New research from Newcastle Building Society show that only 9% of the UK’s over 55s would consider equity release.  Around a third of people surveyed are going to be dependant upon the state pension and have not considered equity release.

Equity release does still have a rather poor reputation but if you have no other means to fund retirement why on earth would you not do it?  I can fully understand only considering it as a last resort but to refuse to use your only remaining asset to fund your retirement is, in my opinion, being overly cautious.

I’ve spent many many hours investigating various equity release issues, bad press and case studies and I do believe that there is nothing to fear if you have a good, honest financial adviser to help you.  The original scandals were the result of poor products and poor advice.  The industry has addressed the poor products so your right to continue living in your own home is protected and interest rates continue to improve.  And now that the FSA regulates equity release you should be protected from poor advice too.

For those surviving on a state pension I think it’s time to consider equity release and an improved lifestyle.

The Prudential’s Equity Release Index recently found that homeowners aged 65 or over have £726bn of equity in their homes.  Of course as house prices continue to fall this figure is decreasing.  I wonder if there’s any connection between this fact and the recent increase in equity release business in the UK?

SHIP (Safe Home Income Plans) – the trade body that represents more than 90% of the equity release market in the UK – announced on 16 July this year that equity release business volumes produced by its members in the second quarter of this year had increased by 14% over volumes in quarter one. A total of £275.7 million of equity was released by SHIP members in the second quarter, 14% higher than the £242.7 million released in the first quarter.

So how far will house prices fall?  Nobody knows but estimates from those who dare to forecast seem to range from around 30-70%.  I wouldn’t be surprised by 50%.  Rental yields are a good way to value property and they are incredibly low.  In order for yields to recover we need either (or both) prices to fall and rents to increase massively.  I don’t think rents are coming up any time soon since: (a) many people have sold  recently and opted to rent while the market is suffering so there is no shortage of rental property; and (b) the economy as a whole is suffering thus reducing available cash in renters’ pockets.  Therefore prices must fall further and there’s certainly plenty of evidence for this.  Today the bank of England announced that the number of new mortgages approved for home buyers fell in July to just 33,000 – down by 71% on a year ago.

More to the point for those who already own property, how long will it last?  When property crashed at the end of the 80s bubble the market took 5 years to hit the bottom and another 5 for prices to recover to pre-crash levels.  But it could be worse – Mr Darling told a newspaper at the weekend that Britain was facing its worst economic crisis for 60 years.  Maybe he’s just lowering our expectations so we’re not disappointed by his performance later.

Britain’s soon-to-be pensioners are being cheated out of getting the best deal on their annuities. There are a number of key issues:

1. The product providers hide the fact that you can shop around. Most people don’t shop around because they don’t understand that it’s possible – providers call it exercising the Open Market Option. Why not just Shop Around? The Financial Services Authority (FSA) research showed that the difference between the best and the worst annuities is up to 20%. And remember, that’s 20% for the rest of a lifetime.

2. Insurers create administrative delays to make it harder to shop around. In fact the FSA is investigating allegations that insurers are delaying transfer of funds when policyholders want to transfer to another provider for their annuity.

3. We as a nation do not really understand pensions. For the majority of people, financial education is non-existent and pensions are complicated.

4. Most people cannot afford a financial adviser. Although often financial advisers receive their income through commission from product providers this is not possible when the amount in the pension is low. The Thoreson Review of Generic Financial Advice was designed “to ensure greater access to high quality affordable financial advice for those most vulnerable to the consequences of poor financial decision-making.” The final Thoreson Review was published in March 2008 and merits its own post really so I’ll save that for another day.

5. Other providers don’t want your business if you have less than £5,000 in your pension.

If we don’t start forcing the insurers to act with a conscience (or just comply with the FSA’s Treating Customers Fairly rules) we will have an ever increasing pool of impoverished pensioners. Those with the least provision for retirement will, as always, suffer the most.