Increased demand for equity release has cemented its position as a “practical option” for retirees bolstering their pension pots, according to Canada Life Home Finance.
This comes after the firm found that one in five (21%) equity release customers take out loans to bolster their day-to-day retirement finances, which is a rise of 5% compared to data gathered in 2017.
Alice Watson, head of marketing and communications at Canada Life Home Finance, said: “The growth in customers using lifetime mortgage as income during their retirement reflects the extent to which equity release is now viewed as a practical option for retirement planning.
“Alongside more traditional sources of income, such as pensions and other savings or investments, the use of property wealth is helping to boost the quality of retirement for increasing numbers of people.”
Rival
International Adviser reported recently on the industry promoting the use of equity release as an alternative to using the pension freedoms.
Watson added: “This [equity release figure] sits alongside the dramatic changes brought in under the pension freedoms, which made pensions far more efficient as a wealth vehicle in inheritance planning.
“Thanks to the freedoms, pensions passed on are now taxed at the marginal income tax rate of the heir receiving them, tax-deferred if the heir keeps it in a pension rather than drawing on it or aren’t taxed at all if the benefactor dies before 75.
“Drawing less on a pension, and instead drawing on other assets to fund retirement, could allow someone to leave more money to their loved ones.”
Reasons for equity release
These findings from Canada Life are part of an ongoing trend of retirees looking towards equity release to boost their pension pots.
Recently, the Equity Release Council (ERC) released figures that reported the busiest start to any year on record with £936m ($1.2bn, €1.05bn) of housing wealth unlocked by homeowners aged 55+ during the first three months of 2019, an 8% increase year-on-year.
The most popular reasons for Canada Life Home Finance customers taking out a lifetime mortgage are to make improvements to their home or garden (47.5%) and to clear an existing mortgage (37.9%).
Other things the loans are used for included purchasing a new property and helping first time buyers.
“The driver behind this increasingly diverse and everyday use of equity release is product innovation,” Watson added. “The challenge now for the equity release industry is to continue to adapt to changing customer needs and ensure the requirements of future generations of homeowners are catered to.”
Canada Life said that the data was gathered from all of their equity life customers and also respondents could choose more than one option.
