The long-term picture

Safe Home Income Plans celebrated its 20th anniversary in December but the debate about how and when the equity release market will take off has been running for almost as long as the trade body has been in existence.

But could the RDR and Dilnott recommendations on long-term care or even a rebranding of the term equity release finally see the market fulfil its potential?

The most recent figures from Ship show that sales increased by 12 per cent in the third quarter of 2011 and says it is confident that this is a sign of things to come.

Director general Andrea Rozario says: “Demographic factors such as longevity and economic issues mean that we will inevitably see people needing more money to fund their later years. As a result, we believe that more over-55s will turn to alternative sources of funding, such as equity release.”

Partnership chief executive Steve Groves also says incorporating equity release into a retirement income plan is inevitable, given people’s saving levels. Groves says: “It has to become part of people’s retirement plans unless they are prepared to accept a lower standard of living in retirement. Average pension pots are under £20,000 in the UK. Average house prices are £170,000.” founder David Dunn is less certain about equity release’s short-term future. He says: “In the long term, equity release has an inevitability about it because people will find they have inadequate funds to support their retirement but I doubt it will be this year.”

But even if nothing else changes, Dunn agrees that equity release will continue to grow. He says: “800,000 people are turning 65 this year, so even if the proportion of people using equity release stays the same, the figures will go up.”

Although equity release is not widely used by advisers, this could change as the RDR takes effect. First, to remain independent, advisers will have to look at the totality of clients’ assets at retirement and that includes their property.

’New products such as equity release drawdown do not expose people to large debts like old products did. We need to get that across to consumers’

Dunn says: “The client will expect to talk about all aspects of retirement, so there may be pressure on IFAs to look more closely at equity release.”

Second, qualification requirements may lead to more advisers taking equity release exams.

Rozario says: “As advisers undertake further qualifications to meet the requirements of RDR, we are likely to see more become qualified to advise upon equity release.”

Third, the RDR will drive IFAs towards the more affluent clients who are likely to use equity release to supplement their income.

’New products such as equity release draw-down do not expose people to large debts like old products did. We need to get that across to consumers’
Dun says: “It is more of a lifestyle thing now and under the RDR, IFAs will be dealing more in the upper end of the market.”

Groves accepts this is possible but says the potential boost to equity release could be countered by mass-market clients missing out on advice.

Groves says: “IFAs may move upmarket and so average people may find accessing equity release harder. This could offset the gains from a more holistic approach to financial planning.”

A lack of marketing and education about the new generation of equity release products are also highlighted for the lack of interest from both advisers and consumers.

Dunn says: “We need to promote it more. New products like equity release drawdown do not expose people to large debts like old products did. You can draw out £10,000 a year and only accrue interest on that. We need to get that across.”

Groves says: “Flexibility is a key attraction. Impaired equity release is a no-brainer. If someone can use less of their property because they have a health condition, then it makes sense.”

However, education and marketing may not be enough by themselves.

Dunn says: “One in four people reject equity release outright. The products may be better but people have long memories. I wonder whether we need a change of brand. I know a rose by any other name is still a rose but this is one of those instances where it could work.”

But rebranding is not an option, according to Groves. “It has been tried and has not worked. The issue is much more around communication. The scandal was 26 years ago and Ship has ensured a very safe market since – it applies higher requirements than the FSA. The challenge is getting commentators to recognise this.”

The final part of the equity release puzzle this year is its inclusion in the Dilnot report as a possible source of funding for long-term care.

Groves is dismissive of equity release playing a major role in LTC funding, saying: “I would be very surprised if the white paper due in April included anything that made a meaningful difference to the industry.”

Rozario is more hopeful. She says: “Equity release is already part of the long-term care debate. The Government has looked to financial services to offer up possible solutions to the care funding gap. Equity release is one of these and the Government needs to make people aware of it. The ultimate goal is for a government department to take ownership of equity release and we believe that, with sustained lobbying, that will happen.”