With many retirees now facing the prospect of longer lives, higher costs and smaller pension pots, the role of property in retirement planning is coming sharply into focus for advisers as part of the financial planning process. In this article, Carolyn Jones, Retirement Director at Scottish Widows, explores how advisers can help clients think differently about their homes, not just as places to live, but as powerful financial assets that could transform their later-life income, support loved ones, and boost the wider economy.
Today’s retirees face an increasingly complex range of decisions. With rising life expectancy and living costs placing increasing pressure on people’s finances – they now need to make their pension stretch further, and last longer than they may have previously expected.
This challenge was laid bare in the Scottish Widows Annual Retirement Report published earlier this year, which revealed that more than a third (38%) of people aren’t on track for even a minimum standard of living in retirement.
As the number of ‘gold-plated’ Defined Benefit (DB) pensions steadily decline and are replaced with Defined Contribution (DC) plans, alternative sources of income have become increasingly important in retirement planning – helping individuals to use their existing assets to shore-up pension shortfalls and achieve their retirement goals.
The equity release advantage
The solution to many retirees’ pension pot problems could be right under their noses, or under their feet. According to UK Finance over 65s currently hold a collective £2.3 trillion in property wealth in the UK, with three quarters (75%) owning their own property outright. Opting to realise some of this money, through an equity release product, could free up money to help fund retirement aspirations.
New modelling by Fairer Finance in collaboration with the Equity Release Council notes that if half of this property wealth were unlocked through equity release, it could inject £21bn each year into the UK economy by 2040.
Crucially, it’s about giving retirees a way to unlock cash that is tied up in their properties to help cover the range of costs faced in retirement; whether that’s funding care costs or home renovations or even passing on wealth to family members. But while later-life lending has certainly gained traction in recent years, there remain some barriers that need to be addressed before products like equity release become more widely utilised.
How advisers can help
Advisers can play a key role in helping later-life lending reach its full potential by facilitating discussions that lead to increased levels of awareness and perception. This means helping people to understand the benefits of equity release as well as considering the risks. As an industry we need to be supporting clients and being prepared for a socioeconomic shift in thinking given societal norms are changing around utilising property wealth in retirement as opposed to the previous norm of property wealth being passed on as an inheritance. While this may still be the case for some, advisers can help clients to explore potential later life borrowing, based on a consumer’s individual circumstances.
Crucially, encouraging clients to have open and honest conversations with their wider family can be valuable; for some, it may be more beneficial to provide financial support to family or loved ones earlier, rather than inheriting a property later down the line. By breaking down misconceptions and facilitating family discussions, advisers can, where appropriate, ensure property wealth is harnessed effectively as part of a retirement plan – improving outcomes for individuals, families and, importantly, the wider economy.
