The age of people using equity release is falling. The mean age for people taking out equity release fell from 71.6 in the first half of 2006 to 70.6 in the first of 2007, according to figures from Key Retirement Solutions.
The change is due to a combination of changes in attitudes, sources of pension income and product changes affecting the circumstances of a new generation.
Key Retirement Solutions business development director Dean Mirfin says: “This is just the tip of the iceberg. The age is starting to creep down as more people approach the age of retirement and begin to rely on equity release at a younger age.”
Norwich Union, one of the big-name equity-release providers, says the average age of customers taking out its equity-release products fell for six consecutive years from 70.9 years in 2000 to 68.8 in 2006. Although in 2007 the average age rose to 69.7 per cent, the firm believes the long-term trend is very much downward.
Norwich Union Equity Release group product manager Dominic Fraser-Smith says: “More and more customers from the baby boomer generation are now approaching retirement. This age group is very different to the generation before it.”
There is a structural shift in terms of the pension finances available today. Comparatively fewer people now have defined-benefit schemes.
Fraser-Smith says: “Customers are more likely to have a pension black hole.”
Mirfin also points out that the state of finances for a generation with a much higher divorce rate is also relevant. He says: “A lot of clients in their mid-60s and 70s have been with the same partner for their life. but it is not uncommon for those in their early 50s to be divorced. “A lot of people are left not as financially secure as they would like to be approaching retirement.”
Retirement Plus managing director Duncan Young says: “People are entering retirement now without having paid off their mortgage or their credit card debt. They may have an interest-only mortgage or an endowment shortfall and are left with a block of debt that is uncomfortable to service with a pension.”
Leaving an inheritance has also become less important. Stonehaven chief executive Jayne Almond says: “Eighty-yearolds who lived through the war are quite hostile and horrified about the idea of taking on debt and eating into inheritance but 55-year-olds are not, having different attitudes towards debt. They do not worry about inheritance and are deciding to look after themselves.”
There are also high expectations regarding lifestyle. Young says: “There are people who have a property, are healthy and fit and want to enjoy themselves as much as can in their retirement.”
Fraser-Smith says: “Many want cash now to enjoy a new car or will want to add on a conservatory in a few years.”
New products have been introduced with lower minimum ages. Stonehaven and Norwich Union both offer equity release to people from 55.
Almond says equityrelease providers now need to market to a very wide age group from 55 to 80-plus.
Norwich Union and Stonehaven are unlikely to be the last companies to reduce their minimum age. Young says: “We are under tremendous pressure to lower our age from 65 to 60. We will give very serious consideration to it in the next few weeks and I will surprised if we didn’t.”
But for how much longer can the industry expect a decline in the average minimum age?
Fraser-Smith says the age will fall closer to 60 but there will not be a dramatic drop as the change in structural conditions and attitudes takes hold.
But Almond has doubts that products will be made available for much younger ages. She says: “There is a limit with the loan to value on how much you can bring the age down.”