Retirement Money News

The average equity release mortgage rate has dropped below 5% for the first time in the last 12 years, according to data from Moneyfacts.co.uk.

Current equity release mortgage rates are now at the lowest they have been since Moneyfacts.co.uk digital data began in 2007, with the average rate for fixed and variable rate mortgages now at 4.99%. This is down from 5.10% a year ago and 6.11% five years ago. The choice of products on the market has also increased and there are now 207 lifetime equity release deals available, up from 164 a year ago and just 48 five years ago.

Equity release market analysis

While the average pension pot has reached a new record high, a third of retirees accessing their pension for the first time haven’t taken any form of financial advice, warns the Association of British Insurers (ABI).

Analysis by the ABI found that last year, the average pension pot size stood at a record-breaking value of £120,000, however of the 62,000 accessing their pension for the first time over a six-month period, via drawdown, 34% didn’t take any form of financial advice.

This is a worrying statistic as these decisions could lead to those in retirement not having enough money in the future to cover their living expenses.

Yvonne Braun, director of long-term savings policy at ABI, said: “Pension freedoms gave consumers many more options and flexibility in their retirement, but with greater choice comes greater risks. To see levels of advice hitting new lows is disturbing and risks leaving thousands of elderly consumers facing poverty later on in their retirement.”

There was a 5% year-on-year increase in the number of retirees taking out lifetime mortgages with Canada Life to help pay for their daily living costs in 2018, figures from the retirement and investment company reveal.

According to Canada Life, 21% of its customers took out lifetime mortgages in 2018 to partly or solely use for day-to-day finances, an increase of 5% compared to 2017, which it believes is part of a growing trend among retirees to use equity release to fulfil retirement plans. In addition to this, a third of people surveyed in Canada Life’s 2018 Retirement Sentiment Index said they were concerned about the cost of living and believed they would need over £1,400 a month to cover expenses.

Nearly half (47.5%) of Canada Life customers used money from their equity release to make improvements to their home or garden, while 37.9% used the money to pay off an existing mortgage. Other popular reasons customers took out these loans were to purchase a new property and to help first-time buyers.

Alice Watson, head of marketing and communications at Canada Life Home Finance, said: “The growth in customers using lifetime mortgages as income during their retirement reflects the extent to which equity release is now viewed as a practical option for retirement planning. Alongside more traditional sources of income such as pensions and other saving investments, the use of property wealth is helping to boost the quality of retirement for increasing numbers of people.

“This sits alongside the dramatic changes brought in under the pension freedoms, which made pensions far more efficient as a wealth vehicle in inheritance planning. Thanks to the freedoms, pensions passed on are now taxed at the marginal income tax rate of the heir receiving them, tax-deferred if the heir keeps it in a pension rather than drawing on it, or aren’t taxed at all if the benefactor dies before 75. Drawing less on a pension, and instead drawing on other assets to fund retirement, could allow someone to leave more money to their loved ones.

“One of the drivers behind this increasingly diverse and everyday use of equity release is product innovation. The challenge now for the equity release industry is to continue to adapt to changing customer needs and ensure the requirements of future generations of homeowners are catered to.”

Those considering taking out equity release should be aware that there are risks involved and it is advisable to speak to an impartial financial adviser before making a decision. For those looking for more information, our guide on equity release could help.

Over 10,000 grandparents and other relatives are receiving help with their state pension for looking after grandchildren, but many more are missing out on this benefit due to lack of knowledge about the scheme, according to Royal London.

Information Royal London gained through the Freedom of Information Act showed that by 2017/18, 10,084 relatives – mainly grandparents – benefited from a little-known Government scheme known as the Specified Adult Childcare Credit, which was a massive increase from 2015/16 when the number of those benefiting was just 1,298. However, with seven million grandparents in Britain with grandchildren under 16, many more people could likely benefit.

Under the scheme, grandparents – as well as other close relatives such as aunts and uncles – who look after a child under the age of 12 while the child’s parents are at work can benefit from a National Insurance (NI) credit that can be used to enable them to build up a full state pension. As long as the parent who has gone back to work is paying NI in their own right, and therefore no longer need the NI credit that comes with receipt of child benefit, it can be signed over to the family member who is looking after their child. This is added at no cost to the parent.  

This scheme is particularly beneficial to grandparents under the state pension age and who are looking to improve their retirement income. Using the NI credits available through the scheme, they can improve their ability to receive the full state pension without having to work extra years.

Find out more about the Specified Adult Childcare Credit.