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Nearly 80 per cent of the wealth of this country is in the hands of over-45s. Financial services companies have not regarded the retirement market as being a good prospect but I believe this is about to change and the retired population will represent a substantial source of income for IFAs in future.

My first argument revolves around the opening up of the open market option. This will give IFAs an opportunity to offer clients more pension income for the rest of their life and then reorganise other assets so total income meets their expenditure and aspirational needs.

Traditional wisdom suggests that, having sold an annuity, that is the end of the IFA/client relationship. The client sails off into retirement and the IFA&#39s file gathers dust.

But the IFA of the future will regard that client as a substantial source of income. The client in turn will value the holistic skills of the IFA in matching net income to expenditure and aspirational need. The client&#39s assets will need to be managed to take account of their changing attitude to risk and the risks associated with retirement, such as a potential need to fund long-term care.

Most people retiring today are unlikely to have an income that will meet their retirement dreams. This will be partly due to depressed stockmarkets, leading to reduced income flows, and also to annuity rates being depressed as a result of low interest rates and increasing life expectancy. A smaller fund invested on lower interest rates will have to last longer.

Now take into account the fact that, although the average pensioner is likely to be cash-poor, with an average retirement fund of £24,034 (ABI 2001), they may be asset-rich as the average price of a house is now £115,700 (CML 2001).

It is my belief that equity release will become an accepted way of boosting retirement income. The potential market is £459bn, which could support sales growth of £4bn-£5bn a year for the next decade.

Yet I can hear many of you exclaim: “Equity release? Our compliance department would be apoplectic if we sold that product. Just look at what happened in the 1990s.”

This is yesterday&#39s thinking. We now have to create awareness and support for a market which is capable of delivering a much needed boost to people in retirement.

To make equity release acceptable to clients, there is one key issue which needs to be addressed, which is to strip away confusion about regulation in the market. The FSA has consulted on mortgage regulation in consultation paper 146 but its proposal is that it will only regulate lifetime mortgages. It is a matter of concern that cash-based reversionary equity release schemes will not be regulated.

The operation of a mortgage-based scheme is quite clear. A loan is given against a property, interest is rolled up and the loan is repaid when the property is sold following death. Under such a scheme, the amount of property which will pass into a client&#39s estate will not be known until death.

Under the reversionary scheme, a proportion of the property is sold to the reversion company, with the balance being placed in trust for the client&#39s estate. If the company that is providing an income from this equity is authorised by the FSA, the client can be satisfied that that company will be subject to the scrutiny and safeguards of the FSA. But this will not be the case if the company provides only cash-based reversionary schemes and is not authorised by the FSA.

The cash-based reversionary company would certainly fall outside the FSA&#39s current equity-release proposals. This is the problem facing consumers. Given the advantage of reversionary schemes that I outlined above – which I am sure an unscrupulous salesman would be keen to point out – it is hard to understand why cash-based reversionary schemes should not be brought under proper regulation.

Without proper regulation, we will have a two-tier market. On the one hand, there will be a fully regulated mortgage market and on the other hand a non-regulated reversionary market. Given the importance of the product, this cannot be allowed to happen.

You may well ask what about Safe Home Income Plans? It is a common misunderstanding that Ship regulates the equity-release market. While fully acknowledging the important work that Ship has done in addressing the historical problems of the equity-release market following the scandal of the 1990s, the reality of what Ship offers must be understood. Ship is a trade association which does not have a monitoring scheme, does not have a compensation scheme and nor does it have capital.

If the misunderstanding of Ship&#39s role is allowed to continue, particularly in relation to reversionary schemes, not only will we have a two-tier market but we may also have a group of consumers who will mistakenly believe that they are protected in the same way as clients of companies which are authorised by the FSA or members of the mortgage code.

Equity release has the potential to improve the lot of the pensioner, to fund long-term care and to help to solve the economic reality of pension provision. It will be sold to the most vulnerable members of society and both the Government and the industry have an obligation not to allow the sort of sales growth which I believe is possible unless it is under the umbrella of regulation.


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