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Extend Pension Wise remit to cover equity release, says trade body

UK government policy can and should do more to support equity release as a way of meeting property owners' financial needs in retirement, according to the trade body for firms offering equity release products.23 Oct 2015

The Equity Release Council (ERC) said that Pension Wise, the government-backed service providing guidance to savers at the point of retirement, should be extended so that it could give information about equity release in appropriate cases. It also suggested that the UK Treasury take a lead on coordinating government policy on equity release, including by addressing regulatory issues preventing the development of the market.

Speaking at an industry launch event, which was also attended by representatives from the UK parliament, ERC chair Nigel Waterson said that "responsible" use of equity release could help meet some of the economic challenges caused by the country's ageing population.

"The equity release sector is growing fast, and is likely to become even more popular in the next few years," he said. "This growth is driven by a range of factors - so-called 'interest only prisoners', the challenges older customers sometimes face in accessing standard mortgages, and care costs. And many over-55s continue to access their property wealth to improve their homes, help family members or enjoy foreign travel."

"It is therefore all the more important that government and regulators do more to encourage responsible equity release. We urge the Treasury to become our sponsor across Whitehall. And we are delighted that the Work and Pensions Select Committee has just in the last couple of days endorsed our view that the Pension Wise guidance be extended to cover housing wealth," he said.

Equity release products allow those aged over 55 to access some or all of the value of their home as cash, either in the form of a 'lifetime mortgage' repayable from the value of their estate after death or by selling all or part of their home to a 'home reversion' provider in exchange for the right to continue living in it until death. The products are relatively popular in the US, but considerably less so in the UK and EU.

Christopher Woolard, head of strategy and competition at the Financial Conduct Authority (FCA), said last month that the regulator would look at the issue of equity release as part of a planned review of the UK mortgage market, scheduled to begin next year. Woolard said that these arrangements could potentially benefit an ageing population that was "increasingly asset-rich, but cash poor". Separately, the House of Commons' Work and Pensions select committee recommended this week that the government and FCA develop a "more holistic" Pension Wise service, offering more personalised support taking into account individuals' property wealth, benefit entitlements and care costs, among other factors.

The ERC's report (16-page / 515KB PDF) made seven broad recommendations to government and regulators, which it said would "help equity release meet the challenges of an ageing population". With better guidance and advice from financial advisers, local authorities and Pension Wise, equity release could be used to help individuals pay for care funding and home care services, while both the FCA review and the ongoing Financial Advice Market Review (FAMR) should explicitly address the potential of equity release within their relative scopes, it said.

Pensions expert Robert Lawrence of Pinsent Masons, the law firm behind Out-Law.com, said that although equity release products were "clearly not right for everyone", they would "continue to grow in importance as an ageing population realises that their existing defined contribution pension pots won't provide enough income in retirement".

"Given house price increases over the last 20 years, many people's most valuable assets will be their property," he said. "If they are reluctant to downsize in order to access the funds, then equity release does become an option for them. Housing wealth should therefore be something that is captured as part of the scope of Pension Wise."

"Equity release is already a well-regulated and governed area. However, the government should ensure that equity release is brought more into the fold as a way of addressing people's retirement needs and care costs. A consistent approach across the board is required. This would make it easier for consumers when they are considering the options available to them in order to meet their retirement needs," he said.