Top Retirement News

Michelle Monck

Michelle Monck

Consumer Finance Expert
Published: 03/04/2020

The 6 April is the start of a new tax-year and in 2020/21 there are a few, but significant, changes that those saving for their children’s future or a pension should be aware of.

Over 2.5 million over 55 year olds are planning to release money from their home by selling their property over the next 12 months. As a result, £89 billion is expected to be moved into savings accounts, new research from Ford Money has revealed.

The research found that more than one in 10 (13%) of those over 55 are planning to release money from their home by downsizing or moving to a cheaper location within the next 12 months. In addition to this, a further 8% are planning to move home over the next five years.
Ford Money also found that those planning to sell this year are expected to receive £85,250 each, with the majority planning to save an average of 52% of the released money, £44,330 each, for an average of six years.

Commenting on the research, Suzanne Lewsley, chief deposits officer at Ford Money, said: “Many over 55s are asset rich but cash poor, so it’s unsurprising that as the property market shows signs of heating up again, this group is looking to release the wealth trapped in their homes to bolster savings.

“But regardless of who or what it’s being saved for, it’s important they are depositing their newfound savings in the right place. Cash savings are a sensible, low risk investment option for people nearing retirement but, with over 55s planning on hoarding their equity for a little over 6 years, they need to ensure they aren’t only choosing the right type of product, but also the best possible rate for the long term, so that they can grow their money further.”

New figures show that although the amount borrowed through equity release has seen an almost four-fold increase in the last decade, 2019 saw little growth in the market.

The Equity Release Council published figures that showed the amount in property wealth accessed by older homeowners increased from £945.97m in 2009 to £3.92bn in 2019. However, despite this decade growth, last year saw the equity release market saturate, with lending volumes remaining largely unchanged since 2018 when £3.94bn was unlocked.

According to the Equity Release Council, increased consumer demand for equity release products is due to a number of factors, including homeowners recognising the role property wealth plays in supporting their retirement finances. In addition to this, it credits improved product features and flexibilities, such as the ability to make voluntary or partial repayments with no early repayment charge for helping to boost the popularity of the sector.

2019 was a good year for the drawdown market, while those looking for an annuity saw the heaviest fall in annuity rates since 2012.

Data from the latest Moneyfacts UK Personal Pension Trends Treasury Report (which is being published later this week) found that during 2019, retirees in drawdown benefited from one of the strongest pension fund performance since 2016. In fact, the data shows that the average pension fund returned 14.4% during the year and that investors have now enjoyed positive fund growth in four out of the five calendar years since the introduction of pension freedoms in 2015.

By contrast, the average annual standard annuity income fell by between 8.5% and 9% last year (depending on the purchase price). This is the second-heaviest annual fall recorded by Moneyfacts, which is surpassed only by the falls of between 9.4% and 11.5% during 2012. Saying this, there was some optimism in the annuities market at the end of the year, as during the last three months of 2019 rising gilt yields enabled annuity providers to boost the average annuity income by between 4% and 4.6%.

Average annual pension fund returns and average annual annuity income change since the introduction of pension freedoms

Calendar year % pension fund growth % annual annuity income change
2019 14.4% -8.5%
2018 -6.2% -0.2%
2017 10.5% 1.0%
2016 15.7% -5.3%
2015 2.6% -3.1%

Annuity figures based on an annuitant aged 65 buying a single life level without guarantee annuity for a £10,000 purchase price. Source: Moneyfacts UK Personal Pension Trends Treasury Report/Lipper

Commenting on the data, Richard Eagling, head of pensions at Moneyfacts, said: “Another year of falling annuity rates makes it even more imperative that those seeking an annuity maximise the payments on offer. They need to pay attention to the annuity information prompts that providers must supply to consumers about how much they could gain from shopping around and switching provider before they buy an annuity.

“For drawdown investors, the performance of pension funds in 2019 may have boosted their drawdown pots but they still need to regularly review any income that they are taking to ensure it is sustainable. Now is not the time for complacency for any retirees.”

The Nottingham for Intermediaries has added a 10-year fixed retirement interest only (RIO) mortgage to its portfolio. The RIO mortgage offers a fixed rate of 3.95% for 10 years (maximum 40% loan-to-value) and comes with a £995 product fee.

The 10-year mortgage replaces the building society’s previous seven-year fixed deal.

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