The Question
I like the idea of equity release as a way to top up my pension. I am 65 and due to retire this year – something which I am feeling very excited and nervous about. I’d like to make the most my newfound freedom and since I have £450k or thereabouts tied up in my home, I may as well spend some of it enjoying myself!
The problem is, I am notoriously bad with money. I know, if I have the cash in a lump sum, I’ll splash it on champagne, fast cars and extravagant holidays. But if there was a way I could receive the money, over time, as an income I am sure I would be far more sensible. Is this an option?
Mark’s Answer
Thank you for your question, and I wish you a long and happy retirement when it arrives. I can understand your trepidation about retiring as I think we all feel anxious if we will have enough capital to do all the things we want to in retirement.
With out having full details about your income and savings it is impossible to give explicit advice, and this is the benefit of talking and discussing your plans with one of our friendly, whole-of-market advisers who would assess your circumstances and then make a bespoke recommendation for you.
However, based on the information you have told me, it would likely to be wise for you to consider a drawdown lifetime mortgage plan with a cash reserve facility that you can drawdown in stages when you need capital to enjoy your retirement.
Let me explain how it works. Firstly, you take financial advice, and your adviser may recommend a Lifetime mortgage with a drawdown facility. The flexible element stems from the ability to make payments, and flexibility when you access capital.
So, you could set up your plan with a £50,000 facility and initially dependent upon your initial requirements you could borrow an amount of just £10,000 to spend on your immediate needs. This would leave £40,000 in reserve for future use. The benefit of leaving the monies in the cash reserve is they do not accrue any interest until they are actually withdrawn.
Once, you are then ready to access more capital in to supplement your income and lifestyle, you would simply telephone the provider explain what you require the additional capital for, and they will arrange for you to release a further drawdown lump sum based on your requirements.
Such a drawdown could be an additional £2,000 to supplement your income out of the £40,000 left remaining in your cash reserve facility. Of course, as you release more funds the equity for your beneficiaries would reduce and you may wish to consider and balance this with your adviser when you talk to them.
For example, you could stipulate a cap on the amount in your cash reserve facility, or you may prefer to have access to an enhanced amount, the decision is yours. The initial cash lump sum and cash reserve facility are tax free, and you are free to use the capital as you wish.
However, it is important to ensure that any cash you receive does not impact on your entitlement to means tested benefits and your adviser can assess your current and future entitlement to benefits by using bespoke entitlement calculators to ensure you are receiving the maximum income for your circumstances.
Meet our expert…
Mark Gregory, founder and CEO of Equity Release Supermarket, is here to answer your questions. Mark is an adviser himself with over 20 years equity release experience.
He launched Equity Release Supermarket 10 years ago and it has grown to become one of the UK’s leading equity release specialists.
Email kate.saines@emap.com to ask Mark a question
