Assets in later life: inheritance, equity release and inter-generational justice

Assets in later life: inheritance, equity release and inter-generational justice Karen Rowlingson, Professor of Social Policy Centre on Household Assets and Savings Management

Assets in later life A pension product is not the only way to provide a pension Is/was housing wealth the new pension? What role might equity release play here? How do attitudes to inheritance affect this? What does this mean for inter-generational justice and relationships?

People (in 2004) believed property was better for future retirement income than paying into a pension 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 58 64 66 65 63 48 42 18-29 30-39 40-49 50-59 60-69 70-79 80+ Don't know Pension Property

Nationwide property price trends

Housing wealth in 2006-8 (ONS 2009) 39% of all (net) personal wealth is in property = 3.5 trillion (net of mortgages) Gross mean value of main residence 231K Gross median 190K Mean net property wealth 205K Ownership of housing wealth is highly unequal but less so than private pension wealth and financial wealth

The distribution of wealth (Source: ONS, 2009: 9)

Withdrawing equity to help with living costs Some people do withdraw equity by moving/selling Only 1 per cent of owner occupiers of the total UK mortgage market had an equity release scheme in 2006/08. Overton (2010) found that equity release was a last resort for some but used by others to enjoy life People have concerns about these schemes and want to save some equity for children JRF is piloting new equity release schemes Those who need it most have least to draw on

Incidence of releasing equity among current or former owner-occupiers, A2I 2004 % Borrowing against value of home 12 Moving to smaller, less expensive home 8 Moving to a less expensive area 4 Selling and renting 3 Taking out Home Reversion Scheme 1 Selling share of home to family * None of these 75

Incidence of releasing equity among current or former owner-occupiers, A2I 2004 age* % Peak Borrowing against value of home 12 20-39 Moving to smaller, less expensive home 8 60-69 Moving to a less expensive area 4 50-59 Selling and renting 3 40-49 Taking out Home Reversion Scheme 1 60-69 Selling share of home to family * 20-29 None of these 75 80-89

Ever consider any of these? A2I 2004 % Moving to smaller, less expensive home 26 Moving to a less expensive area 11 Borrowing against value of home 11 Selling and renting 7 Taking out Home Reversion Scheme 5 Selling share of home to family 5 None of these 11 Don t know 45

People think Equity Release Schemes are difficult to understand and risky, A2I 2004 40 35 30 25 20 15 10 5 12 17 28 35 22 24 20 10 Very difficult to understand Very risky 4 1 14 13 0 Strongly agree Tend to agree N/Nor Tend to disagree Strongly disagree No opinion

People find it difficult to judge VFM and do not trust the providers of Equity Release Schemes, A2I 2004 35 30 25 20 15 10 Good value for money I trust the providers 7 10 31 25 25 29 14 21 22 14 5 1 1 0 Strongly agree Tend to agree N/Nor Tend to disagree Strongly disagree No opinion

People think that Equity Release Schemes are a good idea in theory 60 55 50 40 30 20 10 7 15 11 7 6 0 Strongly agree Tend to agree N/Nor Tend to disagree Strongly disagree No opinion

Mixed views about equity release: dislike principle itself, A2I 2004 My children have grown up in the house. I ve worked to acquire the house, to keep it, maintain it and run it and I ve spent a considerable part of my life doing that so the thought of giving part of it away to a financial company just so I can live a little bit more comfortably it would have to be very critical before I would go down that route.

Mixed views about equity release: dislike the current schemes/providers, A2I 2004 There are those nasty equity release schemes we ll let you live in your home and only charge you 86% interest very, very dangerous scams you usually get caught out with these sorts of things it s never straightforward

Mixed views about equity release: might consider if not-for-profit provider, A2I 2004 If someone like Rowntree was doing this sort of thing where they wouldn t be ripping you off then yes, I d seriously think about it if it meant enjoying my latter years

Mixed views about equity release: pragmatic approach, A2I 2004 It s a balance between being able to live independently, not excessively, but independently and under those circumstances I would consider dealing with a company. There is a body now that oversees certain things. I don t think they can get away with as much as they used to.

Mixed views about equity release: keen to spend the kids inheritance Why shouldn t we [release equity to enjoy ourselves]? We ve worked. It s our money. Our kids have got more money than us. Why shouldn t we use the money from our homes for ourselves?

More than 8 in 10 in 2004 agreed I would like to be able to leave an inheritance 60 50 48 40 37 30 20 10 0 7 5 2 1 Strongly agree Tend to agree N/nor Tend to disagree Strongly disagree No opinion

About 7 in 10 in 2004 disagreed that Older people should be careful with their money so that they can leave an inheritance 40 35 30 25 20 15 10 5 0 4 Strongly agree 15 Tend to agree 13 N/nor 38 Tend to disagree 30 Strongly disagree 1 No opinion

Generational tensions: older people s current needs are greater than younger people s current needs, A2I 2004 Because of the pension now, that s where you re gonna have to get your money from out of the house The money that I ve got, I m gonna try and even out but the system of pensions is so low, no way could I keep my house on what they re paying me the house is my back-up should I not manage

Generational tensions: younger people s needs (and costs) are greater, A2I 2004 Relatively, younger people earn a lot more money comparatively, to my parents when they were a lot younger, but things like education it s a lot harder for us to get a decent education and a decent education doesn t mean as much as it used to. The housing market is incredibly difficult to get on the property ladder My parents house is worth seven times what they paid for it Both my parents earn far more than I do and I could definitely do with some. They re quite well off.

Overton (2010) study of equity release customers Middle income/wealth groups with children Three groups of customers Passing it on (better off customers) Enhancing later life Getting by (last resort)

Inter-generational justice and relationships Cohort justice and relationships (Willetts The Pinch) Family justice and relationships Leverhulme study involving threegeneration families and survey to look at inter-generational attitudes and exchange Intra-generational justice

Assets in later life A pension product is not the only way to provide a pension Housing wealth is seen by some as a pension Equity release play a small role here Attitudes to inheritance play a complex role This raises issues for inter-generational justice and relationships? We pay a lot of attention to accumulation but much less to decumulation

Key references Appleyard, L and Rowlingson, K (2010) Home ownership and the distribution of personal wealth, York: Joseph Rowntree Foundation Office for National Statistics (2009) Wealth in Great Britain Overton, L (2010) Housing Finance in Later Life, London: AgeUK Rowlingson, K and McKay (2005) Attitudes to inheritance in Britain, York: JRF