Top Retirement News

Derin Clark

Derin Clark

Online Reporter
Published: 25/06/2019

On average, UK women will outlive their retirement savings by 12 years, while men will outlive them by 10 years, according to a recently published report by the World Economic Forum.

In its report, Investing In (and for) Our Future, the World Economic Forum warns that retirement savings will not be able to cover retiree’s lifespans and that women should prepare to bear the brunt of the shortfall, going without retirement savings for two years longer than their male counterparts. It also warns that retirement savers are currently too risk-averse in their retirement investments and that many young to middle-age savers should change their risk outlook, understanding that outliving their savings is a far greater risk to them than short-term investment risk.

Han Yik, Head of the Institutional Investors Industry, World Economic Forum, said: “The real risk people need to manage when investing in their future is the risk of outliving their retirement savings. As people are living longer, they must ensure they have enough retirement funds to last them through their longer lives. This requires investing with a long-term mindset earlier in life to increase total savings later on.”

The average weekly income of recent retirees is one fifth (20%) higher than that of older pensioners, according to Aegon’s analysis of the latest Government figures.

Analysing the data in the Pensioners’ Income Series published annually by the Department for Work and Pensions (DWP), the net average weekly income (after tax, national insurance (NI) and council tax) of recently retired* pensioner households is £392, while the net average weekly income of non-recently retired pensioner households is £326. This represents a 20% difference between recent retirees and older pensioners.

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

Lifetime equity release deals Jun 2014 Jun 2017 Jun 2018 Jun 2019
Number of deals overall 48 100 164 207
Average rate overall (fixed and variable) 6.11% 5.22% 5.10% 4.99%
% of deals with a product fee 96% 78% 57% 66%

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.

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