Pensions  

How can clients use annuities and equity release for retirement?

This article is part of
Guide to boosting retirement income

Mr Garg says: “If you are over 55, equity release is one of the most common products to use today as they allow users to access some of the money tied up in the value of their home without having to go through the hassle and costs of moving.”

It is tax-free and can be done via a loan or selling part of it to secure a steady stream of income and can help towards making any outstanding payments. 

Mr Chan says the most common equity release product is the lifetime mortgage, which rolls up the interest payments.

He adds: “The risk is higher for those who live longer than expected and/or those who took out a lifetime mortgage when they were relatively young."

Mr Garg warns that equity release products can often mean a family is left with a little before death. 

“High interest bills, could exceed the value of your home if not paid off and could leave your family with little left after death. In addition, you will also not be allowed to take out the sum all in one go and if you are in good health, you may find yourself restricted to a release of 35 per cent,” he adds. 

So should clients opt for an annuity, equity release or both to fund their late life needs? 

Mr Garg points out that equity release products can also impact pension and universal credit benefits because the lump sum is tax free. 

He adds:  “This could be a huge loss and outweigh the factors of taking out an equity on your property in the long-term.”

Martin Jarvis, associate consultant at Mattioli Woods, says: “Annuities guarantee an income for life which may suit certain clients, although in this low rate environment the amount may be insufficient to meet their needs.”

He adds: “There is an argument therefore that if a client has a longer term investment timeframe it may mean drawdown and investment risk may be more palatable than the annuity rates on offer.”

saloni.sardana@ft.com