According to data from OneFamily, published today (August 19), one in four over 55s who opt for financial advice have an idea of what financial solution they want to fund them through later life.
But the research, conducted by polling 215 advisers in June, showed 55 per cent of such clients had changed their mind after speaking to an adviser, with many brokers reporting that clients had fostered misconceptions about how retirement funding options work.
According to the advisers polled, the majority of clients misunderstood annuities, pensions and equity release.
When discussing equity release, advisers reported that seven in 10 (71 per cent) thought they could end up in negative equity and two thirds (66 per cent) thought they were unable to sell their home.
On top of this, 62 per cent thought they could not pay off a lifetime mortgage early or move to a new property while 44 per cent thought they were not allowed to switch mortgage provider — but all of the above are incorrect.
According to OneFamily, confusion about financial options available in later life was coupled with a lack of understanding of their own personal situation, as advisers also said that nearly half (47 per cent) of their clients didn’t know how much was in their pension pot.
A 2017 Opinium poll put the average pension pot at £28,000 at retirement — just over £1,500 per year based on the average retirement of 18 years.
OneFamily stated this could mean “many over 55s” were in for a “nasty shock” if they had overestimated their pension amount.
Despite property likely to be one of their biggest financial assets, advisers said 40 per cent of their clients did not consider their home as a financial asset to use in retirement.
Advisers also said retirees’ top worry was funding longer retirements, followed by mortgages continuing into retirement and finances becoming more stretched as younger generations need more help.
Nici Audhlam-Gardiner, managing director of Lifetime Mortgages at OneFamily, said: “This research shows there is a lot of misunderstanding in the later life lending market, and demonstrates the value of taking financial advice.
“As the lifetime mortgage market continues to grow, so will the variety of homeowners and their needs. As providers and advisers we play a vital role in helping over 55s get a complete picture of their retirement funding options.”
Kay Ingram, director of public policy at LEBC, said the power of advice in later life was key as retirees who adopted a DIY approach or relied on providers risked paying too much tax, accessing funds too soon, not adjusting their investment strategy or not exploring all the options, such as equity release or annuity.
She added: “Those who rely on friends and family for advice risk making many wrong assumptions. As the research by OneFamily shows, few understand how equity release works or the difference between this and a retirement interest-only mortgage.
“Unfortunately some advisers who have chosen not to offer advice on equity release themselves may also ignore this as an option to consider. It will not be right for everyone, but given that for many people their home is their biggest asset, it should always be considered alongside all other options.”
Ms Ingram also pointed out retirees often had misconceptions about the state pension and pension tax, adding an adviser could provide insight into all these aspects of retirement planning and help consumers devise a strategy for a secure retirement.
Will Hale, chief executive at adviser firm Key, said: “Today’s research by OneFamily highlights the importance of quality financial advice in later life, particularly as many customers are unsure about how much they have in their pension pot and what this may be able to provide in terms of supporting income in retirement.
“A qualified adviser will consider all assets against current and future income requirements, including looking at wealth tied up in property and how this might be accessed to achieve wants and needs in later life.
"Many people are realising their pension pot is falling short of delivering what they expected to be able to achieve from it, but by engaging with an adviser who can look at their finances holistically it may be that later life lending options such as equity release can be part of the answer."
imogen.tew@ft.com
