Our industry knows that retirement has changed. Compared to the generations before them, the customers we’re working with often have vastly different plans, goals and aspirations for later life.
For us as advisers and lenders, the task is to understand these plans and deliver options that can help customers meet their needs for retirement.
The changes which the Financial Conduct Authority (FCA) made to Retirement Interest-Only (RIO) mortgages were a welcome move that has been followed by a wave of RIO product launches.
Separately, lenders have also looked to the lifetime mortgage market to launch more flexible solutions that allow customers to make regular, monthly interest repayments.
So the last year has seen the market step up to give more support to more retirees, but we’re still far from mission accomplished.
Falling pension wealth
Whether it’s the end of final salary pension schemes or longevity, many more people are approaching retirement with smaller pension pots that they now need to make last longer.
In fact, the FCA previously found that nearly a third of UK adults have no private pension and even plan to rely solely on their State Pension.
These shifts in retirement have undoubtedly helped to grow the retirement lending market, with more and more consumers looking to their housing wealth to help pay for the retirement they want.
However, the near £4bn market we saw in 2018 remains just a drop in the ocean compared to the £1trn of housing wealth in the hands of the over-55s.
There are older homeowners who haven’t yet been switched on to the idea of unlocking their housing wealth.
Challenge retirement perceptions
I think there are two core reasons for this.
First, we must do more to challenge the perceptions about retirement.
The way we reach out to our customers and talk about retirement lending needs to recognise how different each experience of later life can be for every customer.
Whether it’s by phone, face to face or even through our advertising, our market needs to recognise the facts of modern retirement.
Research we conducted found there is a group of homeowners who want to use their housing equity in later life, but don’t want to access that wealth in large chunks.
They want to unlock equity as a regular income alongside annuities, investments and their state entitlements, as part of a tailored retirement plan to help them maintain their standard of living.
Improve distribution support
Second, it remains about distribution.
I believe there are thousands of potential customers who either haven’t heard about lifetime mortgages, or who continue to base their views about equity release on the market of the past.
The challenge over the next year will therefore be to boost distribution.
That means supporting more mortgage advisers to enter this growing market, with education, tools and a helping hand to encourage them to talk to their clients about later life borrowing.
Retirement lending has the potential to be a much larger market in the future.
But to maximise this opportunity, we all need to work together on supporting more mortgage intermediaries to raise awareness with their clients about lifetime mortgages, RIO and other retirement lending options.