Advisers must start taking equity release seriously and stop referring to it as a “last resort” product, Simon Chalk has warned.
The technical manager for equity release at Leeds-based Age Partnership said that as pension wealth continued to decrease, it was no longer an option for advisers to ignore property income.
At present, he said there was still a “lack of understanding” over how these products worked, which went against “smart” financial planning.
However, while he accepted that some of his peers would not change their attitude towards equity release, he urged those not keen to refer clients to a specialist.
He said: “Advisers must discuss the issue with clients, as leaving property out of client retirement income discussions is not going to be an option from here on in.
“The choice for the financial adviser is clear: either advise in this area yourself or refer to a specialist and receive a referral payment.”
When asked what had been holding equity release back from being recognised as a mainstream retirement option, Mr Chalk said many of his peers “wrongly” believed that releasing equity was an option of last resort.
But while this had been a long-term issue, he added that attitudes were steadily changing and a lack of understanding of how the products worked was “gradually being overcome”.
Part of the reason for this was an increase in equity release queries. According to Mr Chalk, enquiries about equity release had “doubled” since last year and were likely to increase even further given the average pension fund and the aftermath of the March Budget.
Drawing on data from the Association of British Insurers, he said the average annuity in 2013 was bought with a pension fund of £35,600, which was nothing in comparison to the Land Registry’s calculation that the average property value was £172,069.
He added: “Everyone knows where the money is, so the crucial job we all have is to make people aware of the excellent value and flexibility offered by the modern equity release market.
“Only when people fully understand all options open to them can they make sensible, informed decisions.”
Mr Chalk was also bullish that the Budget’s proposal to give people “unfettered access” to their pension pots could potentially see more turn to equity release as a retirement tool.
Whereas some, he said, would delay taking equity release to make capital withdrawals from their pension funds, others would quickly deplete their funds and require it immediately.
Adviser view:
Stephen Jones, chartered financial planner at north Wales-based 75point3, said: “There are not that many avenues to obtain equity release advice. Banks don’t do it. Most IFAs don’t do it as they shy away from mortgages. Many mortgage brokers don’t do it as they are not qualified or see it as too high a risk. So you are left with specialist later life advisers who aren’t always the most approachable of individuals and maybe the more multi-skilled IFA practices. I think the Budget will lead to clients raiding their retirement funds rather than releasing equity.”
