Ship director general Andrea Rozario says moves to create a flat-rate state pension of around £140 should remove some equity-release complexities
The problem of how the country should fund retirement has been under the spotlight for some time. Indeed, over the past year alone, we have witnessed a whole raft of changes and reforms as part of the three Budgets and compre-hensive spending reviews.
These have included the removal of the default retirement age so that people have the ability to work longer, the establishment of the Dilnot Comm-ission into the funding of care and the pushing back of the age at which people are able to claim the state pension.
The Chancellor’s most recent Budget was no different as he announced plans to introduce a single-tier state pension of about £140. This was welcome news for the equity-release sector as it will no doubt help to simplify the complex system that is currently in place.
At the moment, there is such a variety of infor-mation out there that it is difficult for many people to understand how releasing the equity in their homes might affect the state benefits that they are entitled to. Due to this confusion, Ship has been running a campaign to clarify the rela-tionship between equity release and state benefits for several months now and we hope that these latest announcements will help with this.
The introduction of a single-tier state pension will hopefully help to eliminate a great deal of the confusion about the benefits people are able to claim while releasing the equity from their homes.
Rozario: ’It is important that people who could benefit from a more comfortable retirement are not put off for fearof losing out on state benefits’
Equity release can significantly improve a person’s standard of living in retirement - whether by providing the means to pay for care or even just as a supple-ment to an existing income. Therefore, it is important that people who could benefit from a more comfortable retirement are not put off for fear of losing out on state benefits.
As the interaction between the two becomes clearer, it is likely that we will see an increase in the number of people exploring the ways in which equity release could help them, which in turn will provide the market with an opportunity for growth.
Research carried out by Ship last year found that advisers felt the information on offer from the Department for Work and Pensions was insufficient in helping them to advise upon equity release and state benefits.
By removing this as a barrier to advice, it could well encourage more advisers into the equity-release market. It is also worth noting that in Ship’s recent annual members survey, 63 per cent said that they felt the sector would withstand the introduction of the retail distribution review without any discernable impact on it, thus increas-ing the attractiveness of providing advice on these products even more.
Furthermore, while the single-tier state pension should eventually help to simplify the benefits system, it is important the changes that will come into force are fully explained. There should be easy access to information, whether through advisers, materials on the internet or through the services offered by voluntary bodies such as the Citizens Advice Bureau.
While the Government has made some positive steps, there are slightly mixed messages due to the Rozario: ’It is important that people who could benefit from a more comfortable retirement are not put off for fear of losing out on state benefits’ introduction of the single-tier state pension.
On the one hand, it shows a commitment to helping pensioners at a time when they might struggle to meet rising prices on a fixed income. However, it seems slightly at odds with the stream of cuts to public services that we have seen.
Indeed, the Government has made it clear that it is not possible for the state to support everyone throughout the entirety of their retirement and therefore people will have to explore ways of becoming financially self-sufficient. Once again, this does prov-ide an opportunity for the equity release industry to step up to the mark and offer a solution to the question of how to fund retirement.
A simplification of the state pension and benefits system is not the only thing needed for the equity-release market to grow. We have made a great deal of prog-ress this year in terms of working with the Government. Indeed, Lord Warner - a member of the Dilnot Commission - (established to explore the different ways in which care can be funded) - recently said that the baby boomer generation has benefited from being able to build up its housing wealth and therefore has the option of using it in later life.
However, I hope that this engagement with the Government goes even further this year, with a department stepping forward to take ownership of equity release.
This kind of support would really help to build up confidence and aware-ness among consumers and thus provide further opportunities for market growth.