Pensioners Using Equity Release as a Source of Cash in Retirement
A report commissioned by Age UK from the University of Birmingham, released on the 7th July 2010, analyses the reasons for using equity release in later life. Why do pensioners look at releasing equity in their homes and what do they spend the money on?
Releasing Equity for Home Maintenance, Holidays and Repayment of Debts
According to this survey, the top three reasons for using an equity release scheme to free up cash were home maintenance, holidays and debt repayment. Maintaining and repairing homes came in highest here with 46% of respondents using a release scheme for this purpose. 36% used the cash to pay for holidays and 35% as a means of repaying debts.
Reasons for Equity Release Differ According to Retirement Income
Respondent results were also organised into three groups, broadly based on income and savings. The first group (typically with more income/savings than the other two) tended to use equity release to give cash gifts or early bequests or to pay for more expensive one-off purchases.
The second group had less income/savings than the first. They typically used the cash from equity release as a means of boosting financial security and improving their income in retirement. The third, with the lowest income/savings to fall back on, often used this solution as a way of relieving financial problems.
Pensioners May Now be Using Equity Release Earlier
The Age UK report showed that there was a slight decrease in the age of equity release. The average age of those surveyed has fallen from 74 to 72. This may be explained by an increased need for some to boost their income in retirement. Some are finding that their pensions and savings are not enough to meet their living costs.
Others may need an additional boost at times or may wish to spend on their homes so that they can remain living in them. Debt repayment may also be an issue for some pensioners. According to previous research conducted by Age UK, 25% of people close to retirement have outstanding debts that may not be repaid before they retire.
Is Equity Release a Good Solution in Retirement?
According to Michelle Mitchell, the Charity Director at Age UK: "Equity release is clearly a useful tool to ease financial pressures in later life but anyone considering it as an option should first seek good quality information and advice.”
Those considering equity release may find it useful to visit the Safe Home Income Plans (SHIP) website. SHIP is the UK trade body for this sector and its members have to adhere to a Code of Conduct. This may be a good starting point to learn more about equity release schemes and of finding a reputable provider if needed.
The following articles may also be useful:
- A Guide to the Pros and Cons of Equity Release
- What is an Equity Release Calculator?
- Releasing Equity: How Can Safe Home Income Plans (SHIP) Help?
- What to do if Retirement Savings Aren't Enough
Sources: Age UK/University of Birmingham ("Housing & Finance in Later Life"); Age UK ("Equity release used to clear debt as hard times take hold"). Accessed online 7th July 2010.
© 2010 Carol Finch
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