Key points:

• When faced with choosing how to access their pension saving, releasing equity from property has become a mainstream choice for retirees
• A low interest rate environment and product innovation has made equity release more popular
• Our research finds a fifth of people of retirement age have used, or expect to use, equity release products
• 34% of those at retirement age today report being in debt
• Equity Release Council (ERC) figures show 25% of total equity release lending in last 25 years took place over the last 3 years

Our research has found equity release has now become a popular lifeline for pension holders in the UK. A low interest rate environment has made these products an increasingly attractive option when faced with a need to top up retirement income and pay off debt.

Karen Brolly, Head of Product Development, commenting on the growing popularity of equity release, says:

 “A third (34%) of pension holders* aged 55-70 questioned in the research stated they were entering into, or had already started, their retirement with debt. Sources of lump sum payments are needed but they are scarce. The recent shelving of a proposed second hand market for annuities has shut down one of these avenues completely. The need for products such as equity release is evident and perception of these has changed. Rather than being seen as a ‘last resort’, equity release is now viewed as a mainstream option for retirement planning. We’ve seen an upsurge in take-up, and it’s easy to see its appeal for an increasingly debt-laden retired population.”

Nearly a fifth (18%) of those questioned, (both retired and yet to retire) in the research said they would expect to use property equity release to pay off debts. Of those who had retired and paid off debts, over a fifth (22%) had used equity released from property to do this. It was the third most popular source of money after the use of pension savings and other savings.

Discussing the impact of low interest rates, Karen Brolly added:

“A low interest rate environment has made equity release more attractive. This has meant reduced annuity income so retirees are looking at ways to supplement this. At the same time these low interest rates have increased the attraction of property equity release products and the perceived value that can be gained from releasing equity in this way.

“There has also been innovation and evolution in the way in which equity can be released from property. For example, most new sales of equity release products are taking drawdown slices of equity rather than lump sum. Some products now allow consumers to pay back interest throughout the duration of the loan rather than a continually increasing balance to be paid at maturity. Often there is also downsizing protection and many have a ‘no negative equity guarantee’. These product innovations and the economic environment have had a very positive impact on the market for equity release.”

The high proportion of survey respondents who had a favourable view of equity release is backed up by figures from the ERC. These show that in H1 2016 there was a year-on-year lending growth of £198 million, which was the highest seen over the last decade.  In addition the last three years (H2 2013-H1 2016) have seen higher proportions of lending in through equity release than over the last 25 years, with 25% of all lending by value taking place in that period. (Source: ERC 2016 Autumn report ).

Commenting on the future for equity release, Karen Brolly, continues:

“The perceived financial stability of property is drawing increasing numbers of savers towards equity release. Essentially retirees are viewing it as another method of drawdown. The growth in equity release uptake reported by the ERC looks set to continue. As such, I expect to see more entrants to the market.

“Equity release is likely to grow in popularity amongst savers as they look to pay off debts as quickly as possible into their retirement, top up their retirement income or help newer generations of their family reach financial milestones. The market is also extremely lucrative. The UK’s net property wealth is estimated at £3.9 billion1 and the income savers can expect from an annuity is falling.”

1 ONS Wealth in Great Britain Wave 4, 2012-14

* Hymans Robertson research – conducted by YouGov : 2,127 people aged between 55-70 surveyed - split equally into DB pension holders pre-retirement, DB pension holders retired, DC pension holders pre-retirement, DC pension holders retired online from 27th May to 14th June 2016.