‘Once-in-a-generation boom’ for equity release

Over £30bn has been flexibly withdrawn from retirement pots since the pension freedoms launched in April 2015, and in the same time homeowners have used property wealth to deliver £13bn in extra income via equity release, according to new analysis from AJ Bell.

Figures from the investment platform have suggested the ‘Baby Boomer’ generation are cashing in gains made on their properties to supplement their retirement incomes.

AJ Bell revealed that for every for every £1 of money flexibly withdrawn from pensions in the last four and a half years, about 44p has been generated from property wealth using equity release.

AJ Bell senior analyst, Tom Selby, commented: “As we approach the fifth anniversary of the introduction of pension freedoms, much of the debate has understandably focused on people’s defined contribution retirement pots and specifically the sustainability of the withdrawals they are making.

“But for most people, defined contribution pensions are just one part of their retirement strategy, with many using a variety of assets to generate an income in their later years.

“This emphasises the multi-faceted nature of retirement planning for most people, with private and state pensions often combining with equity release and other financial products like ISAs to deliver an income.”

Despite the £13bn released from equity since April 2015, AJ Bell suggested future generations are ‘unlikely’ to release similar amounts from their homes, calling the current climate a ‘once-in-a-generation boom’ for equity release.

“Younger people are finding it increasingly difficult to get on the housing ladder,” Selby added. “And even those that do are more likely to be lumbered with longer mortgage terms than their parents and grandparents.

“Furthermore, it is highly unlikely the rapid property price increases that burnished the retirement wealth of Baby Boomers will be repeated in the coming decades.

“Future retirees therefore need to factor in the possibility they don’t win the property lottery when building their savings plan as, in all likelihood, their house will not be their pension.”

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