No alternative to equity release by 2029?

Over 65s will own at least £1.5 trillion of equity in their homes by 2029, more than the entire 2009 GDP of the UK, according to research by retirement planning group Sovereign Reversions plc.

This is an increase of 88% on the current level of £800 billion. Even if property prices stayed at today’s depressed levels in real terms, the growth in the number of people of retirement age would swell the equity they own to £1.2 trillion.

At the same time, pension provision will look much less generous than it does for today’s retirees. Already the vast majority (72%) of final salary pension schemes are closed, leaving people having to fund their own, much less generous, defined contribution schemes

By 2029, there will be 15.1 million people over the age of 65, a 50% increase in today’s number of pensioners and equivalent to over one fifth (21.5%) of the UK population. The over 65s make up just 16% of the population today.

As these people plan for their retirement, finances could be much tighter for a number of reasons: the official retirement age is rising leaving them forced to work longer before being entitled to a state pension, final salary schemes are being consigned to history making pensions more dependent on uncertain investment outcomes, and age dependency ratios are increasing (from 30% to over 45%) making it harder for working families to support more ageing relatives.

Furthermore, the government and pensions industry has consistently underestimated longevity, Sovereign Reversions argues, adding that the projections are rising all the time, putting even more pressure on retirees’ finances

Today pensioners own three-fifths of the UK’s net property wealth and, even at this low point in the housing market, each pensioner ‘homeowning household’ owns £193,000 of equity in their homes

Graeme Marshall, chief executive of Sovereign Reversions plc, said: “Equity release is one of the industries riding the demographic megatrend of an ageing population. The UK’s property assets are increasingly concentrating in the hands of the older generation.

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