A holistic approach to funding retirement is now crucial, argues David Burrowes. Here he outlines how the UK’s £4trn untapped property wealth has an important role to play
The coronavirus pandemic has inflicted severe damage on many people’s retirement finances. Incomes have been hit as Covid prevention measures have caused widespread disruption to many sectors of the UK economy.
While financial strain is being felt in many households across the country, income losses have been particularly concentrated among the older generations.
Figures show that the impact of the pandemic on the UK labour market has been shouldered disproportionately by this group. Latest data reveals more than 121,000 workers aged 50 and over were made redundant in the three months to the end of November 2020, the highest of any age group.
This disruption to income comes at a critical stage of life for older workers.
This group often scale-up pension contributions as they approach retirement, meaning redundancy or wage reductions can acutely impact the resources they have to fund later life. Lower levels of savings mean people face the prospect of struggling to maintain living standards during retirement.
Retirement confidence levels shaken
Everybody deserves a comfortable retirement. However, existing issues that were already putting pressure on later life living standards, such as longer life expectancies and generous final salary pensions edging closer to extinction, are being compounded by the pandemic’s impact on retirement finances.
These underlying concerns are weighing heavily on confidence levels about funding retirement. Our research, supported by Key, shows concerns about funding retirement are mounting among homeowners aged 55+. More than a third (34%) are now concerned about running out of money in retirement, compared to 27% in 2019. A fifth (20%) say they do not know where they would look if they found themselves needing extra retirement funds.
The diminishing role of final salary pensions has put an extra onus on individual savings, at a time when many households are struggling for disposable income to save at the best of times, let alone in the current climate. A large proportion of people are shouldering far greater responsibility for generating their own retirement income, as more employers opt for defined contribution pension schemes.
A holistic approach to funding retirement is now crucial
The scarcity of defined benefit pensions, coupled with the impact of Covid-19 on many older people’s finances, is likely to result in many future retirees achieving lower retirement incomes than previous generations. These trends make it clear that savers cannot rely on pension income alone to sustain living standards throughout later life.
There needs to be a step change in attitudes to funding retirement to help address the deficit between pension savings and expenditure. The increasing challenge of funding retirement creates a need to consider other sources of wealth and assets, beyond pensions, to reach financial security in later life.
The scale of the UK’s £4trn in untapped property wealth is considerable and has an important role to play in addressing the bigger picture. On an individual level, every decision to bring property wealth into play must be based on a detailed appraisal of personal circumstances through expert advice. It is vital that consumers are encouraged to take a broad view of all options and alternatives, and then supported to make decisions that will suit their needs in both the short- and long-term.
Consumers met with greater product choice and lower rates
As savers are faced with these mounting challenges, equity release products have undergone significant developments to increase their appeal as a retirement planning tool. Expansion in flexible features and record low rates means there has never been more choice to meet a range of specific needs.
Although the pandemic has put some downward pressures on market activity, reflective of the wider economy, the Council’s latest market figures show that releasing equity to boost finances in later life has grown from a niche pursuit to a competitive market over the last ten years that has stabilised at close to £4bn of activity since 2018.
To support good outcomes for a growing number of customers, the Council continually reviews and updates its standards to keep pace with market developments. Equity release products are designed to offer the highest level of consumer protection for any property-based loan, by combining clear product safeguards with regulated financial advice and independent legal advice.
In the last year, we have published a range of best practice resources for advisers to help deliver tailored, personalised recommendations to consumers, and appointed a new Risk, Policy and Compliance team to further bolster and support this standards work.
Older consumers are facing an uphill battle to achieve a comfortable retirement compared with previous generations. However, for some homeowners, unlocking property wealth – backed by robust consumer protections – can complement the traditional income streams people tend to rely on in later life. While equity release is not suitable for everyone, it is vital that it is considered proactively as part of these vital planning conversations.
David Burrowes is chairman at Equity release Council
