According to Annuity provider MGM Advantage, as many as 82% of people are underestimating their life expectancy. Statistics from the Pension Policy Institute suggest that males aged 65 will by next year live for an average of 22 years whereas females aged 65 are likely to live for another 24 years.
Being averages, these figures cannot of course be firm predictions. Indeed 50% of retirees can look forward to a retirement which is even longer.
A realistic assessment of life expectancy is critical because retirement has to be paid for. Although forthcoming changes to state pensions will raise the minimum income for many people, the average UK person retires with an income which is 24% less than the minimum wage. This alarming figure is quoted in a report from LV= called “The State of Retirement.” The report also highlights the fact that household income often falls by two thirds on retirement. This sharp reduction must come as a severe shock particularly with 12% of people retiring with credit card debts, 5% with an overdraft and 7% with a mortgage.
A prediction of life expectancy is already provided in Key Facts Illustration documentation for Lifetime Mortgages in which consumers are informed of the impact of compound interest on the sum released. The period shown is based on the life expectancy of the youngest potential applicant.
Following the introduction of new pension freedoms as announced in the recent Budget, in order to dissuade people from withdrawing their pension pots too fast during the early years of retirement, a Government spokesman has advised that an indication of life expectancy will be provided to retirees in the financial guidance which is given to them.
If they are homeowners, it is likely that the main residence will form the major part of their wealth. With annuity purchase no longer being compulsory, it can be expected that Equity Release will become a popular alternative option for bolstering retirement savings. However, as with their pension pots, consumers must be equally careful about not spending their Lifetime Mortgage lump sum or cash reserve too quickly. An awareness of life expectancy is essential to retirement financial planning.
Equity Release Plans are becoming increasingly flexible in order to widen their appeal to retirees, some of whom might previously have purchased an Annuity instead. For example, AVIVA have just revised their Lifetime Mortgage to enable partial repayments to be made with no early redemption charges despite the long term fixed interest rate.
This Lifetime Mortgage is not available directly from AVIVA. In order to learn more about it, it is necessary to approach a regulated financial adviser like Bower.