‘Single-tier’ Pensions & Equity Release

The new 'single-tier' pension & the impact for equity release

The UK government has announced their latest plans to change the state pension to a simpler clearer system. Under new legislation, from April 2017, there will be one 'single-tier' pension set at £144 for all. To qualify for the full amount, 35 years of national insurance contributions are required. To receive any pension at all, a minimum 10 years of contributions are required.

While providing an enhanced pension for those currently relying only on the state pension, it marks a significant cut in income for those higher earners who would currently qualify for the second state pension. Figures in the Government's White Paper show that of those retiring in 2040, about 45 per cent will be worse off while 35 per cent are expected to be better off, and 20 per cent are expected to remain the same. For those 45 per cent who won't benefit from the pension scheme - either because they'll reach retirement prior to the April 2017 start date, or because the new scheme will reduce their expected state pension- equity release could provide a solution. 

With recent research* revealing retirement income has hit a six-year low, falling by £3,400 below the average expected UK retirement income of £18,700, understanding all the available funding options is more important than ever for pensioners. Despite being cash poor, many retirees are sitting on hundreds of thousands of pounds of equity in property, with many owning homes which are completely mortgage free. Equity release schemes can help free this property wealth, either providing a loan based on the value of the property or regular cash withdrawals. With various types of equity release plans to choose from, owners can find the perfect solution to meet their financial requirements while remaining in their own home.

The current media spotlight on the new state pension plan has reignited public interest in retirement financing, thus making comprehensive equity release information and equity release advice more important than ever.

*Prudential, January 2013


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