Pack up, cash in and sail out

In the penultimate part of our series 'Investing for Life', we investigate buying annuities, raising cash from the value of your home and the pitfalls of moving abroad.
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The Independent Online

"Will you still need me, will you still feed me, when I'm 64?" As the Beatles generation slides towards retirement, the same anxieties surface as with every previous generation. And the biggest question of them all is, will my pension see me through?

"Will you still need me, will you still feed me, when I'm 64?" As the Beatles generation slides towards retirement, the same anxieties surface as with every previous generation. And the biggest question of them all is, will my pension see me through?

In their desire to obtain extra cash, many people may consider trading down in housing to help them get through their autumn years in style, and they may not even need to move into smaller properties. Homeowners will mostly have built up a valuable investment - especially if they are living in London or the South-east. Those who are confident they could live happily elsewhere may now consider moving to a cheaper area, giving them a capital lump sum to boost their pensions.

House prices are low in some of the UK's most beautiful regions. Properties in the north of England, Wales, Scotland and Northern Ireland are all likely to sell for much, much less than their equivalents in overheated parts of the South. And even the house price surveys can mislead because of the wide variations within a region.

While prices in Edinburgh have risen sharply, in some other parts of Scotland they remain low. There are areas in North Wales where homes are astonishingly cheap - and they cost even less in the economically destroyed (and often unattractive) parts of South Wales that used to rely on mining.

In Northern Ireland house prices are rising quickly in and around Belfast as a direct result of the peace dividend but they are still very low elsewhere. In the Limavady area on the north coast, near to the Giant's Causeway, one of the world's 10 best golf courses and one of the world's top 10 beaches, the council reports that it is possible to buy a multi-bedroom mansion house for less than £100,000.

Others may think of moving abroad. The Irish Republic is less of an option now than in the past as the inflationary effects of a booming economy have been particularly felt in house prices, especially close to Dublin and to a lesser extent near Cork. Homes, though, remain very cheap in Donegal. But more people are interested in retiring to the warmer climes of the Mediterranean.

"It is very difficult to compare prices," says Yolande Barnes, head of research at international estate agents FPD Savills. "It is very much horses for courses. Spain is one of the biggest retirement markets. The 'sunbirds' are hitting the Spanish resorts. In summer they are full of British tourists and in the winter they are full of British pensioners. Where someone chooses does depend on their means. The South of France and the Caribbean are some of the traditional destinations."

Her colleague, Charles Weston-Baker, head of international residential sales, suggests that people consider Malta and Portugal as low cost options, with expatriate communities and excellent climates.

"Malta is particularly good," he says. "We also have a retirement project in the Algarve which has a nearby nursing home. In Malta there is no capital gains tax of sales of inherited property. British pensioners pay a maximum tax on income of 15 per cent and there are reciprocal health arrangements. Malta has reduced its stamp duty to 5 per cent on properties and there are no property rates. The cost of living is about 30 per cent less than in the UK. Property prices are going up steadily by 5 per cent a year, but they are less than in the UK. A two bedroom apartment costs from £50,000 to £150,000. There are a lot of benefits living there."

Whichever country is considered, it is important to assess all round living costs rather than just property prices. Costs are often higher in summer than in winter but many countries in the Mediterranean cost less than Britain (see chart).

An option for those keener on the mild Mediterranean winters than on the hot summers is to take extended winter holidays. Saga, which specialises in travel for the over-50s, offers three month holidays in the Algarve from just £901 (see chart).

One of the factors that must be taken into account for someone spending time abroad in retirement is obtaining effective health insurance that provides cover while abroad. Countries that are members of the European Union provide reciprocal health arrangements, though it is important to fill in a form E111 - available from Post Office branches - to arrange this. These can be completed, and expenses reclaimed, retrospectively.

Only Permanent Health of the cheaper private medical insurers includes, as standard, extensive cover while abroad. Costs and the level of cover varies widely between travel insurance policies and large savings can be made by shopping around, particularly through the internet where some of the best offers are available. Cheaper insurers include Travel Cover Direct (, as well as Columbus Direct (

Unfortunately, ill health is something that simply cannot be ignored in retirement. Ultimately this may result in expensive residential care which can cost £200 a week in the UK. Those who have failed to take out insurance cover prior to retirement can still opt for a policy either through the payment of regular premiums or else by a single lump sum. Increasingly the retired are having to pay for their care arrangements by selling part or all of the equity in their homes, even though this reduces what they can leave as an inheritance for relatives.

Several organisations can be contacted for information sheets or advice on the various forms of equity release schemes. These include Age Concern and Help the Aged, as well as Foundations - an agency which is dedicated to helping the elderly and people with disabilities to continue living in their own homes and avoid having to live in care (see chart on page 2). Foundations is also able to provide odd job workers and will help with negotiations for home adaptations for people with disabilities.

Kevan Marlborough is office manager for Hinton & Wild, independent financial advisors specialising in advising the elderly on the confusing variety of equity release schemes. "Essentially people must realise that all these schemes involve giving up some of the equity in their property," says Mr Marlborough. "They won't get something for nothing, whether it is a mortgage-based scheme or selling some of the equity in the property - which means less in your estate when you die. I would also advise getting independent financial advice from a specialist in the field on equity release. Some organisations will only sell their own products. There may be other ways of getting income without giving up so much of their property. Don't rush into it."

Until around five years ago, most of the equity release schemes for the elderly involved remortgaging homes. These have declined in popularity, particularly as the abolition of Miras, mortgage interest relief at source, last year made it much less financially beneficial. It is now only regarded by advisors as suitable for people in their late 70s or older. It has now become, says Age Concern, "a niche product".

Remortgaging options were also damaged by the scandal of property owners being forced out of their homes after they went into negative equity. It is therefore absolutely essential if remortgaging a property - or otherwise releasing capital - that the contract has watertight protection enabling the current owner, their spouse and any other dependents that the owner wishes to include, to continue to live in the home until they die, with the house only sold after death.

A more common alternative now is the reversion plan, under which the homeowner sells all or part of their equity in the property and continues to live in the house for a nominal rent. The buyer takes the risk that the current homeowner - and spouse - will live a long and healthy life, and if so may well end up being out of pocket. Obviously, the older the homeowner is when they agree the contract the more they can release as capital.

All this underlines the need for sound financial planning before retiring, not least because no one would wish to survive on the basic state pension - which is just £66.75 weekly for a single person, or £106.70 for a married couple.

The gradual shift of burden from state to individual has been consistent in recent years and it looks set to continue. Pensions are now uprated in line with inflation, not with average earnings, which has reduced the income of pensioners in comparison with wage earners. The results of a Government review of funding residential care for the elderly is due to be announced shortly. It is expected that more pensioners will be expected to finance care costs out of the capital value of their homes.

In the future it is likely that fewer pensioners will be able to leave a valuable inheritance to their family and friends. But we will look at inheritance tax planning and writing a will in next week's article, which will be the last in the series and will tackle a subject we often try to avoid - death.

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