I was in Westminster last night for drinks on the terrace watching politicians lining up to tell their in-jokes about the Conservative party leadership contest. The jokes weren’t very funny and even if they were, I couldn’t tell you them as the jokers wanted drinks to be under the Chatham House Rule.
The Four Trillion pound lifeboat for British Pensioners
By contrast, we were here to discuss a very serious issue, the changing role of property in later life financial plans. I’ve just read the Equity Release Council’s excellent study called “Beyond bricks and mortar” and I recommend that you do too.
Property accounts for 35p in every £1 of household wealth – rising to 61p for non pension assets. That makes bricks and mortar, the biggest source of finance for those aged 75 or over.
65% of property wealth is held by the over 55-s , a massive 11% increase since 2008. A third of over 65 households have more than £250,000 of personal wealth in property.
The chart shows that net UK property wealth passed £4 trillion for the first time in 2018 – that’s nearly £79,000 for every household. Mortgage debt is falling as loan to value on our property plummets . We are paying off our mortgages and directly investing in property like never before and this investment has exceeded new mortgage debt every year since the financial crisis in 2008.
Can property stave off a pension crisis for future generations?
It would seem that people’s attitudes to their property are also changing. On the one hand we are seeing our property as useful to us as we grow older
But we’re also seeing something new
Less than 10% of people feel borrowing against a property in later life would be a stigma to them. Only a third of us feel we won’t have need to access income from property and nearly half of us recognise releasing money from property to supplement pensions is becoming more common.
We can no longer ignore what middle England is telling us, our property is though of as part of our pension – and people expect to pay for their breakfast sausages with the bricks from their dwellings.
You can buy a sausage with a brick
For those included in the great home ownership bonanza, supply of lifetime mortgages is starting to meet demand. This is paradoxically because of pensions. The surge in bulk-buy outs by insurers of UK Defined Benefit Schemes, coupled with the maturity of many deferred annuity savings plans, means that annuities are being purchased at a greater rate.
Insurance companies are having to take not just the longevity risk but also the investment risk and they are looking for return seeking assets – just like everybody else. They have no interest in tying themselves into long-term gilt yields that offer them a return less than inflation. They are very interested in lifetime mortgages against our residential housing stocks which last as long as the home owners.
These mortgages exactly match the shape of the liabilities – people’s income needs in later life. Not only do they mean people can get the top-up income they need to enjoy their retirement, they mean that insurers can prosper in a competitive buy-out market.
Sausages all round.
Am I painting too rosy a picture?
I don’t think I am. The people at the top of the Equity Release Tree aren’t the snake-oil salesmen of yesteryear. They’re the serious politicians who may not be in parliament , but are still pulling strings. People like Chris Pond who chairs the Council’s Standards Committee and David Burrows, Chairman of the Council itself. Add to these a hugely enthusiastic and energetic CEO in Jim Boyd and you have a trade body I’d be proud to be a part of.
To ordinary people in this country , property is the first thing they think of when they consider financial security in later life
So while the politicians laugh and joke about the mess they’re making of this country, these people are quietly getting on with the great work of solving the need for an AgeWage.
A message to the Minister for Financial Inclusion
But I am painting too rosy a picture for those who do not know housing security, for those whose weekly shop starts with a trip to the food bank, for those for whom 10 years of austerity has not led to rising housing wealth but ever greater poverty.
For these people there is no help from Equity Release and precious little help from Government as they struggle to save for a pension.
Yesterday also saw the launch of a very important petition.
We call on Government to ensure no low earners miss out on the tax top up on their pension contributions. We estimate that this issue hurts the living standards of nearly 2 million pension savers. Government should act to ensure low earners in all types of pension schemes receive pension tax relief
Petition: Reform the payment of pension tax relief to ensure that no low earners miss out https://t.co/nvulibuWra
— Pension Plowman (@henryhtapper) June 17, 2019
I would be interested to know how many of the nearly 2m pension savers not getting the promised Government incentive to save, will have access to lifetime mortgages.
If we want to be financially inclusive, we’d better think about the 2m who don’t get the housing breaks, as well as those lucky ones who do.