and therefore cheaper area to live) area, or to a property that may need work doing to it, often negates the benefits of downsizing.  Another alternative put forward by critics is to speak with your family to give them the opportunity to financially assist.  Certainly it has been Ashfords' experience that in well over 90% of all equity release plans completed the family have been involved at some stage in the meetings discussing the equity release scheme, and in over 60% of all cases completed by Ashfords have benefited at least in part from the monies released by their parents.  It is also often the case that parents do not want to feel beholden to their children. 

That said, there are also cases that when children have been informed of their parents plight they did step in and offer to help. 

While the conventional mortgage market has seen a fall in business, the Equity Release industry has bucked the trend, remaining stable throughout the recession. Furthermore, despite the fall in house prices, the amount of equity taken from properties has also remained constant. 

With the rise in the state pension age and our overall poor pension provision, the signs are that more and more people will be turning to equity release as the possible solution in later life. 

Ashfords LLP is regulated by the Solicitors Regulation Authority.  The information in this note is intended to be general information about English law only and not comprehensive.  It is not to be relied on as legal advice nor as an alternative to taking professional advice relating to specific circumstances.