One of the major challenges for equity release sector has been trying to convince Governments that the products can provide a sustainable solution for some of the major financial issues facing the retirement population.
This has been a difficult task, not least due to equity release fighting a reputation for poor quality and misselling picked up in the late 1980s/early 1990s but products sold then are unrecognisable to the regulated entities we have now.
After many years of lobby-ing, we may now be at a point where the Government has to recognise that the use of property equity to fund care or retirement living is not the great unmentionable of the past.
Recent comments by Labour peer Lord Warner, who is helping draft plans to reform the provision of elderly care, are perhaps the greatest indication yet that the Government needs to promote and use equity release as a method of funding social care.
Lord Warner has revealed his independent commission is looking at how it can use the “big chunk of potential” funding locked up in housing. He has, however, stressed his belief that the current array of equity-release products are not “creative” enough. It would seem he wants a product range with more guarantees and insurances for private assets coupled with state support.
This appears a major step forward for the sector but we should not get too far ahead of ourselves as there is no guarantee the Government will implement any of the commission’s plans.
However, given that the financial situation has reached breaking point, something has to give. We often hear the view that a personal who has spent all their lives paying taxes/ National Insurance while paying off their mortgage should get full state support and not have to give up their home and their children’s inheritance to pay for their retirement living/care.
Now, although society (and the legislators) are coming round to the idea that the state should not – and cannot – pay for everyone’s care needs and that an individual’s assets, especially the main property, could and should be used as a means of funding.
Politically, it is a sensitive issue. At last year’s election, the main parties were campaigning with policies that meant the retired would not have to sell their homes to fund their care. You would have thought equity release would have been a full part of this debate but it was not. It is clear from Lord Warner’s comments that equity release is now on the agenda.
One recent commentator suggested it was “politically toxic” to talk about using the equity in a home to fund care but, given the nature of the state’s finances and the overall reappraisal that is taking place on all levels of funding, someone is going to have to bite the bullet and state the case.
The overwhelming challenge for any new policy will be for it to be received as a win, win, win for state finances, the equity-release sector and, most important, the consumer.
This may be achieved through a simple shift towards domiciliary care funded through equity release rather than residential care funded by selling the home. For many this route may lead to a better quality of life and a greater inheritance for their family due to the lower overall costs of care.
A major positive is we have a strong and stable equity-release sector willing to work with all sides to find a financially sustainable and morally acceptable solution.
Holding back from tough decisions will only allow problems to escalate. Quick answers will benefit all as we move into a new era for funding social care and the equity-release market.
Peter Welch is head of sales and distribution at Bridgewater Equity Release