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A study in equity release

Older generations want to financially help their children and grandchildren and equity release can play a big part

It would be something of an understatement to say that the subject of university tuition fees – and how they are going to be paid for – is a hot topic in my household at the moment.

As the father of four children, my head was already in a spin following the announcements on child benefit, followed by the Browne review on the funding of tertiary education. Tag on the not inconsequential announce-ments made in the comp-rehensive spending review and it has been a triple whammy to contend with.

On the issue of university education, with my eldest son just one month into his first year at university and his younger sister starting the process to make her A-level choices, I am worried about the levels of debt students will be carrying with them once they leave university and expect many other parents and grandparents will also be concerned about the level of debt the next generation of students will be saddled with.

Are we looking at a future where we move to a US-type system where debts can run into hundreds of thousands?

Talking to a recently graduated journalist, it is clear that many students are already leaving university with substantial debts to pay off.

With experts predicting the 2010 intake of students will end their studies carrying up to £25,000 of debt, fees likely to double at least and interest rates on student loans rising there is not much good news.

I was therefore very interested to read a recent report from Friends Provident on ageing and retirement which sought to give an idea of what it means to be retired today and the nature of that retirement and the responsibilities retired people now feel for the younger generations of their family.

It revealed an interesting shift among the older generation, particularly in terms of leaving inheritance to their children and grandchildren.

Less than one in five think it is a responsibility of theirs to leave an inheritance but there is a greater and growing feeling they will help the younger generation with their housing and education costs.

Interestingly, 26 per cent of grandparents say they now expect to contribute towards the cost of their grandchildren’s tertiary education.

The question is how do the older generation plan to find the cash to meet this commitment? It is not a huge leap of logic to make the connection with equity release as a method by which grandparents can help fund the education of the younger generation of their family.

I wonder how many of the asset-rich, cash-poor retired who are concerned about university fees are aware that equity release can be a possible solution.

As always, with the equity release sector, we must question if we are getting our message across effectively.

Are we highlighting the variety of uses that released equity cash can be put to? Are people aware they can provide a form of early inheritance right now, which will be of immediate benefit to their beneficiaries rather than waiting until they die?

It is important to understand the mindset of clients who are retired. For many grandparents, the pleasure of making a significant gift to loved ones while they are still alive to make it cannot be underestimated.

Naturally, equity release is not going to be suitable for all and a number of considerations need to be taken into account by advisers when clients are making gifts. But it is important that consumers are educated to the level that they are aware equity release is a possible option for consideration.

It is safe to say those considering tertiary education will be appreciative of financial support from their relatives, given that the cost of study is about to get increasingly expensive.

Peter Welch is head of sales and distribution at Bridgewater Equity Release


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