Could property wealth replace a pension?
How long will your client’s retirement last? Our research shows a 65-year-old affluent woman in good health has a 1 in 10 chance of living to 1001. While not everyone will live this long, it’s possible life expectancy among higher socio-economic groups may continue to rise. As a consequence, your clients could be looking for different ways to maximise their income in retirement while keeping an eye on the inheritance they might leave behind.
Most people’s retirement income will be provided by their pension. Some clients may look to secure guaranteed income by purchasing an annuity while others may prefer the flexibility of pension drawdown. However, there is an alternative asset that could be considered to provide income in retirement: equity in the home.
Is housing equity the solution?
While equity release was historically viewed as a ‘last resort’, new consumer safeguards such as the ‘no negative equity guarantee’ mean clients will never owe more than their home is worth. Falling interest rates have led to competitive product pricing; with many now below 3%2. This is one of the reasons some advisers are starting to consider the role of lifetime mortgages in financial planning.
A lifetime mortgage is a loan secured against the home. As a form of equity release, it allows your clients to unlock some of the wealth tied up in their property. The loan is usually repaid upon death or when the last surviving borrower moves out of the home into long-term care.
A lifetime mortgage can be used many ways. Clients could consider using the equity in their homes as a safety net to top up their income if required. An alternative solution is using equity release earlier in retirement to replace pension drawdown.
Could property wealth replace a pension? PDFsize: 1667KB
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1Data taken from L&G/FT Adviser ‘The long and short of longevity risk’ presentation, September 2020
2Lifetime mortgage interest rates correct as of December 2020