Looking out of the window of my hotel bedroom in London on a recent trip, it was impossible to ignore the signs of a booming property market; the numerous cranes were clustered together like groups of midwives around a maternity bed, bringing forth new buildings under the watchful eyes of the skyscrapers that currently dominate the skyline: The Gherkin, The Shard, The Cheesegrater and the Heron Tower to name but a few.
It occurred to me that the boom in the property markets, domestic as well as commercial, means that even more wealth is being tied up in property in the UK. This is true of personal wealth as well as corporate wealth and it seems impossible for us to address the problems of low levels of saving for retirement without reference to the huge amount of money that is being tied up in property assets.
The majority of the public have insufficient investments to provide for their retirement years and that’s just in terms of day-to-day spending. With increasing longevity, it is inevitable that the amount required in order to provide care for those elderly who become too ill or infirm to look after themselves is going to increase dramatically and that hardly anyone has set aside the funds to provide for this care.
However, an awful lot of the wealth accumulated by people over the last 40 years is tied up in bricks and mortar. For many people, it is their only significant asset as they move into retirement. Why should this asset be separated out from the rest? Surely it should be recycled into the system by making this wealth a part of the solution rather than somehow seeing it as a specialised form of asset that remains inviolate from the rest?
Equity release products, particularly those that guarantee the ability to remain within the home for the rest of your lifetime have a big part to play in providing for pensioners in their old age. The home should be seen as just like any other asset, something that has been accumulated during the working lifetime and can now be drawn upon during the non-working retirement years. That way the money is no longer just tied up in property but can be seen as a long-term sensible investment of today’s wages, essentially deferring the income to be drawn down in later years.
Equity release products have strong guarantees that ensure people retain their home for the duration of their lifetimes and that the total owed can never exceed the value of the home when it is sold. Yet people still shy away from these products, with only 19 thousand products sold last year.
The industry and government need to start looking at ways to increase confidence in this market. Otherwise, we’re just locking more and more of the UK’s wealth out of the retirement market, making it ever more difficult to come up with solid solutions to fund this very expensive time.
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