Misplaced fears about equity release could mean pensioners miss out on extra income in later life

Article date: 13 August 2014

  • More than a third of over-55s (39%) recognise the potential benefits of equity release but only 15% say they would consider it.
  • 82% say they have a good understanding of equity release.
  • But 27% think it involves selling their home rather than the more modern loan-based lifetime mortgages.
  • 46% of those who do not plan to use equity release want to ring-fence their homes for inheritance.
  • As they get older (over-65s) people are more likely to consider equity release.

Britain’s pensioners could be missing out on much-needed cash in retirement because of mistaken beliefs about equity release, research* from Aviva shows. 

Despite more than a third (39%) of Britain’s over-55 homeowners recognising the potential benefits of using their properties to release much-needed extra cash in retirement, many remain reluctant to tap into equity release.

The changes announced in this year’s Budget mean people will have even more freedom in how they take their retirement savings, potentially increasing the risk that they could run out of money if they do not plan thoroughly and consider all of their assets.

The Aviva research found that while the over-55s feel they have a strong overall understanding of equity release (82%), many remain confused by how the products work.

One in ten (10%) over-55s say it is something to do with releasing money from a home but they do not know how. More than a quarter (27%) say equity release involves selling their home and becoming a tenant in it until they die, which refers to an older version of the product that accounts for only about 1% of plans currently sold across the market.            

This may explain why 21% of those who have no plans to take out equity release say they fear losing their homes. And almost half (46%) of these say they will not dip into the value in their homes because they want to pass on their properties in full as inheritance.         

Today, most equity release products are sold as lifetime mortgages that allow customers to take out a loan against their property, and do not affect ownership. And Aviva’s equity release also allows people to ring-fence some of their property value so that they can pass it on as inheritance.

Only 15% of over-55s say they would consider equity release as a way of funding their retirement, with 4% saying they have already taken out the product.  Long-term care (26%), medical needs (16%), general living costs (13%), helping out family (11%), and travelling and hobbies (11%) are all reasons that could prompt the over-55s to consider equity release.

However, the older someone gets the more likely they are to consider equity release, with 16% of over-65s saying they would consider it compared to just 12% of 55-64s. This is consistent with the average age an Aviva customer takes out equity release, which stands at 70 years. The over-65s also consider equity release less risky (19% compared to 23% of 55-64s).

Clive Bolton, Aviva’s managing director, retirement solutions, said many people started out in retirement thinking they would have enough money to last the remainder of their lives and under-estimated how long they were likely to live. However, if they did start to run out of money in their later years, equity release could offer a practical solution.

“Retirees may need to look at additional ways to fund part of their retirement, particularly if they have unexpected expenses or they are low on savings,” said Mr Bolton.

“The Budget changes announced this year will give people more freedom in how they take their retirement savings, which means they will need to plan carefully for the whole of their retirement and consider all of their assets.

“We know from our customers’ experiences that equity release can provide a valuable lifeline in later life, often around 70 years of age, when pensioners’ retirement income may be limited and they need some additional money,” he added.                 

*Research based on 1,200 homeowners aged over-55s in an online poll conducted by ICM Research for Aviva in June 2014.

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