Towards the end of 2019, a few months before the pandemic arrived and turned our lives upside down, I shared a beer with a good friend, a guy I’ve known for more than 30 years. During the course of our conversation, my pal, who is five years older than me, suggested I should start making a list of projects, activities and other tasks I’d fancy tackling, effectively beginning the ‘wind-down’ to retirement.
I got the message, took his advice and began creating a pre-retirement list. I’m surprised how rapidly the burgeoning catalogue of ambitions grew. Some were deleted, others added; I even jumped the gun and started one project much earlier than planned.
In addition to embracing practical ways of keeping yourself occupied immediately before and during retirement, similar recommendations apply to the financial side of retirement too, especially as many Western governments continue the search for ways in which they may reduce their enormous, pandemic-created debts, potentially at the expense of pension provision.
A broad collection of think tanks, activists, economists, philosophers, political commentators and others have presented a raft of post-pandemic studies and financial proposals, each offering what they believe is the answer to a steadily expanding national debt. Several proposals should act as an alarm call for people who are already retired and those of us who can see it drawing progressively closer on the horizon.
In truth, most proposals would be so difficult to implement that the Treasury or their political masters have ignored them.
There is, however, one suggestion which the Centre for Policy Studies (CPS) maintain would save £2 billion annually; it’s relatively easy to execute and while it would be unpopular with the cohort it intends targeting, the group itself is so unorganised that the Treasury would have little difficulty amending the law to implement it.
Changing the pensions triple lock to a dual lock is, the CPS’s eyes, a realistic option. It notes that the “triple lock has become an engine of unfairness, ensuring that pensioners’ incomes are always protected at the expense of other generations’”.
This conclusion appears a tad misplaced for several reasons.
First, it’s worth remembering that most retired people worked their whole life, paying into a system for 45-50 years which guaranteed them a state pension upon retirement. This hasn’t created ‘an engine of unfairness’; people are merely receiving a return on an investment they’ve made over almost five decades.
Second, while pensions have been protected by the triple lock since 2011, the arrangement is anomalous. Over the preceding 62 years, between 1948-2010, pensioners were rarely, if ever, considered prosperous, especially if the state pension was their only source of income.
Third, the ‘other generations’ to whom the CPS refer still have the opportunity to increase their savings from earnings, something pensioners clearly do not.
To claim that the state pension is paid ‘at the expense of other generations’ might be over the top, but this may not prevent a cash-hungry Treasury from ‘amending’ the triple lock to make the payments to pensioners “less generous”.
As the Treasury explores ways of saving money, many retirees will be conscious of the fact that their triple locked pension is a relatively easy target.
No-one has ever rubbed their hands with glee at the prospect of finally finishing work without having enough money to enjoy a comfortable retirement. Few of us look forward to penury. Which is why planning for the financial side of retirement is as crucial as deciding how you intend spending your post-employment time.
In much the same way as we prepare to keep ourselves occupied during retirement by getting involved in a range of different activities, starting new hobbies or planning to travel, so our financial arrangements are likely to be the product of several sources.
Tapping into their accumulated property wealth is an increasingly popular area for many existing and prospective retirees. Such has been the phenomenal rise in property values over the past half century that upwards of 80,000 people annually release a proportion of this wealth from their homes, tax-free, and use it to supplement their income.
Whichever way you supplement the state pension, it pays to remain mindful of attempts to amend or withdraw the ‘triple lock’ and, by extension, ensure that your retirement incorporates as many different sources of income as possible.
So how best to explore whether equity release could meet your needs?
Essentially, equity release enables homeowners aged 55 and over to release a percentage of the equity built up in their property either in the form of a tax-free lump sum and potentially future drawdown payments. This process might sound straight forward enough when encapsulated in a single sentence, but equity release represents a significant step.
In the first instance, there could be great merit in exploring the equity release market in greater depth online and comparing up-to-date equity release deals using smartER, a unique platform designed for the over-50’s by Equity Release Supermarket. You can start by taking a look here.
smartER is the only online equity release research tool that’s available to homeowners – you may have even seen the smartER advert on TV. Being able to compare online, and in your own time - which we confess, we have in droves, allows us to understand more about the virtues of equity release down to the granular level including fees, interest rates and features.
Once this preliminary searching has been completed, people interested in learning more about the process should seek professional advice from a qualified adviser.
The most popular method by which equity is released is through a ‘lifetime mortgage’ which allows homeowners to borrow money against the value of their property. In short, the amount they can borrow is determined by:
- property’s value and:
- the owner’s age and that of their spouse and partner if the couple are making a joint application.
Perhaps the most attractive feature of a lifetime mortgage is the fact that homeowners continue to own their own home.
The lifetime mortgage is repaid upon the eventual sale of the property, either following the death of both applicants or if they go into long-term care.
Ensuring that your provider is an Equity Release Council (ERC) member is hugely important for your peace of mind. Equity release plans written by ERC members must offer a “negative equity guarantee”, ie the value of the property will never be less than the amount owed on the lifetime mortgage.
As with retirement planning in general, there’s much to consider; however, and at the risk of being cynical (or is that realistic?), should a future government conclude that it can get away with scrapping the pension ‘triple lock’ and save £2 billion a year, there’s plenty of evidence to suggest they could be tempted. It follows that having a back-up plan to supplement your retirement income could prove a shrewd move.
