Political bid for grey vote puts retirement products in the spotlight

The political emphasis on enabling people to remain in their own homes for longer in the run-up to the general election may result in greater interest in equity release at a national level.

Following a year in which the value of the equity release market fell 22%, the number of customers by 35% and the number of providers by nine, remaining players remain bullish about the long-term prospects for specialist advisers.

“We believe the market is going to grow,” said Dominic Fraser-Smith, group product manager for Aviva, which has been able to use annuities to fund equity release. “If you look at what level of income the state pension provides you with, then the average annuity pot of £30,000 gives you not very much to live on in retirement. One way or another people need to access the equity in their property to fund their retirement.”

Alex Edmans, a care funding adviser at Saga, expressed little concern about the falling number of providers.

“There are a sufficient number of others to meet all customer requirements and provide competition,” she said. Although some providers withdrew after struggling to raise funds during the recession, others simply met their quota for the year or have opted to concentrate on products that promise a quicker recoup of funds.

AT HOME OR IN CARE?

Fraser-Smith said that 29% of all equities and loans are used, at least in part, for home improvements or adaptations. Edmans said that equity release could be a “very good” way of funding care at home but also suggested that products should evolve to enable people to use the funds released to pay for residential care. Currently, policyholders are required to repay the loan when they move into a care home.

However, Chris Horlick, managing director of care at long-term care provider Partnership, which has temporarily withdrawn from the equity release market, challenged the “received wisdom” of the current focus on enabling people to remain at home.

“One needs to be very careful about saying it is always best for people to receive care in their own home,” he said. “I do not think that’s the case. Why if you are going into residential care should you worry about having to sell your home? What you worry about is whether you will have an inheritance to leave your family. That is the real scandal – that people can sell their home and still run out of money.”

Partnership’s Care Payment Plan Option enables people to pay for care fees without the need to sell the family home. Essentially, it is a loan secured against the property which is then used to purchase a Partnership Care Plan.

ADVISER OPPORTUNITIES

While there are an estimated 7,000 people in the UK qualified to advise on equity release, providers believe more advisers could consider it as an option for clients in 2010.

“I think the general message is to be open-minded about this,” said Alison Beeston, group compliance and risk manager at Bridgewater, a specialist home reversions provider. “There is still, even in the adviser market, this historic negative perception of equity release and advisers need to almost accept that, while this is not always the right choice, it is an option.”

Providers are acutely aware of the taint of earlier scandals in the market. The consumer charity Which? has described equity release as a “last resort”.

“It’s more of a legacy problem,” says Andrea Rozzario, director general of Safe Home Income Plans (SHIP). “The products of today bear no relation to the products of yesterday.”

Established in 1991, SHIP has members which account for around 84% of regulated equity release products, in terms of volume, sold in the UK. Members must offer customers a number of safeguards including a no negative equity guarantee, which means they will never owe more than the value of their home and no debt will be left to the estate. A key standard for members of SHIP is that their products are sold with specialist independent legal advice.

Claire Barker, a partner for Equilaw LLP and member of The Equity Release Solicitors Alliance (ERSA), a group of established law firms who specialise in the field of equity release, said that financial advisers who are not suitably qualified should consider linking up with those that are as referral partners and forging relationships with solicitors who specialise in advising homeowners on equity release.

“If advisers are not proactive in recommending solicitors, clients often end up simply choosing the closest solicitor to home, which can be costly and take much longer than a specialist would,” she warned. “Equally, a financial adviser can expect to be regularly updated by a specialist solicitor and be confident that the client’s experience will be as smooth and stress-free as possible.”

EQUITY RELEASE: A DIVERSE CUSTOMER BASE