If recent events have taught us anything it is that jobs, income, and cashflow aren’t always as straight forward and secure as we might think. Sometimes, no amount of planning can prepare you for unexpected events and now more than ever, it is difficult to know how to make sure that you are financially secure when the economy is so uncertain.
From day one of our working lives, we are taught that one day we will retire from working and will need to make sure that we are prepared financially for when that day comes by investing in pensions and other things that will provide us with an income post career. Most people are entitled to a basic state pension when you reach a certain age. This state pension age is determined by the government and has risen significantly over the last few years meaning that people are working longer and retiring later than their parents and grandparents did.
What are the figures?
For example, in 2009 state pension age was 60 and in 2022 it is 67 and expected to rise to 70 within the next few years. The state pension is there to ensures that people can receive enough money in their retirement to live however it is very basic and it is likely that you will need a separate income source to run parallel to this in order to keep up with the style of living that you are used to. As the cost of living increases at a rapid rate, more people are struggling to save enough money in their pension pot to ensure that they live comfortably in their twilight years.
A lot of employers will offer a workplace pension scheme where they contribute some money to your pension per month and a part of your monthly salary will also be contributed as well. Some people also invest their money in other stocks and shares which they hope will increase in value and they can cash these in when they retire. Others who are lucky enough will invest their money in property and can find ways of securing retirement income from this. Some people will purchase buy to lets which can provide a monthly income past retirement however a lot of people who only own a residential property are looking at alternative ways of making the most of their investment.
What mortgages are available?
Insurance and financial services company Canada Life have reported that a third of over-55s with a pension are considering releasing equity from their home to help fund their retirement. Releasing equity is essentially turning the equity that you have built up in your property into liquid cash without having to completely sell the property and move out of it. There are two common ways that people look to do this.
- Lifetime mortgage: you take out a mortgage secured on your property provided it’s your main residence, while retaining ownership. This mortgage can be taken out until you die, and you can choose to make repayments or let the interest roll-up. The loan amount and any built-up interest is paid back by selling the property when the last borrower dies or when they move into long-term care.
- Home reversion: you sell part or all of your home to a home reversion provider in return for a lump sum or regular payments. You have the right to continue living in the property until you die, but you must agree to maintain and insure it. You can ring-fence a percentage of your property for later use, possibly for inheritance by only selling part of your property. The percentage you retain will always remain the same regardless of the change in property values, unless you decide to take further cash releases. When the last borrower dies or moves into long-term care your property is sold and the sale proceeds are shared according to the remaining proportions of ownership.
Either scenario can be a game changer to people who are struggling with finances later in life or are worried about being able to live on the pension provisions they already have however you should always speak to a financial advisor about your options before committing to equity release as you need to make sure that this is definitely what you want to do.
What do the insurers say about pension?
Commenting on these figures, Canada Life head of marketing for insurance Alice Watson has said: “Retirement journeys are becoming more complex. Fewer people are retiring on generous final salary pensions while more people are saving later in life or renting for longer. These demographic changes mean that more people are likely to turn to their property to help them support their retirement aspirations. Modern equity release products have the flexibility and accessibility which families and homeowners are looking for in order to enjoy their hard-earned retirements comfortably. However, equity release is a lifelong financial decision, so it is essential that people seek quality financial advice and talk through their decision with loved ones before agreeing to a product.”
What do the brokers say about pension?
Content manager at Oportfolio Mortgages Louis Mason says: “It is a sad state of affairs that some people are unable to sustain a secure and comfortable financial life in retirement. These years are supposed to be your years to relax and enjoy your free time after working for 50+ years. Sadly, this is not the case for some people who will find themselves struggling to pay for food, clothes and other necessities. The full state pension is £179.60 a month, that’s £2,155.20 a year to live on if you don’t have any other pensions or investments! For cases like this where the person owns their own residential property, looking into equity release options is something that might open up some doors however it is not for everyone and should be discussed in fine detail with a financial advisor before committing to any form of equity release.”