Pension research shows growing role in equity release in retirement planning

New pensions research from the Competition and Consumer Protection Commission (CCPC) brings into sharp focus the challenges Irish people face when it comes to funding retirement.

Almost a quarter of those questioned (23%) aged 55-64 – those expecting to retire in the next decade – reported that they don’t currently have a pension in place.

The State Contributory pension (currently €253 per week) plays a significant role in the financial planning of most people as a means of funding retirement. Of the 735 adults of all ages who took part in the research, two-thirds (66%) stated that they would be using it.

However, many respondents intend to supplement their pension plans with a variety of other forms of retirement funding, including selling a property (24%), rental income (23%), equity release (15%), and selling a business (14%).

Lifetime mortgage loans for retired people

The role of equity release in helping home-owners fund a more comfortable retirement is well established in many countries such as the UK – but less so in Ireland. However, that is changing in the face of our ageing demographics and other challenges that we face when planning and funding our retirement.

Spry Finance sees this every day with the couples and individuals who take out a lifetime loan with us. As the chart below shows, the reasons for choosing equity release vary. Indeed, it is perhaps the variety of reasons given which best demonstrates that an increasing number of people are recognising that it makes sense to release equity from their greatest financial asset (their home) to ensure they can enjoy a more comfortable and financially secure retirement.

Spry Finance
Lifetime Loan spending (Q2 2022)

how retired people utilise equity release from a lifetime home loan in Ireland

Let’s look at what the data tells us:

  • Additional cash funds 32% – This group includes those seeking to create a rainy day fund for emergencies, those seeking cash to enhance their lifestyle, and those who need extra monthly income. Facing retirement without sufficient income or savings can be a source of anxiety, and almost a third of Spry customers in Q2 2022 chose to ease that stress by releasing equity from their greatest financial asset.
  • Home improvements 24% – A new kitchen or bathroom, new windows, retrofitting insulation, and other purchases for the home. Almost a quarter of Spry customers are choosing to release equity to make the homes they love more comfortable.
  • Repay mortgage/debts 21% – More than one fifth of Spry customers chose to take out a lifetime to loan in order to pay of existing debts. This could be an interest-only mortgage that has matured and the capital amount is due to be repaid, or another loan. Retirement can look a lot more affordable without such repayments.
  • Gift to family and friend 9% – Many Spry customers are parents who want to help their children get on the property ladder. The average age of inheritance in Ireland is estimated to be around 61, and an increasing number of parents are choosing to provide gift their children money at a time which benefits them most.
  • Other 14% – There are a variety of other reasons why someone chooses to release equity from their home, including to pay for a dream holiday, buy a new car, and pay for immediate or longterm healthcare costs.

There are, of course, alternatives to a lifetime loan. These include taking out a loan from a bank or credit union, borrowing from family, renting out a room in your house, or releasing equity by downsizing to a cheaper home. Unfortunately, accessing credit becomes increasingly difficult once someone is over the age of 60 or retired.

Downsizing or renting a room suits some people but is not for everyone. For those who wish to stay in their home but are locked out of alternative lending, equity release products such as a Spry Finance lifetime loan fulfil an important financial role. The findings from the CCPC research shows that this will only increase as more people approach retirement with inadequate pension provision.