Retirement aspirations and financial planning drives almost half of equity release choices

Far from being a product of last resort, retirement aspirations and financial planning drives almost half of equity release customer choices, new research from Standard Life Home Finance suggests.

Unveiled at the Equity Release Summit in Westminster last week, the ‘Lightbulb Moment’ research considered views from 418 people who had taken out equity release and 94 who had declined to proceed after enquiring about the products.

Retirement ambitions, financial planning and families driving choices

Almost a third (32%) of those who took out equity release said they did so because they realised they wanted more from life as they got older and needed additional money to do this, while 11% said their family and friends needed their support.

Others were more focused on financial planning, with 17% saying that they had always known that their pensions and savings were not enough, while a further 11% revealed that they considered their options as they realised their finances would not provide them with the standard of living they wanted.

Under 10% driven by derailed retirement plans

Less than one in ten (8%) said their choices were driven by a life event which derailed their retirement plans – such as divorce, redundancy, or illness. 

Interestingly, 17% who did not take out equity release said their need for additional money was driven by a life event. 

This cohort was also more likely to say they had always known their pension and savings were not enough (+3% to 20%) and be keen to support their family and friends (+4% 15%) – see table below.

When did you first realise that you needed additional money to meet your needsTook out equity releaseDidn’t take out equity release
I wanted more from life as I got older and needed additional money to do this32%17%
I had always known this as my pensions and savings are not enough17%20%
Having spoken to family and friends, they needed my support11%15%
As I approached retirement, I took a look at my finances and did not have enough to enjoy the standard of living I wanted11%11%
A life event such as a divorce/redundancy/illness derailed my existing plans8%17%
I did not want to keep working and I needed additional money to allow me to stop5%8%

Kay Westgarth, head of sales at Standard Life Home Finance, said: “While historically some people have been comfortable pigeon-holing equity release as a product of last resort, speaking to customers who have taken out equity release or seriously considered this option, you can clearly see that this is not always the case. 

“Instead, it is frequently being used as a financial planning tool, a springboard to achieving retirement ambitions or an opportunity to support the wider family.

”Whether a person uses their housing equity as an inheritance, part of their retirement planning or both, we need to ensure that people take the time to consider what role their largest asset could play in retirement. 

“By speaking to a specialist adviser, people can ensure they make sensible, long-term, sustainable choices in later life that will provide them with a lifetime of possibilities.”

Taking time to consider wider options

Having identified a financial shortfall, 40% of over-55s who went on to take out equity release initially felt pensive about their finances and took the time to consider their financial options. 

Almost one in five (19%) felt confused as they didn’t know how to secure the funds they needed, and 18% were worried as they knew how much money they needed but didn’t have it. Only 3% were confident when they found they would need additional money to meet their needs.

Rather than purely focusing on equity release, one in four (25%) had considered downsizing, while one in five (20%) contemplated using their savings. Others looked at working longer (17%) or taking out a personal loan (19%).

Those who did not take out equity release – potentially as they were a slightly younger cohort – were more likely to look at working longer (+6% to 23%), downsizing (+1% to 26%) and using their savings (+4% to 24%) – see table below.

What options did you consider when you needed additional funds?Took out equity releaseDidn’t take out equity release
Downsizing25%26%
Using my savings20%24%
Working longer17%23%
Taking out a personal loan19%21%
Giving up on the idea and simply continuing14%13%
Speaking to my lender about extending my mortgage term6%11%

Westgarth added: “While a good adviser will run through all of a customer’s options at their appointment, it is interesting to note that even before they speak to someone many people are aware of the different choices they face. 

“Specialist advice is still vitally important but working with customers who have already started to think about their options makes the advice process smoother.”

Reaction

Will Hale, CEO of Key Later Life Finance:

“Despite initiatives such as automatic enrolment, increasing numbers of people are finding that what they have saved into pensions and other investments is simply not enough to allow them to achieve their wants and needs in later life. 

“Therefore, it is not a surprise that the Standard Life Home Finance research released today highlights that the desire for a better quality of life in retirement and the need to manage a funding shortfall is driving customers to explore equity release as an option.

“That said, it is interesting to note that many customers had already started considering options such as downsizing or working longer to make up the shortfall before speaking to a financial adviser.  Rather than being a knee-jerk reaction, taking out equity release is a choice which is made after significant consideration and with the support of a qualified, specialist adviser.

“For many people, their home is their largest asset, and it only makes sense to consider how this could benefit their retirement finances and/or to support their wider family.”

Jim Boyd, CEO of the Equity Release Council:

“These findings show that modern equity release is flexible enough to provide a suitable solution in a variety of circumstances.

“While this versatility can prove valuable when unforeseen life events crop up, releasing equity is increasingly used for wider later life financial planning by well-advised homeowners who are fully versed in the range of options available to them.

“Specialist advice is vital to help people judge the right time to pull different levers, from cashing in investments to downsizing or using equity release to improve their quality of life without needing to move.”

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