A recent report has again highlighted the very real issues facing pensioners in the UK in relation to inflation and how it affects them.
Various measures are presently used to establish the rate of inflation, what seems to be universally accepted is that the true rate felt by the pensioner community can be much higher in reality. There are a number of reasons for this. Since the link between average pay and the state pension has been abolished the gap between a pensioners income and the average pay has increased. This factor always needs to be considered when examining pensioner disposable income in relation to day to day expenses. This then brings us to the issue of inflation. A cycle for the calculation of inflation is one year, however if the start point is one which has an extremely negative effect on pensioner expenditure, even if inflation on that expense is 2% the effect on the household where income is fixed may be much greater than in a household with two people working. Many elderly people live in what was once the family home and as such may carry significant levels of council tax. If a council tax rises by 6% and the state pension has risen by 1.5% this, due to the figures involved is hugely inflationary on that pensioner household. It is ironic that at a time when more people feel that the family home, which for earlier generations was a source of safety and financial stability can now be a financial burden. Not only does this generation of pensioners have to find ever increasing running costs for the home they may well also have secured debt on the property which needs to be serviced on a monthly basis. In truth the family home to some is no longer a financial asset on a day to day basis. These are some of the reasons that the demand for equity release products is on the increase.
There are still those who effect an equity release plan for aspirational reasons however there are more and more people using the product as a solution to short and medium term financial difficulties.
The factors effecting pensioners are the most severe for many generations. People are entering retirement in many cases with considerable amounts of debt, there are fewer final salary pension schemes, the value of personal pension funds has been slashed, annuity rates are incredibly low, interest on savings is negligible and we have briefly examined the income gap between work and retirement and the effect that this has from an inflationary standpoint. It is a mixture of these trends which is driving more and more people to examine using their main residence to provide a financial lifeline rather than for it to add to their difficulties. To that end they are exploring how equity release can help them
One point to make is that an equity release product is not the answer for everyone or in every circumstance, it is for this reason that specialist professional advice should be sought in every instance to discover whether equity release is the correct answer for that particular situation
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