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.
Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.