Tom McPhail from lang cat financial explains how housing equity can help with retirement living standards and the challenge of getting on the housing ladder. And why it doesn’t.
The UK’s equity release sector has improved beyond recognition over the past 20 years, but it still needs a step change in how it helps property owners make the most of their wealth in later life.
The UK’s population faces significant financial challenges. The resources available to meet the retirement income needs of an ageing population are already stretched and this problem is set to get worse.
We have passed ‘peak DB’ and many retirees are already struggling to enjoy even a moderate standard of living in retirement. At the same time, the financial penalty of youth means today’s twenty-somethings are struggling to pay off student debt, build a house deposit and get on in life. After two years of Covid, available state resources to alleviate these pressures are limited; taxes are already rising just to ease NHS waiting lists and there is an escalating cost of living crisis.
Significant challenges exist at either end of the age scale. Median pensioner incomes don’t even reach the ‘Moderate’ standard of living defined by the Pensions and Lifetime Savings Association (PLSA). Using this benchmark, pensioners already suffer a retirement income deficit of over £48 billion a year, yet few pensioners are accessing their property wealth to supplement their retirement income.
The average age of first-time buyers is now over 30; for many the difficulty of getting together a deposit is a key factor. However, a consequence of increased longevity is that the inheritances which could alleviate the financial struggles of young adults typically don’t reach beneficiaries until they are already well into middle age; too late to help them in early adult life.
Housing wealth is an obvious solution to these twin challenges of a need to increase retirement income while also helping younger generations. Perhaps the most remarkable aspect is the relative underutilisation of this resource to date.
In a recent report I wrote on behalf of Responsible Life and Royal London, I set out a series of measures that could be taken to achieve that step change in outcomes for customers. The starting point is for the industry to come together with policymakers and regulators to consider what could be achieved through collective action.
You can read the full report here HOUSE RULES – the lang cat (langcatfinancial.co.uk)
- The views of contributors are not necessarily those of the Council.
