Around 3.7 million homeowner households aged between 55 and 79 are heading for financially constrained retirements with incomes below the UK Pension moderate retirement income standard.
That is a very worrying number and one that the FCA, government and financial advice sector should be relentlessly concentrating on as part of delivering good customer outcomes.
The figure comes from analysis and research in Fairer Finance’s latest Retirement Compass report, which also identifies a straightforward solution to financial constraints faced by the 3.7 million in the shape of the housing wealth they own. Housing wealth has an important role to play in helping many of these households improve their financial security in later life.
But as the report says: “Using housing wealth to fund later life is not currently part of the retirement conversation and many customers do not consider it as an option. The silos in the intermediary landscape mean that many people do not receive holistic advice that considers both their pension and housing assets.”
Where the gaps are
Analysis shows it is single women who are most at risk of financially constrained retirements – the 3.7 million households who will have incomes below the moderate standard are made up of 1.4 million single women, 600,000 single men and 1.7 million couples. Women are more likely also to have retirement incomes below the minimum standard despite being homeowners – around 8% of single women face that prospect compared with 3% of men and 6% of couples.
A combination of women’s longer life expectancy plus rising numbers of later life divorces partly explains the higher number of single women facing pension shortfalls. But the opportunity is clear as single women own considerable property wealth estimated at £225,000 on average by Fairer Finance’s report.
Data from the first half of this year from the Equity Release Council shows around half of new equity release plans are taken out by couples while 32% are taken out by single women and 18% by single men. Women tend to be older when taking out lifetime mortgages – 18% of new single women customers are aged 80-plus while 14% of single men customers are over 80.
The data underlines where financial advisers of all types – including later life lending specialists, those operating in the wealth and pension sector and mainstream mortgage advisers – should be evolving their propositions in order to deliver good customer outcomes.
Research also shows that attitudes to borrowing in later life are changing - the Fairer Finance report found that 67% of those aged 18 to 54 somewhat agree or strongly agree that having a mortgage in later life or retirement is more common while 56% of homeowners aged 55 to 79 said the same.
That represents a major shift from previous research in the Equity Release Council’s 2021 and 2023 Home Advantage reports which found 34% and 39% respectively agreed.
Attitudes are changing to borrowing in later life and the opportunity for advisers of all types to serve of the needs of more customers and in turn achieve profitable growth in their businesses is opening up - so what is the hold-up?
Holistic advice and silos
Fairer Finance’s report last year identified two major issues among a range of recommendations but as yet limited progress has been made in addressing these.
Normalising the consideration of housing wealth as part of retirement planning is the obvious starting point for the government and regulators. The MoneyHelper and Pension Wise guidance services should have housing wealth as a central part of the later life planning support that they provide. That would be helped by government and other public bodies investing in public information campaigns to dispel myths. Based on consumer research they potentially have a receptive audience.
But the financial advice sector can grasp the opportunities now with some help from the FCA. Reforming regulation around later life advice to break down silos and ensure all customers are supported to maximise the use of all their assets as they approach retirement would help.
Measures such as ensuring both specialist equity release advisers and mainstream mortgage brokers are obliged to consider all forms of later life lending products when advising customers over the age of 55 would make a major contribution.
There should also be a requirement that financial advisers need to explicitly disclose if housing wealth sits outside of their proposition and for them to have referral arrangements with appropriate specialists if later life lending options could deliver the most suitable outcome for a customer alongside or instead of pension and investment products.
Advisers do not have to wait for public information campaigns or FCA regulatory changes – at Key, for a number of years, we have adopted a holistic approach across all our advice channels ensuring that customers are made aware of all available options and are referred into other specialists where appropriate. That could include mainstream mortgage advisers in situations where affordability is not a barrier and cost of borrowing considerations are a primary driver, to care funding specialists when customers need to navigate what financial support may be available before accessing the equity in their home, or to debt counselling services if it is deemed that consolidating existing loans may not be a sustainable solution.
Consumer Duty obligations alone should be enough of reason for other advice firms to adopt a similar approach. However, there is a compelling commercial logic for mainstream mortgage advisers, generalist IFAs and pension/investment specialists to adopt a more holistic perspective as well. Firms can invest in setting-up their own later life lending services or, as a sensible starting point, simply ensure advisers have the knowledge/understanding to identify opportunities and put in place referral arrangements with trusted specialists.
There is a growing issue with retirement income shortfalls and, in housing wealth, a credible solution available which can deliver significant societal benefits, support good outcomes for customers and which represents an opportunity for advice businesses to build a significant new income stream.
