Yorkshire Post - March 2007
Contributor : Jonathan Fry

While much is made of the potential hardship facing the next generation of pensioners as a result of the pressure on over-stretched pension funds, many of those who have already reached retirement are also struggling to make ends meet.

With inflation running at a ten-year high and the interest on savings failing to keep pace with rising prices, pensioners are seeing their income slip ever further behind the rising cost of living.

In a great many cases, however, those who are finding it hard to afford even the basics are actually quite well off, thanks to the equity in their houses, the value of which has risen consistently for more than a decade. Indeed, the retirement solution provider Economic Lifestyle reported a couple of weeks ago that pensioners hold 32 per cent of the UK's personal wealth, despite accounting for only 20 per cent of the population.

The problem they face is that almost 50 per cent of their wealth is tied up in their home. Of the remainder, just under 20 per cent is available in cash, 16 per cent in securities and the balance is held in other assets.

So what can they do to release part of their wealth in order to give themselves a more comfortable lifestyle or an occasional treat, such as a holiday?

The most popular solution is to take out an equity release plan, or lifetime mortgage, home reversion or home income plan, as they are sometimes called. Such plans allow those who are generally aged 60 or over to borrow money against the value of their home, with the debt being paid out of their estate on their death.

There are a wide range of equity release schemes, some offering lump sum payments and others offering a regular income. They can be quite complicated to understand and all represent a major step for anybody considering them, so Age Concern and the Financial Services Authority, among most respected institutions, strongly recommend reference to an independent financial adviser. An IFA will assess each individual's finances to decide whether equity release is the best option for them and, if so, help to find the right product.

If equity release is a chosen option to release cash or boost income, the final concern of many people, especially parents, is that they might be eating into the nest egg they have worked a lifetime to accumulate for the benefit of their families.

This really should not be one of the overriding influences on the decision to cash in part of the 'family silver' for a better retirement. Economic Lifestyle reports that the attitude of younger generations has changed and pensioners now mostly have their children's blessing to enjoy their hard-earned wealth while they are alive. The rise in property values and threat of paying inheritance tax on everything above £285,000 serve to offset much of the impact of releasing equity on even an average estate these days.

And so say I. Enjoy your wealth while you can - you've earned it.

© Yorkshire Post 2007