No substitute for pensions

After almost a decade of experience in this market, I should like to add a word of caution because I firmly believe the family home should not be seen as a substitute for careful pension planning.

Although equity release plays an invaluable role in improving the quality of people’s lives in retirement, failing to contribute adequately to a pension and relying on borrowing against property to fund retirement may well result in penury.

In order to secure a pension of £20,000 at the age of 65, from a typical equity release arrangement involving the family home, the property would have to be worth in excess of £1 million at today’s prices. There are, according to Halifax’s research, dated 7 April 2007, only an estimated 89,000 properties worth over £1 million in the UK.

Equity release has certainly changed the quality of life for tens of thousands of pensioners and it will continue to provide a means of supplementing retirement income. However, too many current home owners are depending on the rising value of their home to provide for them in old age, while failing to appreciate that it is unlikely to be able to do so, resulting in their suffering a significant fall in their standard of living at retirement.

Daren Carter

Managing director

In Retirement Services