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‘Equity release can boost pension pot’

A-day rule changes will enable investors to release equity from their home, then more than double it by investing in a pension, says Scottish Life.

The provider says most publicity surrounding simplification has focused on investing in residential property but investors can also take advantage of the new regime to release money from their property and place it in their pension.

It uses the example of a 50-year-old man planning to retire at 65, earning 100,000 a year and with 120,000 equity in his home.

If he releases 75,000 from his property to pay into his pension, it will be enhanced by basic tax relief to 96,153,85. As he is over 50, he can take 25 per cent tax-free cash immediately to reduce the loan.

The loan can then be further reduced by claiming the difference between basic and higher-rate tax relief through his self-assessment return.

Scottish Life calculates that for a real cost of 33,654.54, the individual in the example can put 72,115.39 in his pension fund. The solution also diversifies his portfolio away from residential property and into other asset classes.

Individual pension marketing manager Andy Taylor says: “If you look at some of the changes being introduced to pension plans and the fact that many people are already releasing equity from their homes to fund retirement, then I think we have a very interesting opportunity indeed.”

Hargreaves Lansdown head of pensions research Tom McPhail says: “The idea sounds plausible although you would have to make the client aware of the artificial constraints being placed on their finances. We will see an awful lot more of these industry solutions as there is a significant number of people approaching retirement with a great deal of wealth in property.”

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