Shrinking state pensions could be bolstered by equity release

Recent research from the Trades Union Congress (TUC) has found the government's proposed pension changes may make millions of workers worse off.

Those currently earning £26,000 could lose out on over £1,500-a-year under the new single-tier pension scheme if they retire in 2030. One of the primary causes will be the loss of the second state pension scheme, which will be abolished when the new single-tier plan begins in April 2016. Around 20 million Britons are part of the second state pension scheme, which was introduced ten years ago to boost pension levels for low earners. According to TUC reports, the vast majority will be negatively affected by the changes, and those several decades away from retirement could be left worse off by thousands of pounds per year.

While the single-tier pension has been praised in principle, the base level of £144 a week is simply insufficient to make it a financially attractive change. However while more pensioners may now find themselves cash poor in retirement, many are sitting on hundreds of thousands of pounds of equity in property. Research from Prudential has found over a quarter of pensioners are planning to sell their property to raise money in retirement, and four out of five then plan to buy another house, presumably to release capital. Equity release could remove the hassle of moving, while still allowing retirees access to the cash tied up in their home. Loans can be provided based on the value of the house, or alternatively regular cash withdrawals can be made. Equity release advisers will be able to help find homeowners a solution that best meets their financial requirements, bolstering their accessible savings while removing the stress and extra costs moving incurs.

It's important that equity release market continue to raise the profile of equity release as more than a 'last resort' product, building its reputation as a trustworthy financial option that can be used effectively in the retirement planning process, and as a viable alternative to downsizing.

 

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