If all those working in the later life sector had a crystal ball then, apart from looking at future National Lottery results, we would probably be looking to see just how the new flexible pension rules – announced by George Osborne in this year’s Budget – will work in practice when they are introduced next year. The change, allowing pensioners unfettered access to their pension pots, was widely trumpeted as a political manoeuvre out of the top drawer given that it gives pensioners complete freedom and choice over what they can do with their pensions. No longer will those reaching retirement be compelled to opt for an annuity.
Unless you were an insurer offering annuity products, you probably agreed that the move opens up a whole host of possibilities in terms of the financial products needed by pensioners, the ways in which people will use their pots, and how this might play out over the months and years ahead. Around the time of the announcement there was much talk about the sectors that could benefit from such a change, with many commentators suggesting that large numbers of pensioners would be looking to invest their pots in bricks and mortar via buy-to-let, whilst there was also a suggestion that Lamborghini dealerships were also likely to do a roaring trade.
What was perhaps forgotten in these assumptions was the low level of cash most pensioners have in their pots when they come to access them. Unless, there is a huge sea change in the pension saving habits of this nation in the years ahead I suspect the average pension pot of £17,700 – as revealed in the latest FCA review of annuities – will not suddenly jump in value. It will not take a genius to work out that most pensioners are likely to work their way through that relatively quickly and any thoughts of purchasing an investment property or a supercar with that level of cash, amount to little more than a pipe dream.
So, given those circumstances, it was surprising to see some market ‘commentators’ suggesting the new reforms could sound something of a death knell for the equity release market. The argument being, why would pensioners need to access the wealth in their homes when they had full freedom to use their pension pots as so they wish? On this somewhat short-sighted point, I’m with Simon Chalk, technical manager at Age Partnership who recently said that equity release was now more likely to continue to grow in popularity because of the pension changes – the reason being that some pensioners would make light work of their pension funds in this new age and be looking for other sources of retirement income sooner rather than later.
There appears to be a lot of credence to this point particularly because most pensioners are likely to remain in the ‘cash poor/equity rich’ bracket regardless of any changes to how pensions can be accessed. A small pot is a small pot and will only provide a certain amount of income; therefore many hundreds of thousands of pensioners will need to understand these changes will not provide a route to untold riches, they simple allow them to do with their pots as they wish. As has been pointed out, many will continue to opt for annuity/annuity-esque products because they need a guaranteed income, others will be able to invest in other areas in order to (hopefully) secure what they need.
However, demand for equity release products is unlikely to be dampened in the new environment. The important thing for advisers in our sector is to ensure that pensioners are aware of the equity release option and that they are able to provide advice to those who have only been guaranteed ‘guidance’ – whatever that might mean. Guidance is one thing; advice is something completely different and those in the later life space need to ensure they are well-positioned to secure clients who will undoubtedly be left unsatisfied by Government-sanctioned guidance and will instead want real advice and a recommendation.
Therefore my feeling is that the recent growth in the equity release market is not about to be curtailed by these changes – if anything it will provide a boost and the advisory sector needs to be ready and prepared to be the ‘go to’ group for those pensioners who will need, and want to, access the wealth they have built up in their biggest asset.
