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The UK lacks savings: Can equity release provide shelter from the storm?

Can equity release provide a solution to a UK financial storm that has been gathering force for decades?

While declining annuity rates and challenging investment returns have created a difficult pensions environment, the storm's contributory factors have been many, including: a lack of UK savings; increasing longevity; and soaring UK residential property prices.

Equity release products have evolved dramatically in the recent past. There is more flexibility, such as the facility for partial repayment and inheritance protection. At the same time, economic and demographic forces have created conditions in which equity release can be viewed as part of a modern, holistic approach to retirement planning.

Let's examine these conditions in more detail, starting with the UK's poor savings record. In this year's budget speech, George Osborne mentioned that he was: "faced with the truth that young people aren't saving enough"(1) and will introduce a Lifetime ISA for people under 40 in 2017.  Let's hope this approach bears fruit because saving isn't the UK's top priority, as Aviva's recent Good Thinking #SaveSmarter campaign highlighted.  

So just how little money are UK families saving?  The latest figures from the Aviva Family Finances Report (2) shows that UK families have, on average, only £3150 in savings. The figures also show that the average amount of money in savings and investment pots varies dramatically across the UK. At one end of the scale, families in London have £10,000 saved. For Yorkshire and Humberside, the figure decreases to £1,833. And it gets worse: recent research (3) reveals that 50% of adults have no savings or investment products whatsoever. 

At the same time, people are living longer and staying in their homes. In fact, of the UK's total population, almost 18% are over 65. By 2050, this is expected to rise to roughly 24%. (4) The financial pressures are twofold: for rising numbers of elderly people, their savings - if they have any - will have to last longer, while younger people will have longer to wait until they inherit, if at all. 

Therefore this financial storm consists of mature, asset rich individuals with low levels of cash savings. Also in the picture are their sons, daughters and grandchildren, often in promising careers yet saddled with student debt, unable to get on the housing ladder. So although things might seem quiet in the eye of the storm, this financial imbalance could have catastrophic repercussions. It's here where equity release could help provide solutions.

The UK may be a nation that is poor at saving, but its residential housing wealth is another matter entirely. At the start of 1986, the average UK house price was £35,647. By the end of 2015 it was £197,044, an increase of more than 452%. (5)To sum up, it's time we considered equity release as part of a wider mix of retirement options, given that for many people, their home is their largest financial asset.

Roger Marsden, Managing Director Equity Release, Aviva


(1)    Budget Speech 2016

(2)    Aviva Family Finances Report  Q1 /2016

(3)    Momentum UK Household Financial Wellness Index March 2016/ University of Bristol

(4)    An Aging World 2015 (US Census Bureau March 2016 /p139)

(5)    Nationwide house price index