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Case Study: Piecing together the retirement income puzzle

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The problem: The client has reached retirement with a pension pot which in no way allows them to continue their standard of living, even with the addition of both the state pension and some additional benefits. We have discussed other assets that may be utilised but these are not viable so the major asset available to them is their property which is worth approximately £280,000. What are the available options?

The solution: This scenario is likely to become increasingly common for advisers. With the onus and responsibility being placed on individuals to provide for their own retirement rather than rely on the state, we are currently faced with a state of flux when it comes to pension provision.

Not only do we have issues around people’s ability to save for a pension, but with a growing older population that is much more likely to live longer than before, it is unsurprising to find individuals who do not have the funds to support their retirement needs. Indeed, many individuals are going to struggle to support their basic living standards based on average pension pots of £34,000. Throw in the low annuity rates now offered and we come to the situation confronting your client, even adding in the state pension and other benefits.

The first stage for any adviser dealing with a client such as this is to firstly ask them what level of income they believe they need? This may be idealistic rather than realistic and it’s important the adviser helps the client look at all incomings and outgoings to review the true amount they require, rather than operate a pie in the sky approach.

After this advisers will of course need to look at all the available assets the client holds to see if any of these can be utilised in order to top-up their income. Clearly, if the client has Isas, investments and assets they no longer require then these can be taken into account to see if they can meet the client’s income needs.

However, it is quite likely, particularly for those with smaller pension pots, that the available and useable assets will be in short supply, and it is therefore vitally important the adviser is able to consider what is likely to be the biggest asset available – the client’s property. While the average pension pot has not grown considerably over the last 20 or so years, the same cannot be said of property values. Even accounting for the peaks and troughs we have witnessed during that time it is quite likely your client (and many others of that age) are now living in properties which have grown significantly in value so they will therefore be sitting on quite considerable equity levels.

If the adviser does feel that other options have been exhausted then it could be time to utilise the client’s property and release that equity in order to supplement the pension income levels.

Of course, this requires the adviser to have a working knowledge of equity release products, and the ability to offer advice in this area, or they should be able to introduce to a specialist that does.

The important point for advisers to remember is not to dismiss equity release at any stage of this process. 

While some clients may not want to opt for an equity release product, others may be interested to learn how they can achieve their retirement living standards through this approach.

At the very least equity release needs to be an option on the table because I suspect that as time passes there will be an increasing need to access the value in our property’s in order to acquire the necessary income.

Chris Prior is sales and distribution manager at Bridgewater Equity Release  

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