Housing and Finance in Later Life: A study of UK equity release customers. By Louise Overton, University of Birmingham For Age UK, June 2010

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1 Housing and Finance in Later Life: A study of UK equity release customers By Louise Overton, University of Birmingham For Age UK, June 2010

2 Acknowledgements This research was sponsored by the Economic and Social Research Council and Age UK. I would particularly like to thank Jane Vass, Joanne Crossley, Judi Aidam, Sujata Ray and Leslie Sopp at Age UK for their help and advice during the course of this research. I would also like to thank Andrea Rozario at Safe Home Income Plans (SHIP) and the equity release providers for facilitating access to their customers. Warm thanks go to Professor Karen Rowlingson and Professor John Doling for their invaluable input into the research and this report. Last, but not least, I would like to thank the respondents who gave up their time to take part and without whom this research would not have been possible.

3 Contents List of Tables 1 List of Figures 2 Foreword 3 Summary 4 1 Introduction Methodology Sample Questionnaire development Fieldwork Report structure 7 2 Characteristics and attitudes of respondents in the sample Age Person with whom plan was entered into and marital status Work status Children Income and sources of income Housing wealth Attitudes to inheritance and financial provision in retirement Inheritance Making financial provision for retirement Responsibility for financial provision in retirement 16

4 3 Experiences of equity release Plan commencement Plan type Purchase method Changes to plan and level of ease with which changes were made Levels of satisfaction/dissatisfaction with equity release plans Reasons for using an equity release plan to access housing equity 24 4 Exploring the role of equity release plans Use of equity The impact of equity release on respondents financial situation Level of agreement with equity release being a last resort; enabling a more enjoyable retirement and providing money that respondents could not do without Equity release: different purposes for different people 32 5 Conclusions and policy implications 38 References 40

5 List of Tables Table Sample characteristics 9 Table Income and sources of income 11 Table Housing wealth 13 Table House value by household income 13 Table Taking out an equity release plan 21 Table Whether respondents would or would not make the same decision about entering into an equity release plan today by when plan was taken out 23 Table Reasons for using an equity release plan to access housing equity 24 Table Way(s) in which respondents were making use of their housing equity 28 Table Respondents reported financial situation before and after taking out their equity release plan 30 Table Financial status after taking out an equity release plan by financial status before entering into a plan 30 Table Cluster analysis 35 Table Clusters by socio-economic variables 36 Table Clusters by number of uses for released equity 37 A study of UK equity release customers 1

6 List of Figures Figure Importance of leaving money or property as an inheritance 14 Figure Investing in property is a better way to make financial provision for retirement than paying into a pension 15 Figure Homeowners shouldn t have to use the value of their homes to supplement retirement income 17 Figure Who should mainly be responsible for ensuring people have enough money to live on in retirement, by income 18 Figure Respondents reports on how satisfied or dissatisfied they were with different aspects of their equity release plan 22 Figure Whether respondent would or would not make the same decision about entering into an equity release plan today 23 Figure Level of agreement with equity release being: a last resort; enabling a more enjoyable retirement and providing money that respondents couldn t do without 31 2 Housing and Finance in later life

7 Foreword Age UK is here for 14 million people aged over 60, working for a better life today and tomorrow. The ageing of our society is a triumph of modern life. Only a few decades ago, most people could look forward to just a handful of years in retirement, usually scarred by poverty and illness. Today, for millions of us, later life is a time of activity and engagement, when we are able to carry on socialising, working, caring and contributing in our communities. But our ageing society poses some real challenges too. More than two-thirds of people over 65 are homeowners without a mortgage, but many are living on low or moderate incomes and they often struggle to maintain their homes and access the support they need. Against this backdrop, how we use the value of our homes to improve our lives as we age is an important topic. Equity release is one of the financial tools that we can use, but perceptions of equity release vary from seeing it as a last resort for the desperate, to the answer to a huge range of financial pressures in later life. Age UK is delighted to support this independent research by Louise Overton of the University of Birmingham, which asks the people who are best placed to know those who have actually taken out equity release plans - what they think, what their experience has been and what impact equity release has had on their lives. We would like to thank all the older people who participated for their time, and we hope that their views and experiences will inform discussion about the role of housing assets in improving later life. Michelle Mitchell Charity Director A study of UK equity release customers 3

8 Summary Introduction Despite the combination of a number of social, economic and demographic trends giving rise to increasing interest in the use of housing assets in later life, there has been relatively little academic work which focuses on the way(s) in which older home-owners make use of the equity they release from their homes. This research report presents the findings of a survey of 553 equity release customers and 26 follow-up semi-structured interviews. The main aim of the survey was to get an idea about the kinds of people who take out equity release plans and find out what they were doing with the money. It also aimed to establish respondents views on associated topics such as inheritance, responsibility for financial security in later life and retirement saving strategies. Information was also collected on various aspects associated with taking out an equity release plan including levels of satisfaction and dissatisfaction. The interviews were carried out to further explore some of the results from the survey and to use the data gathered from these as a way of helping to interpret some of the quantitative findings. Key findings: Who uses equity release plans? The younger of the older age groups. The average age at which respondents took out their equity release plans was 72 years. Couples and singles alike. While 56 per cent of respondents entered into their plans with a husband/wife or partner, 44 per cent took out their plans alone so the difference in partnership status was fairly small. Those with children. The large majority of respondents (73 per cent) had children. Those who are neither very rich nor very poor. Those with private pension income but relatively small amounts of savings and investments. 85 per cent of respondents reported that they had a private pension while only 35 per cent reported that they had income from savings or investments. Those with average house values. Most (55 per cent) reported homes worth less than 200,000 at plan commencement. How satisfied or dissatisfied are they with the plans? Overall, the highest levels of satisfaction were reported in relation to: -- Information and advice (79 per cent of respondents said they were very satisfied). -- The plan being right for customer s needs (75 per cent of respondents said they were very satisfied). -- Safety and security (66 per cent of respondents said they were very satisfied). In terms of value for money, respondents were less likely to say that they were very satisfied (48 per cent). Just over half of the respondents (51 per cent) said that they would definitely make the same decision about entering into an equity release plan today while 4 per cent said that they definitely would not. This leaves 45 per cent of respondents who were less certain, one way or the other. 4 Housing and Finance in later life

9 What are equity release plans used for? Plans were used to supplement, rather than substitute for, private pension assets (85 per cent of respondents had a private pension). Plans tended to be used to provide capital rather than a regular income. The top three uses for released equity were: House maintenance/repairs (46 per cent), holidays (36 per cent) and debt clearance (35 per cent). Equity release plans were used in different ways by different groups: Group 1 Passing it on Equity release was commonly used to make early bequests and large one-off purchases. This group were typically better off than the other two groups. Group 2 Enhancing later life Equity release was used to provide a boost to capital to increase financial security and enable a more enjoyable and comfortable lifestyle. Equity was typically spent on a wide range of housing and non-housing consumption. This group had lower levels of pension income and savings than those in group 1. Group 3 Getting by Equity release was a last resort to relieve financial difficulty. This group were much more likely to be in debt than the other two groups. A study of UK equity release customers 5

10 1 Introduction The use of housing assets in retirement is a growing area of interest for academics, the government, the financial services industry and organisations representing older people such as Age UK. At a time of significant social and economic change the pressures facing government include the funding of pensions and long-term care in an ageing society while (some) older people face the difficulty of maintaining a decent standard of living as they are increasingly expected to provide for themselves. The recession has further exacerbated these problems with many pensioners finding that their living costs have increased whilst their savings income has reduced (SHIP, 2009; Age Concern and Help the Aged, 2009). Evidence of increased expectations for retirement among the baby boom generation (Harkin and Huber, 2004; SEQUAL, 2008) and changes in attitudes to inheritance (Rowlingson and McKay, 2005) could also mean that there is an increased willingness to use housing wealth to obtain a more comfortable lifestyle. Although the equity release market remains small, the combination of these trends with the growth in the value of housing assets means that in the future, more older homeowners may need, or want, to access housing wealth to meet their income needs and expectations. But despite these trends, there has been relatively little academic work focusing specifically on the characteristics, experiences and attitudes of older people who have released equity from their homes. The last major academic study in this area was carried out in 1995 by Judith Davey where 309 equity release customers were surveyed from a range of companies. But given the socio-economic and political changes that have taken place during this period, changes may also have occurred in the equity release arena. Indeed one of the aims of this research was to look for changes over time in the characteristics of customers and the way in which equity release plans are used. Where possible, then, comparisons are made between the findings from this research and those from the 1995 study, though reliability may be limited due to differences in sample size, sampling methods and question wording. Based on a survey of 553 equity release customers and 26 follow-up semi-structured interviews, this research report sheds light on the kinds of people who take out equity release plans, what they do with the money and their satisfaction/dissatisfaction with the plans. It also reveals their views on associated topics such as inheritance, responsibility for financial security in later life and retirement saving strategies (house vs pension). Data on different aspects related to taking out an equity release plan are also included. 1.1 Methodology Sample The sample for the survey was drawn from a variety of sources. Around three quarters of the sample were drawn from four equity release providers (all of which were members of the UK trade body for equity release, Safe Home Income Plans). The remaining quarter of the sample was drawn from databases belonging to Age Concern England, for example, supporters of the charity and respondents to previous Age Concern surveys. Given the methods used to draw the survey sample, it cannot be guaranteed that it is representative of all equity release customers. In addition, most respondents had taken out their plans relatively recently (i.e. in the past 5 years) so the survey does not fully capture long-term experience of equity release 6 Housing and Finance in later life

11 customers. Caution should therefore be exercised when interpreting the results. Please also note that where differences are referred to on a particular topic by subgroup variables such as age, income, attitudinal statements etc, the relationship between the topic variable and the analysis variable is statistically significant unless stated otherwise. The respondents that took part in follow-up interviews were selected from the survey sample with the help of an analytical tool which grouped them into three clusters according to the similarity of their responses to several variables. Respondents for interview were selected from each of these clusters. They also had to have indicated on the questionnaire that they would be willing to take part in an interview in order to be selected Questionnaire development The questions for the survey comprised a mixture of questions which had previously been asked on surveys such as the Attitudes to Pensions Survey (2006) and Attitudes to Inheritance in Britain (2005) and new questions designed specifically for this survey. The questionnaire was tested in a small-scale pilot with the assistance of Age Concern England and the necessary amendments made before the main fieldwork Fieldwork The quantitative phase began at the end of June 2009 and was completed by the end of September The equity release companies who took part in this research sent out the questionnaires and information letters to a sample of their client base on our behalf. People on the Age Concern databases who had previously agreed to future correspondence were mailed to see if they had an equity release plan and wanted to take part in the research. All respondents who took part returned their questionnaires directly to the University of Birmingham. Overall, a response rate of 39 per cent was achieved and the total sample size was 553. After analysing the survey data, 30 respondents were selected for follow-up telephone interviews and 26 took part in total. The interviews were carried out in January Report structure Section 2 - Characteristics and attitudes of respondents in the sample. This section looks at the social and economic characteristics of respondents before exploring their attitudes towards inheritance, financial provision for retirement and responsibility for such provision. Section 3 Experiences of equity release. This section includes data on when respondents took out their equity release plans, the type of product purchased, the way in which it was purchased (i.e. through an Independent Financial Adviser or direct from the company) whether they had ever made changes to their plans and also reported levels of satisfaction/ dissatisfaction with their plans. Section 4 Exploring the role of equity release plans. This section looks at what people were doing with the money from their equity release plans. It also explores the impact that it had on respondents standard of living and their attitudes towards taking out a plan. It concludes with the results of cluster analysis carried out to ascertain whether there were groups or clusters of customers who used equity release for specific purposes and whether or not they shared similar socio-economic characteristics. A study of UK equity release customers 7

12 2 Characteristics and attitudes of respondents in the sample This section looks at the socio-economic characteristics and attitudes of respondents in the sample and compares them with the findings from Davey s (1995) study. 2.1 Age The results in Table show that the average age of respondents at the time of the survey was 75 years (median age was 74). The age at which respondents took out their equity release plans ranged from 55 to 91 with a mean age of 72 years (median age was 71). The Financial Services Authority (2008) also state that the average age of customers, when taking out a regulated equity release plan, is 71. The respondents in this survey were younger than those in Davey s (1995) survey both in terms of their current average age and the age at which they took out their equity release plans. In Davey s (1995) study the average age of respondents was 80 at the time of the survey and 74 when plans were taken out. This difference is at least partly due to the fact that the age of eligibility for equity release products tended to be higher in 1995, typically around 70, but there may be other reasons for the decrease in age. For example, some pensioners could be finding it increasingly difficult, earlier on in retirement, to meet all of their income needs from pensions alone. Indeed research carried out independently by the Institute for Fiscal Studies (2008) and supported by Age Concern has shown that some groups of pensioners have experienced considerably higher levels of price inflation than the population as a whole, and certainly higher than the rate of pension increase. Furthermore, research by the Personal Finance Research Centre for Help the Aged found that around 25 per cent of people were approaching state retirement age with outstanding credit commitments and that those who have debt later on in life now owe more than they did ten years ago (McKay et al, 2008). Another reason might be that baby boomers have increased expectations for retirement without sufficient income or capital from pensions and savings to service the preretirement lifestyle they wish to maintain. Some argue that, unlike previous generations, baby boomers are considered to be more goal driven and aspirational. They expect their retirement to provide a quality of life matching that which they enjoyed during their working lives (SEQUAL, 2008, p 21). So there may be a number of reasons why equity release customers are getting younger and the findings from this survey seem to be consistent with industry research. Key Retirement Solutions, for example, reported that the average age of their customer was 69 in 2007 falling slightly to 68 in 2008 while in 2009 their fastest growing customer group was in the age range (SHIP, 2009). 2.2 Person with whom plan was entered into and marital status Over half of all respondents (56 per cent) entered into their plans with a husband/wife or partner while 44 per cent took out their plans alone. Of these, 46 per cent were male and 54 per cent were female. Fifty two per cent of respondents stated that they were married or cohabiting at the time of the survey. Those who were widowed made up 28 per cent of the sample and 20 per cent were either single or divorced/separated (9 and 11 per cent respectively). Given that single and widowed people usually have lower incomes than their couple counterparts, it might be expected that these groups would make up a greater proportion of equity release customers compared with the older population as a whole. However, there are very few differences. Fifty eight percent of all over 65s are married/ cohabiting, 29 per cent are widowed, 5 per cent 8 Housing and Finance in later life

13 are single and 8 per cent are either divorced or separated (6 and 2 per cent respectively) (General Lifestyle Survey, 2008). The figures found in the 2009 survey, however, do represent quite a contrast from those found in Davey s (1995) research. In the 1995 survey a significantly lower proportion of respondents were in a partnership when they took out their plans (36 per cent) and significantly more were single (62 per cent). Furthermore, most of those who were single were female (72 per cent), outnumbering men living alone by more than two to one. Most of the respondents in Davey s (1995) survey were also widowed (52 per cent) at the time of the survey and fewer were married (31 per cent). The equity release clients in the 2009 survey were therefore more likely to be in couples rather than men and women living alone, both at plan commencement and at the time of the survey, and there was a much more even split between men and women. These differences could be attributed, in part, to the difference in average ages between the two samples and the Table Sample characteristics Characteristics 1995 N= N=553 Mean age 80 years 75 years Mean age when plan was taken out 74 years 72 Years Marital status Married/cohabiting Separated/Divorced Widowed Single Person with whom plan was entered into Husband/Wife/Partner No one else Other Sex of those who entered into plans alone Male Female Work status Working in paid employment (full/part-time) Retired Other Children Yes No % % % % % % % % % % A study of UK equity release customers 9

14 fact that providers now offer plans at younger ages which is likely to result in fewer widowed people. But they might also reflect differences in the reasons why people now use equity release products. For example, as a way of enjoying life in the earlier years of retirement while able to do so as a couple. It could also mean that more pensioner couples are finding it harder to meet their needs and preferences from pension income alone. 2.3 Work status The overwhelming majority of the sample were retired (93 per cent) which reflects the age composition of the sample. 2.4 Children The majority of respondents had children (73 per cent). When Davey carried out her survey in per cent of respondents had children. The increase could mean that there has been a shift in acceptability among those with children and in attitudes to inheritance or that more people now release housing equity to pass on to family. 2.5 Income and sources of income The results in Table show that at the time of the survey, a third of respondents reported a gross annual household income of 10,000-14,999 (excluding income from their equity release plans). Almost a quarter (23 per cent) reported that they received between 5,000 and 9,999 while 19 per cent of respondents received between 15,000 and 19,999. Single respondents were more than twice as likely to say that they were living on less than 10,000 per annum than their couple counterparts (40 per cent compared with 15 per cent) and we can see that overall, their incomes were skewed towards the lower end of the distribution, while the incomes of those living as part of a couple tended to be clustered in the middle bands. It should be noted, however, that these figures are self-reported so may be under-estimated. Comparing the incomes of those in the survey with the wider population it seems that the differences are fairly small. The Pensioners Income Series (DWP, 2010) shows that median net income (before housing costs) in was 19,396 for couples and 10,712 for single pensioners. Although the equity release survey asked respondents to provide their gross income, it seems more appropriate to compare their responses with median net measures reported in the Pensioners Income Series, not only because this report does not provide figures for gross median income (only gross average income) but also because it gives a more accurate picture of typical pensioner income. Table also indicates that the respondents in the sample were receiving income from a number of different sources. The large majority were in receipt of the state pension (98 per cent) and this figure is largely in line with the figure for pensioners in the wider population, 95 per cent (DWP, 2010). Eighty five per cent of respondents were receiving income from a private pension with more couples than singles receiving this type of income (91 and 79 per cent respectively). This figure is somewhat higher than the figure for this age group overall. The Pensioners Income Series ( ) indicates that 68 per cent of all pensioner units are in receipt of private pension income (DWP, 2010) so the higher percentage found in this survey can probably be attributed to the fact that homeowners are more likely to have private pension assets (PPI, 2009a). 10 Housing and Finance in later life

15 These figures also indicate that equity release was perhaps used mainly as a supplement to, rather than substitute for, private pension income. But equity release may have been used as a substitute for income from savings and/or investments. As the table below shows, 35 per cent of respondents reported that they were receiving income from savings and investments which is much lower than the figure for the pensioner population as a whole. According to the Pensioners Income Series ( ) income from savings and investments is the second most common source of income for people after state pension age with 71 per cent of all pensioner units receiving income from these sources (DWP 2010). The difference between their figure and the one found in this survey, however, is likely to be explained by the amount that pensioners get from these sources. While nearly three quarters of all pensioners have income from savings and/or investments, half of them get just 7 a week or less. As such, the majority of respondents in the equity release survey may not have viewed any savings or investments they had as a source of income. It is also possible, of course, that the majority of respondents did not have any savings or investments or only small amounts and this would support the view that people consume housing assets if they do not have alternative means of obtaining the money or if they have already used up other, more liquid, assets (for example Dol, 2009; Levin 1998). Table Income and sources of income Household income All % Singles % Couples % Under 5, ,000-9, ,000-14, ,000-19, ,000-24, ,000-29, ,000 or more Total 100 N=512 Sources of income All % 100 N=244 Singles % 100 N=267 Couples % Private pension State pension Pension Credit Other social security benefits Savings and investments A study of UK equity release customers 11

16 Another interesting finding is that 14 per cent of respondents were receiving Pension Credit, a means-tested state benefit. Generally, the concern has been that for those in receipt of Pension Credit access to the equity release market is restricted because they may lose substantial amounts of entitlement by entering into a plan (Terry and Gibson, 2006). But in practice there are situations in which someone can retain this benefit even if equity release is taken out and this finding seems to confirm that. For example, those over 65 and in receipt of means-tested benefits are often only subject to a means-test every five years and do not need to report changes in circumstances during this time. So an increase in income or capital will only affect Pension Credit entitlement when this period comes to an end. Someone using equity release to obtain a lump sum, therefore, which they spend before the end of their assessed income period might not find that their Pension Credit entitlement is affected (Sodha, 2005). This is not to say, however, that interaction with the benefits system no longer acts as a barrier to taking out equity release. 2.6 Housing wealth According to the latest Halifax House Price Index (2010) the average property is worth 169,777 at the time of writing (not accounting for regional differences). Although this is lower than it has been in recent years due to the economic downturn, we can see from Table that typically, respondents homes were of approximately average value. We can also see that house values, as reported by respondents, are very similar to those reported by older home-owners in the wider population. Overall, as the majority of respondents reported incomes of less than 15,000 and homes worth 150,000 or more they could be classed as relatively house-rich, income-poor. Having said this, the table does indicate that income and house value are positively correlated and so house value was cross-tabulated with household income to examine the relationship between these two variables. The results contained in Table confirm that this is the case (i.e. as incomes increase, house values increase). 12 Housing and Finance in later life

17 Table Housing wealth House value Survey respondents % Source: BHPS wave 17 data, provided by McKay in personal communication Home-owners aged 65+ % Under 100, , , , , , , , , , , , , , , , , ,000 or more 5 6 Total 100 N= N=2265 Table House value by household income (column percentages) Under 10,000 10,000-14,999 15,000-19,999 20,000-24,999 25,000 or more House value Under 100, , , , , , , , , ,000 or more Total N=501 All A study of UK equity release customers 13

18 2.7 Attitudes to inheritance and financial provision in retirement Inheritance Figure shows the results of a question which asked respondents to state how important it was for them to leave property or money as an inheritance at some point in the future. Forty nine per cent of the sample said that inheritance was very or fairly important to them. This is less than the 60 per cent of respondents who stated that it was important to them in the survey from which this question was taken, although that research surveyed the general public rather than equity release customers (Attitudes to inheritance in Britain, Rowlingson and McKay, 2005). Twenty nine per cent of respondents said that leaving money or property was not very important (compared with 28 per cent in 2005) while 19 per cent stated that it was not at all important compared with just 6 per cent in Follow-up interviews provided the opportunity to further explore respondents attitudes to inheritance. For some interviewees, inheritance was not important because they did not have children (or they did not have a close relationship with them) but for those who did, there was a strong sense of pragmatism regarding bequests, albeit demonstrated in different ways. For example, some of the respondents believed that their children/ grandchildren would benefit more from having some of their wealth now, rather than when they died, so they had taken out equity release to provide them with an early inheritance: We agreed that the children could do with some money rather than waiting for us to die, we thought it would be useful for them to have it now (Male, age 72, married). Others felt that their children did not need a substantial inheritance and so preferred to make use of some of the equity rather than leaving it all as a bequest: Figure Importance of leaving money or property as an inheritance (per cent) Very important Fairly important Not very important Not at all important 3 No opinion N= Housing and Finance in later life

19 When we do eventually pop off there could be very little left for them but they are all in their 50s with well established jobs so the need for more money isn t quite as dire as earlier on when we were able to help them When I was young and getting married I needed all the money that my parents could provide but things have changed so it s nice to have that extra cash behind us so we don t have to think twice about whether we can afford things (Male, age 83, married). Some respondents, however, were not comfortable with the fact that their children would receive a reduced inheritance as a result of the plan but they felt they had no other option and, despite their unease, they tended to agree that it was better not to live poor and die rich (Rowlingson, 2006) as the following interviewee explained: We want to be able to leave as much as possible to our kids but not at the expense of us having an absolutely appalling quality of life where we have to watch every single penny (Male, age 70, married) Making financial provision for retirement Figure below shows that just over half (53 per cent) of the sample agreed with the statement that investing in property is a better way to make financial provision for retirement than paying into a pension. This is perhaps not surprising given that housing has provided them with financial support in retirement. However as a third said that they neither agreed nor disagreed this also indicates that people were not able to make a decision either way and this uncertainty may have been heightened given the economic climate. What is clear, however, is that comparatively few people (14 per cent) disagreed with the statement indicating that even with the current uncertainty around house prices, respondents, on the whole, did not see property as a worse way of making financial provision for retirement. The interviews demonstrated that confidence in property as an investment had waned following the economic and financial crisis but there was Figure Investing in property is a better way to make financial provision for retirement than paying into a pension (per cent) Strongly agree Tend to agree Neither agree nor disagree 10 Tend to disagree 4 Strongly disagree N=491 A study of UK equity release customers 15

20 still a general feeling of optimism in terms of its potential as a source of retirement funding. The following quotes give an indication of this feeling: Although the property market is a bit stagnant at the moment we do realise it will go up again it s one of the best aspects of owning your own home because if at the end of the day if for whatever reason your pension doesn t come up to expectation you know you ve got this lifeline if you like, it is a lifeline that you can take advantage of and improve your retirement (Female, age 69, married). Well I think they re [housing assets] probably safer even with the way things have gone providing you haven t got a massive mortgage (Female, age 67, cohabiting). Up until the beginning of last year I thought this [housing] was the best bet but as prices have dropped I m not quite so confident but the thing that keeps me feeling fairly secure is that at no time will you be in debt and if the value of your house drops below the value that they gave you the mortgage on the family won t have to pay anything back (Male, age 83, married) Responsibility for financial provision in retirement Although most respondents felt that property was a better (or perhaps no worse) way of making financial provision for retirement than a pension the results contained in Figure demonstrate that the majority of the sample (78 per cent) did not think that home-owners should have to use the value of their homes to supplement retirement income. The likely explanation for this is that people interpreted the question in a way which meant they did not agree with being forced to use the value of their homes, such as in the case of paying for long-term care. Indeed when the interviewees were asked how they felt about using the value of their homes to help fund retirement the large majority indicated that they were quite happy to do this and that they thought it was a good idea. People seemed to feel this way either because they had put a lot of money, time and effort into their homes and felt that they should be able to benefit from the investment, or, on the contrary, that given rapid house price rises the accumulated equity was money they had not earned. It [drawing on the value of the home in retirement] strikes me as brilliant. The reality was that within ten years of buying the house because of its huge leap in value we could never afford to buy it again, so we got a house worth far more than we could have ever afford to buy which is farcical really but there we are the media tend to talk about your home as your hard earned house, reality is you know, I didn t have to work hard to get this house it just increased in value. We paid 5,150 and its now being valued at about 550,000. OK that was over a long period but it doesn t bear any relationship to your income. We d have to have, to live in this road now; you have to have a joint income of about 150, 000 whereas our joint income was never more than 50,000. So it s money I haven t earned (Male, age 77, married). We ve ploughed a lot into the house and you know you feel that that s where your money is in bricks and mortar and with the care and attention we ve put into it is our biggest investment and so why shouldn t it help us out in later years (Male, age 83, married). Although there were differences in the reasons why people were happy to draw on the value of their homes the general consensus was that it made sense to do this, indicating a sense of economic rationality, as the following interviewees made clear: 16 Housing and Finance in later life

21 It just seemed to me crazy to have the ability to get some money from it [the house] without doing so (Female, age 67, cohabiting). It seems silly not to do something that s going to benefit me and give me a better way of life (Female, age 71, widowed). What s the point of having savings and all this sort of thing and you haven t done anything with it and then you die (Male, age 66, married). Not surprisingly, though, this sentiment was expressed mostly by those who had used equity release to maintain or enhance their lifestyles or to help out others and less so by those who felt they had no option but to release equity in order to relieve some of their financial difficulties. Most of the interviewees in these circumstances indicated that they wished they had not had to use the value of their homes but nonetheless acknowledged the benefits it had brought: I don t think I had any other option really I mean I couldn t have managed if I hadn t have done it so I would have been in serious debt (Male, age 75, widowed). I would label it [drawing on the value of the home to help fund retirement] as the last straw really because you don t really want to do that but yes it s a marvellous thing, it helps us, but it is the final straw (Female, age 62, married). Although the majority of respondents believed that homeowners shouldn t have to use the value of their homes to supplement retirement income, close to half of all respondents (47 per cent) indicated that responsibility for financial security in retirement should lie mainly with the individual (see Figure overleaf). This seems somewhat contradictory but the interviews indicated that while people tended to believe that they should not be forced to use the value of their homes, they were willing to do so in a variety of circumstances of their choosing. Figure Homeowners shouldn t have to use the value of their homes to supplement retirement income (per cent) Strongly agree Tend to agree Neither agree nor disagree Tend to disagree Strongly disagree N=523 A study of UK equity release customers 17

22 Furthermore, a strong sense of individual responsibility was expressed by the majority of interviewees, even those who had little choice but to use equity release: I m not a great believer in subsidies if they can be avoided and I m all in favour of being as independent as you can be that s why I did what I did with the house I don t like claiming things (Female, age 83, single). Our generation we ve never sort of looked at benefits it s never been available to us so we ve never looked at benefits and I think for a lot of people who have lost pensions and they ve had to resort to the state for handouts but it just goes against everything that we are about our generation (Female, age 69, Married). Figure Who should mainly be responsible for ensuring people have enough money to live on in retirement, by income (per cent) Percenatge 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% Don t know/mixed responsibility Mainly the person themsleves Mainly a person's employer Mainly the government 0% 0 Under 10,000 Household income 18 Housing and Finance in later life

23 A relatively large proportion of respondents (37 per cent) felt that the government should take most responsibility for ensuring people have enough money to live on in retirement and very few (2 per cent) felt that it should mainly be the responsibility of the person s employer. Fourteen per cent were not sure who should be mainly responsible or indicated that responsibility should be shared. These figures are similar to those found in the Attitudes to Pensions Survey (2006) where 52 per cent of respondents felt that it was mainly up to individuals to ensure they had enough money to live on in retirement while 41 per cent believed that responsibility should be mainly with the government. Very few respondents either thought that it should be mainly an employer s responsibility or were not sure with whom most of the responsibility should lie (5 and 2 per cent respectively). The similarity between the figures found in the equity release survey and those in the wider population might therefore suggest that views on how far financial security in retirement should be an individual or collective responsibility are not necessarily affected by whether a person is, or isn t, using privatised means to support themselves. There was, however, a link between higher incomes and the belief that individuals should be mainly responsible for financial security in retirement. Among those with the highest incomes ( 20,000 or more per annum) 21 per cent believed that the government was mainly responsible while amongst the quarter of respondents on the lowest incomes (under 10,000 per annum) over half (57 per cent) thought it was mainly government s responsibility. This link was also found in the Attitudes to Pensions Survey (2006). A study of UK equity release customers 19

24 3 Experiences of equity release The following section looks at different aspects of taking out and living with an equity release plan. 3.1 Plan commencement Table shows that the majority of the sample (75 per cent) took out their plans between one and five years ago while 14 per cent of respondents entered into their plans within the last twelve months. Just 11 per cent of the sample took out an equity release plan more than five years ago. In part this reflects the length of time that some of the providers had been in the equity release market but it might also be that older people are less likely to respond. 3.2 Plan type Most respondents (62 per cent) had taken out life time mortgages with 36 per cent taking out home reversion schemes. These figures differ from those reported by SHIP (2009) which point to a much wider split between people currently taking out life time mortgages and home reversion schemes (91 and 9 per cent respectively). The difference found in this survey, however, can be attributed to the fact that one provider only sold home reversions. 3.3 Purchase method Seventy three per cent of respondents had taken their plan out by using an Independent Financial Adviser (IFA) or broker while just 27 per cent went direct to the provider. A recent report by SHIP (2009) indicated that 65 per cent of equity release plans were sold through intermediaries in 2009 with 35 per cent being sold through direct sales. Thus the figures found in this survey broadly reflect those reported by SHIP (2009). 3.4 Changes to plan and level of ease with which changes were made Finally, only a small proportion of respondents (18 per cent) had made changes to their plans such as moving house, moving from one company to another or taking out more money from their plan. This is likely to reflect the fact that the majority of people had only taken out their plans in the last five years. However for those who had made changes, the majority (89 per cent) reported that they found this easy to do. 3.5 Levels of satisfaction/ dissatisfaction with equity release plans Figure on page 22 shows how satisfied or dissatisfied respondents said they were with different aspects of their plan. The overwhelming majority (99 per cent) were satisfied that they had received all the information and advice they needed. Almost all of the respondents who were interviewed said that they were very satisfied with their advisers pointing in particular to the highly detailed and thorough nature of the information and advice that they received. It was very common for interviewees to say that they were offered a range of equity release options and that in some cases where advisers felt that equity release was not necessarily the best option (i.e. where a traditional loan was considered more appropriate) they were informed of this. This means, of course, that they did not take their advice but it seemed to provide reassurance that the companies were not misselling their products. 20 Housing and Finance in later life

25 Table Taking out an equity release plan When plan was taken out Within the last twelve months 1-5 years ago 6-10 years ago years ago More than 15 years ago Type of plan taken out Lifetime mortgage Home reversion Other How plan was taken out Through an IFA/Broker Direct from the provider Changes made to plan Yes No Level of ease with which respondents made changes to their plan Very easy Quite easy A bit difficult Very difficult % N= N= N= N= N= Similar proportions were also satisfied that the product they had purchased was the right one for their needs and that it was safe and secure (97 and 98 per cent respectively). Fewer respondents were satisfied with the value for money that the product offered with just under half (48 per cent) reporting that that they were very satisfied and 43 per cent saying they were fairly satisfied. People were keen to talk about this aspect of their plan during interview which revealed that although they were not always fully satisfied with the amount of money they received, they felt there were good reasons for what can often be perceived as poor value for money: My husband s still convinced that you don t get enough money from them but I can see that we don t have to pay any of it until we die so to me it s, in one respect it s a good thing. OK so you don t look like you re getting a lot but they re waiting a hell of a long time for theirs to come back (Female, age 62, married). A study of UK equity release customers 21

26 For some interviewees, trading down was simply not an option as the homes they were living in were not worth enough to enable them to release sufficient amounts of equity. Some had already traded down and felt they could not have traded down any further in terms of value or size.

27 It looks dreadful on paper what you get but if you do live long enough or the market rises again the percentage is reasonably good it s not like borrowing money and paying enormous interest that you ve got to find (Female, age 67, cohabiting). The only thing I would say is that you do lose quite a bit of money because the differential between what they take and what you get. My son looked over it and he said mum do you realise that although you ve sold 23 per cent you only get 16 per cent back and that s quite a big amount but when you put it in perspective they are giving you money and they have to make something at the end of the day, plus the fact that they don t know that there s going to be a terrific slump in the market (Female, age 71, widowed). While people may want to acknowledge the positive aspects of their plan to reassure themselves that they made the right decision these comments do seem to suggest that when people understand how equity release plans work they are more likely to look favourably upon their monetary value. Figure also indicates a high level of customer satisfaction among respondents. Just over half of them (51 per cent) said that they would definitely make the same decision about entering into a plan today. Thirty per cent of the sample said that they probably would while only ten per cent said that they would not. Although the question asked respondents to make their decision based on their own experience to avoid answers being influenced by the current economic climate, most of those who said that they might not, or would not, make the same decision often referred to the fact that house prices had decreased and/or were dissatisfied with the amount of interest that had accrued on their lifetime mortgage. Compound interest might be perceived as more of an issue for those who have held plans for a long period of time. Table arguably supports this hypothesis with those who took out their plans 6 or more years ago being most likely to say that they would not make the same decision about entering into a plan today. Figure Respondents reports on how satisfied or dissatisfied they were with different aspects of their equity release plan (per cent) Information and advice Right product for needs 32 Safety and security Value for money Very satisfied Fairly satisfied Fairly dissatisfied Very dissatisfied 22 Housing and Finance in later life