Over 55s can boost retirement wealth

Initial equity withdrawals have averaged £40,467 in the first half of this year, amounting to 18 months of post-tax retirement income for pensioner couples, taking benefits, occupational and personal pensions, investments, earnings and other income into account. For single pensioners, the extra funds unlocked add up to almost 3 years (2.9 years) of net retirement income.

In London this stands at 4.2 years for couples or 8.8 years for single pensioners courtesy of higher house prices.

Joint loans made up 64% of new equity plans agreed in the first half of 2014, up from 60% in 2013, while 23% were taken out by single females and 13% by single males.

Nigel Waterson, chairman of the Equity Release Council, said: “The path to financial security in retirement is still clouded in uncertainty for many people, but property wealth stands out among the most valuable assets available to UK homeowners – with major implications about the funding options available to them in later life.

“Saving enough to enjoy a good quality of life has become increasingly hard as living costs have taken their toll on our ageing population.

“But many are finding that the option to unlock housing wealth can provide the financial boost to enjoy a comfortable retirement, while still leaving significant sums for other uses – such as leaving an inheritance or passing wealth on to family members at an earlier stage of life.”

House price growth can balance interest payments on equity release plans and preserve customers’ remaining housing equity over the duration of their loan, the Council concluded.

Government data shows the average female life expectancy is 86, meaning the typical equity release customer (70) might expect to hold their loan for around 16 years, in which time much of the original sum is retained through house price growth.

Helen Davies, head of equity release implementation at Partnership, added: “With the typical UK house price standing at £232,000 – eight times the average pension pot used to purchase an annuity – making use of this valuable asset in retirement to improve a person’s financial security or standard of living would seem prudent.

“Today’s report from the Equity Release Council not only shows that more people understand this but that they are taking advantage of the different product features to best serve their individual circumstances.

“Younger borrowers favour lump sum mortgages which allow them to repay borrowing or undertake home improvements while older borrowers look to drawdown to improve their income.”