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Compensating for Falling Retirement Incomes

Figures released by a leading annuity provider (Partnership Assurance) have revealed that people’s income when they stop working is likely to have reduced by at least one third. The fall will be making life extremely tough for many of them, and they certainly will not be able to enjoy their retirement years in the manner which they had hoped.

When they were commonplace, Direct Benefit pension schemes offered traditionally up to two thirds of final salary. The private pension would then have been supplemented by the state pension. The combined pensions would have given a total income very similar to that earned when working, particularly for those who had been employed by the same employer for many years.

However the switch over to an increased dependency on Direct Contribution pension schemes, the low level of savings in advance of retirement, and the rising age before state pension kicks in (especially for females) have caused the income prospects for those nearing retirement to become increasingly dire.

Whilst to a certain extent income and capital from savings & investments can be used to meet emergencies, by far the biggest asset available to elderly homeowners is the money tied up in their properties. It has recently been estimated that over £750bn of equity is owned by those aged over 65.

It is not just in the UK that this applies. A report* recently prepared by Towers Watson funded partly by the Equity Release Council states that “across Europe there is a growing concern that the costs of providing for the ageing population will be prohibitive.”

The report also expresses the view that the market for equity release products will grow significantly and that equity release income will play a substantive role in closing the pension gap.

Policymakers are at last beginning to recognise the crucial contribution which equity release can play as a means of providing financial support for the elderly in their retirement.

*Equity Release
Accessing housing wealth in retirement