Top Retirement News

Derin Clark

Derin Clark

Online Reporter
Published: 04/02/2020

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.

A new pension provider has been launched that is targeted towards the self-employed and more specifically freelancers.

Penfold is targeting the 15% of the UK workforce who are currently self-employed and has stated that it aims to revolutionise the pension industry for UK freelancers. According to figures released by Penfold, five million workers are currently self-employed and, of these, 86% currently do not save into a pension. The company is hoping to change this by offering self-employed workers with a pension that is clear, simple, digital and can be activated in under five minutes.

Once the pension is activated, contributions can be paused, topped up with a bonus and combined with multiple pension balances. Penfold states that users can choose where their money is kept or invested, and the dashboard explains how much they have saved and how far off they are from their ultimate end-goal.

Pete Hykin, co-founder of Penfold, explained: “We know that auto-enrolment has increased participation in pensions to 80% among the employed, but this hasn’t helped the millions of UK self-employed.

“It’s almost like the self-employed, who we know are the backbone of the economy, are being ignored by the Government and UK industry. There are absolutely no pension options out there that adequately serve those working for themselves.

“We’re aiming to make pensions not just easier, but more attractive for self-employed people to start planning for later in life. Often people put off setting up a pension due to the amount of understanding needed, the volume of paperwork and even just the fact that it can involve calling multiple providers to find the best option. Our research has shown the scheme needed to be flexible and adapt to the end-user, not the other way around.”

Chris Eastwood, co-founder of Penfold, added: “Pensions for the self-employed is just phase one of the Penfold plan. The great thing about the pension industry is that there’s so much room for improvement – whether it’s the option of setting up or paying into a pension for your children, giving people more visibility and control over the environmental or social impact of their pension investments, or even earning rewards like airmiles for every contribution. Our aim is to make pensions as accessible and engaging as banking has become.”

New research published this week by equity release lender, more2life, reveals that 35% of over-55s say their expenditure already exceeds their income. In fact, more than two-thirds (68%) of these are using their cash savings to plug the gap and around a third plan to use a credit card or their bank account overdraft to cover their income gap.

Over half of those surveyed did not have enough in cash savings to cover an unexpected bill of £5,000 and 12% would need to borrow money to pay for a sudden event such as a boiler breakdown.

A further 25% believe that the increasing cost of living will push them into the red this year.

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