Buy-to-let
Portal Financial, one of the UK’s largest pensions advisers, says that equity release is not always an appropriate choice and pension release can be a much cheaper option.
With £1 billion released between January and September, equity release has surged this year with a 20 per cent increase over the same period in 2013, but Portal Financial warns that for many people it should not be used in early retirement.
Using equity release to access £15,000 will cost over £42,000 in 15 years’ time, but withdrawing the same sum from a pension will cost the equivalent of £23,000 over 15 years – assuming the sum compounds at 7 per cent and 3 per cent respectively.
Jamie Smith-Thompson, managing director of Portal Financial, says: “With equity release, the debt typically doubles every ten years. Pension release is a useful retirement planning tool and in many cases, particularly for younger clients, can be a better option as there is nothing to repay.
“There are multiple options to choose from with a pension, including deferring the state pension, which currently increases by 10.4 per cent each year it is not taken. If a 55-year-old chooses equity release and lives for another 30 years, the debt will be incredibly large, so we envisage equity release being more popular in the latter part of retirement funding where it usually makes much more financial sense.
“Retirement planning is a complex issue with many factors to consider, including that equity release can lead to the reduction or stopping entirely of means-tested benefits. Professional, regulated advice is essential for anyone wondering what the best options are.”
