Retirement Money News

The pandemic has resulted in many households facing financial struggles over the past 12 months and older homeowners may be considering tapping into their pension pot early or releasing equity from their property to see them, or help loved ones, through the current economic uncertainty.

Although accessing pensions, via pension drawdown, or releasing equity from homes through equity release can be a good way to access wealth that has accumulated over lifetimes, both options can have a long-term impact on finances and need to be considered carefully before a decision is made.

Ideally, those considering pension drawdown or equity release should speak to an independent financial adviser to discuss their individual financial goals, but as a start we’ve looked at the pros and cons of both equity release and pension drawdown.

Homeowners looking to release equity from their home can now see the best-rated equity release deals on the market, as the Moneyfacts Annual Star Ratings 2021 for equity release have been revealed.

This year, the number of products that have been awarded the top five-star rating has risen to 122, an increase from 95 last year. As well as this, those looking for equity release deals will have had more choice this year as the number of products available for ratings has increased year-on-year by 38%.

A full list of the equity release products that have been awarded a four or five-star rating can be found here.

Commenting on the star rating equity release announcement, Lee Tillcock, editor of Investment Life & Pensions Moneyfacts, said: “With product flexibility continuing to grow in order to meet high demand, the equity release sector has witnessed greater innovation as providers serve changing consumer needs. Older homeowners looking to unlock cash from their homes now have an unprecedented choice of equity release products and options to choose from.

“The annual Moneyfacts Equity Release Star Ratings provide consumers with a valuable insight into the quality of the equity release features on offer, outside of the products’ key features.”

Providers that have been awarded a five-star rating include LV=, more2life, Canada Life, and Legal & General.

On finding out that LV= has been awarded a five-star rating, David Stevens, savings and retirement director at LV=, said: “Gaining recognition from the impartial industry experts at Moneyfacts allows advisers to recommend us to clients with confidence, reflecting the hard work that LV= is doing to improve customer outcomes.”

Commenting on more2life’s five-star rating, Stuart Wilson, corporate marketing director at more2life, said: “As one of the longest-standing and most-respected ratings providers in this market, we are always delighted when we find that one of our products has achieved a Moneyfacts five-star rating. It signals to advisers and their clients that we’ve put considerable thought and resource into building a product that is not only fit for purpose, but that exceeds expectations.”

By Neil MacLeod, Technical Manager at Prudential UK

The tax year in the UK runs from 6 April until 5 of April the following year. While most individuals’ income for a tax year is deducted at source through their employment, the self-employed and those with other untaxed income and gains need to complete a self-assessment tax return.
If you need to complete a tax return and haven’t done it already, the deadline for completion online for the 2019/20 tax year was midnight on 31 of January 2021. Incidentally this is also the same deadline for paying any income tax or capital gains tax due. Failure to submit your tax return on time results in an immediate £100 penalty from HMRC as well as potentially larger penalties for late payment of the tax due.

There’s little in the way of tax planning that can now be done for 2019/20 but there’s still time to put your house in order before 5 of April 2021 for the current tax year. Here are some of the main allowances and exemptions that you should be looking to make use of before 5 April.

With the number of homeowners with a maturing interest-only mortgage predicted to peak during 2022, the latest research revealing that the number of providers offering retirement interest-only mortgages is at its highest level on record will come as welcome news.

The number of providers currently offering RIO mortgages now stands at 22, which is nearly double the number available two years ago, when there were just 12 providers offering these types of mortgages. Year-on-year, the number has increased by four, rising from 18 in February 2020.
Along with the growth in providers offering RIO deals, the number of products available has also risen year-on-year. In February 2019 there were just 38 RIO mortgage deals available, and this increased to 74 in February 2020 and rose to 109 available this month.

“While these changes seem small, these facts are notable for two reasons; firstly, RIO mortgages are a niche product with perhaps few borrowers for whom they are an appropriate option and make up only a small percentage of mortgage products overall, so any slight positive change impacts the sector,” explained Eleanor Williams, finance expert at Moneyfacts.co.uk. “Secondly, providers withdrew swathes of mainstream mortgage products last year and choice remains considerably below that seen prior to the onset of the pandemic. These positive shifts in both the number of lenders and RIO deals are therefore great news for older borrowers.”

Homeowners looking for a RIO mortgage deal should be aware, however, that the average rate on a RIO mortgage has also increased year-on-year. In February 2019, the average RIO mortgage rate stood at 3.50%, which fell to 3.47% in February 2020 but has risen since then to stand at 3.59% this month. Saying this, the average rate has fallen slightly since December 2020, when it stood at 3.60%, so this could be the start of a downward trend in rates.

“Overall, it is inherently positive that those considering a RIO mortgage now have not only a greater choice of products, but also from a greater choice of lenders,” added Williams. However, borrowers considering a RIO mortgage should secure qualified, independent advice to ensure they are picking the right type of product for their circumstances. Equity release, down-sizing and other options may be valid alternatives, so having the knowledge and support of a professional in making their choice would be vital.”

Homeowners with a maturing interest-only mortgage should read our story on how to pay off an interest-only mortgage for more information. Alternatively, visit our RIO mortgage and equity release pages for more information about these products.