With reports from January this year revealing that more than half of elderly Brits are struggling to afford basic purchases, retirement planning has become a major concern for many citizens. As the income provided from pensions fails to keep up with the rising cost of goods, elderly people are forced to look to alternatives – but could equity release plans be one of them?
Nobody wants to worry about their finances when entering retirement but unfortunately this is a situation which is becoming far too common amongst Brits. The struggling economic situation which is currently afflicting the UK is being felt by all of its residents and the elderly are no exception. A combination of price increases and the backlash of the Euro-zone crisis have left the UK with multiple financial difficulties and proposed cuts to pensions and public spending are only set to exasperate this situation.
To combat these effects, pensioners are looking for alternative methods of gaining income to give them the comfortable retirement they have earned. Equity release plans are one way of doing this but what are they and how can they help?
What is an equity release plan?
Equity release plans are designed to offer pensioners who own their own home a way of releasing a lump sum of tax free cash or to be able to drawdown regular income in addition to their private or state pensions. Equity release plans “free up” money which is left dormant within your home by using some or all of the equity built up in your property. The equity in your house is reduced through these schemes but you are given the money needed to enjoy your retirement now without reducing your disposable income.
As a general rule, equity release plans work by providing a lump sum of tax free cash or tax free regular drawdowns to the individual and are mostly secured on the property in the form of a mortgage. This amount is repaid to the mortgage company after the last homeowner leaves the property, allowing the necessary proceedings to continue without difficulty.
Equity release schemes are only available as lifetime mortgages and home reversion plans with Lifetime mortgages being the most common and are all regulated by the Financial Services Authority. With all schemes you live in the property for as long as you want whilst receiving money through your chosen plan – meaning your life can continue uninterrupted whilst you receive the money you need.
How can it help pensioners?
As the economic situation in the UK has worsened, many bodies have begun to highlight the benefits of these schemes. Equity release recently gained approval from the Health Select Committee this February and one annuity provider reported a 30% increase in sales due to equity release.
Designed for homeowners over the age of 55, equity release plans are the ideal way for pensioners to generate additional income or a lump sum. This gives the elderly the money they need to have a comfortable retirement and with the peace of mind they can stay in their property for as long as they wish.
Whilst the income is effectively provided as a loan that is repaid when the last person leaves the property, the money does not have to be given in one payment but can be provided as regular monthly instalments or drawdowns instead. This gives those who use the schemes peace of mind over their finances by ensuring they always have access to vital funds.