Funding Our Retirement Needs

In his Autumn Statement, the Chancellor predicts that people can expect to spend at least one third of their lives in retirement. This is the good news of which most of us will already have been aware.

The bad news then followed. George Osborne announced that, in order to keep the state pension affordable, the state pension age will be reviewed every five years to recognise the anticipated on going increase in life expectancy.

Given the Government’s commitment to spending and deficit reduction, annual increments in the state pension are unlikely to be adequate for meeting the needs of those in retirement. Indeed, in recent research, LV= have quoted that at least £225,000 is required to fund a happy retirement of 17 years. For most people, the funding needs will be for a period in excess of 20 years and hence will be significantly higher.

Twenty years ago, it was common for people to enter into Direct Contribution pension plans in the expectation that at retirement, they would be able to purchase an annuity to supplement the state pension. In recent years, they will have found out that due to the fall in annuity rates, the actual income achievable is often less than half of what was anticipated at the outset. This is particularly the case for annuity holders who do not take advantage of the open market option by approaching a broker like Bower who can maximise the income available to them.

One advantage of the low interest rate environment has been that many pensioners with mortgages have found them to be exceptionally affordable. However at the mortgage redemption date, elderly people are finding that their Providers are not sympathetic to extending a mortgage beyond the age of 75, and certainly not on an interest only basis irrespective of their retirement income.

It is hardly surprising that many at or in retirement feel that they are being let down by the financial system and, rightly or wrongly, younger people have become themselves sceptical about the merits of pension saving. As a consequence, many of those still working consider that their property is likely to be their most reliable source of pension income and capital.

For this reason, equity release plans are becoming increasingly popular. The current range of Lifetime Mortgage and Home Reversion plans offer greater flexibility than ever, whilst at the same time giving the protections of the Equity Release Council and regulation by the FCA.

In order to enter into an Equity Release Plan, it is necessary to take financial advice preferably from an independent specialist company like Bower who have access to all the Plans which are available, each of which has its own individual features.