Older generations could be forced to borrow or run the gauntlet of unlocking property wealth.
Two-thirds of people aged 50 to 65 in the UK were under-saving for retirement even before the financial hit caused by the Covid-19 pandemic, according to research.
The analysis by The Investing and Saving Alliance (TISA), a financial services body, suggested those in later life may look to unlock their housing wealth to make up the shortfall, amid warnings from the regulator about practices in that market.
Stock market falls since the start of the year – the FTSE 100 index for example is down 21% since January – have meant personal losses and financial disruptions worsening the under-saving problem.
Ruth Moore, executive director at TISA, said the current situation is likely to accelerate the need to borrow during later life, and called for better support for homeowners seeking to cash in on the value of their property to fund their retirement.
“People are living longer, with higher levels of debt and lower levels of pension income, coupled with rock bottom savings returns,” she said.
“More needs to be done to fully support the growth of borrowing in later life if we are to prevent old age poverty and a reliance on the state pension, which simply isn’t enough to live a fulfilling life.”
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Equity release – later life borrowing where over-50s can gain access to some of the value of their home while continuing to live in it – is one option for those approaching retirement worried about the size of their pension pot.
Property prices have soared since the end of lockdown, driven by pent-up demand and the desire for more space as the UK transitions to more working from home.
In September, house prices rose for the third consecutive month, according to the Halifax House Price Index. Property values are 7.3% higher than the same time a year ago, and the average price is now £249,870.
Though experts have warned the recent spike could be short lived, according to SunLife the average homeowner over 50 bought their current home 20 years ago, paid £113,365 and it is now worth £240,681, giving them significant capital to cash in.
However a recent review by regulator Financial Conduct Authority (FCA) flagged some problems with the equity release market.
Equity release advice did not always sufficiently take into account consumers’ personal circumstances.
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Consumers’ reasons for looking at equity release were not always challenged by firms, and advisers were not always able to show that their advice was suitable, according to the watchdog.
The FCA in a statement said: “Deciding to take out equity release is one of the most important and long-term financial decisions consumers make in later life.
“The consequences of their decision are likely to have a significant impact on their financial wellbeing for the rest of their lives and some of the costs can be less obvious but significant.”
TISA is calling on the industry to improve later life lending to better serve the expected increase in people who will need it to supplement their pensions.
It wants later lifetime lending included in retirement planning and all matters relating to financial wellbeing for individuals and families.
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