Retirement Money News

Today the Government announced that the triple lock will be suspended for one year, however state pension will still rise next year by 2.5% or in line with inflation.

Making an announcement in the House of Commons Work and Pensions Secretary Therese Coffey, announced that a Social Security Uprating and Benefits Bill would be introduced for 2022-23 which will result in the basic and new state pensions increasing by 2.5% or in line with inflation.

The announcement of the new Bill means that the triple lock - which sees the state pension rising by either inflation, average earning growth between May and July, or by 2.5% - being suspended for one year. Due to the post-pandemic rise in average wages, if the triple lock had been kept this year it would have seen the state pension increasing by 8%.

Equity release can be a good way for older homeowners to tap into the wealth they have built up within their homes, but many considering this option will have concerns on how it will impact the inheritance they leave behind. To help homeowners get a clearer understanding of the impact of equity release on what they leave behind, here we look at how equity release affects inheritance.

The biggest impact equity release has on inheritance is that it will reduce the amount inherited by loved ones when the property is sold after the equity release borrower has gone into permanent care or died. Not only does the sale of the property need to cover the amount of equity release taken out, usually between 20 to 60% of the property’s equity, but also repay the interest that has accrued on the equity release loan. As soon as money is taken out through equity release interest starts to be added, this means that someone who takes equity release at 55 will likely leave behind a smaller inheritance than someone who waits until later in life to take equity release.

Saying this, rising house prices can help to mitigate some of the impact the equity release loan and interest has on the inheritance left behind. As well as this, many equity release plans now allow borrowers to make partial repayments or interest repayments during their lifetime, which again can reduce the impact on inheritance. Another factor to consider is that it is common for equity release plans to now allow drawdown, which means that borrowers can take out lump sums of money as and when they require, with interest only being added once the money is taken (or drawn down).

Furthermore, a no negative equity guarantee clause, guarantees that no more than the outstanding value of the home will have to be used to pay the equity release debt, which means that inheritors will not be left with additional equity release debt once the property is sold.

Consumers looking for a secure retirement income gained from an annuity will be pleased to see that the average annuity has increased by 1.4% between April and June this year, compared to 0.7% growth the previous year.

Although annuities began to fall in popularity after pension freedom rules were introduced in 2015 allowing all retirees to take pension drawdown for the first time, those wanting a secure retirement income continue to opt for an annuity.

Workers today will have lower pension income on average than some earlier generations a report from the Equity Release Council has found, which means that in the future retirees will likely need more than just their pension savings to boost their retirement incomes.

Even those looking to retire in the near future may find that changing jobs multiple times and not starting a pension fund until later in their career, as well as the move away from generous defined benefit pensions to defined contribution schemes, has resulted in workers having less money in their pension pots compared to the previous generation.

Add to this the recent economic turmoil caused by the global pandemic that has seen the Bank of England base rate cut to an all-time low of 0.1% and stock market volatility, even those who have managed to save a good pension pot may find they have less than they initially anticipated.
As such, when planning for retirement it may be a good idea to consider boosting pension incomes through alternatives rather than just relying on pension savings.