The death of the pension: how equity release can fund your retirement
Thursday 19 July 2012
Whilst quantitative easing is slowly killing pensions, driving annuity rates down and eroding savings with its inflationary impact, equity release is fast becoming an attractive option for those who want to enjoy their retirement in relative financial security.
Pensions may not be what they where but the equity in your home may have taken a boost with house price growth averaging nearly 590% in the last thirty years (Nationwide HPI). Equity release allows you to get cash from this value – via cash lump sum, a regular income, or both – without you having to move or sell your home. Research is essential to understanding your options, as is seeing if you are eligible, using an equity release calculator to help you make an informed decision.
It’s a harsh reality, but there are thousands of people in the UK already living in pension-inflicted poverty, and thousands more approaching retirement who are facing a similar situation.
With rising living costs eating away at pension pots, especially in rural areas where there is a higher proportion of the elderly, it’s easy to see why people are seeking extra cash injections via equity release as a sensible alternative to help themselves and their families.
The ways in which you can claim your equity have changed significantly over recent years. All current equity release plans focus on consumer protection, giving you the right to stay in your property for life, if you so wish, with some plans letting you retain 100% home ownership. Interest rates are fixed for life at around 6%, while you can switch your policy to another house should you decide to move. You can also take on a flexible downsizing plan, allowing you to move house without being tied down by your mortgage.
For those still in work or with a regular income, you can now make interest-only payments to keep the size of the commitment down. These plans allow you to specify how much you would like to pay: anywhere from £25 a month up to 100% of the monthly interest. Calculate how much you’d like to pay and then go from there.
You can also opt for a ‘protected equity guarantee’, letting you ring-fence a portion of your home at a set amount, leaving you the rest to share with your family. In addition, you can dip into small amounts of your own personal emergency fund as and when the need crops up.
Equity release is regarded by many as a way of watching your early inheritance in action. With all that freed-up cash you’ll be able to help family with university fees, weddings, property deposits – all of those costs that need immediate attention and that pensions and future inheritance just can’t match.
The equity release industry is giving pensions a run for their ever-decreasing money and is a real option for people who are looking for smart ways to support themselves and their families. With annuities at record lows, now could be the perfect time to sack the pension for the cash injection.
Equity release schemes are complex and you should always consider taking professional financial advice before making any commitment.
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