"Almost 75% of pensioners in the UK own their own home and most owe little or nothing to mortgage lenders"
The UK already has the lowest state pension of any country in the developed world (according to the Organisation for Economic Cooperation and Development), with retired workers receiving benefits valued at approximately 29% of previous earnings (as opposed to an average of 63% in other country’s covered by the OECD) and experts are increasingly concerned that the combination of longer living claimants, falling investment returns and increasing liabilities across both state and private sectors (which rose to £7.6 trillion at the end of 2015 according to the Office for National Statistics) are fuelling a potentially catastrophic pensions crisis in this country.
Other exacerbating factors include a growing failure amongst workers to save for their futures, with somewhere in the region of 12 million people (or nearly a third of all workers in the UK) not saving enough towards retirements (according to official government figures) and almost 20% of people in their 50s or 60s unable to save for retirements because of rising costs and the impact of inflation on finances (according to the Aviva Real Retirement Report).
However, there is one option that could be used to mitigate the effects of this growing predicament- equity release. Almost 75% of pensioners in the UK own their own home and most owe little or nothing to mortgage lenders, while research conducted by the ONS has established that almost 90% of retirees living on the lowest disposable incomes also own their own properties - a ratio which has grown by over 15% in the last three to four years (to around 660,000 households).
With limited borrowing options available to this age group moreover, the ability to unlock equity tied up in homes offers one of the very few viable options for those struggling to make ends meet. Some critics have argued that the amounts of equity that low income pensioners can raise on properties are invariably lower than for the richest, while others have insisted that ER should never be considered as a substitute for pension savings and both are fair points.
But with 43% of people aged 55 or over concerned that their pensions will not be sufficient to cover retirements (according to a survey by Sun Life Insurance), equity release offers an alternative to having no options at all (at the very least). No one is suggesting that equity release can solve the looming pensions crisis in and of itself, but it could certainly help to alleviate the worst effects for millions of houseowners. And that’s a distinction that should not be underestimated.
