Taking out a mortgage under equity release arrangement has become increasingly popular among Britons. Although many do so as a means to supplement their retirement funds, others simply need additional funds for other important reasons. At age 55, retirement is still ten years away and will be a year farther away in 2020 for those currently under age 55.
Actually the UK government is bent on pushing the retirement age further to age 67 by 2028 and to age 68 by 2046. As it is, The Centre for Social Justice (CSJ), a think tank founded by Tory MP Iain Duncan Smith, a former minister for work and pensions, recommends furthering the retirement age to as late as age 75 in the next fifteen (15) years.
That way, the UK government can save an estimated £182 billion a year by making Britons work, way until their mid-70s, instead of retiring and claiming their state pension. That is despite the fact that compared to other developed countries, the British government grants the lowest state pension; just roughly about 16% of the earnings gained by Britons during work.
At present, the new UK full state pension is pegged at £168.60 a week, albeit still dependent on a pensioner’s national insurance contributions. A full pension amount requires at least 35 years of national insurance contributions. Eligibility for even a partial pension requires national insurance contributions for at least ten (10) years.
Most Britons Resort to Releasing Equity on Their Property Upon Eligibility
That is why taking advantage of money locked in one’s property by age 55 or above is a solution most Britons consider.
Since their body is starting to age and weaken, they can at least slow down with economic activities to avoid hastening the deterioration of their physical condition. After all, equity releases under UK lending conditions come with a no-negative equity guarantee. This provision ensures that even if the amount borrowed doubles or exceeds the appraised value of the property at the time the obligation is settled, the heirs or beneficiaries of a deceased senior borrower will not be burdened with unpaid debts.
Cashing out the value of one’s equity on a property before the official age of retirement appears to be more practical than waiting for pensions that will take a long time to come. The amount that can be borrowed via an equity release mortgage can be determined using an equity release calculator in the UK websites of financial specialists.
The Equity Release Council reported that during the second quarter of this year, as much as £971 million in equity release mortgages were availed by qualified older British adults.
Based on a report published by the UK National Statistics Office for the Centre for Ageing and Demography, and covering the years 2015 to 2017, the most recent estimations of life expectancy among older people in the UK is up to 79.2 years among males and 82.9 years among females.
If this life expectancy trend continues when the official retirement age is at 75 years, male retirees will collect only about 5 years of pension that cost him 35 years of contributions. Older female workers retiring at age 75, will be able to claim at least 8 years of pension.
That is why Baroness Ros Altman, who is herself a former minister of work and pensions, brands the proposal to increase the retirement age to 75, as “chilling and immoral.” She deems that increasing the pension age to 75 will lead to a shortening of life expectancy, particularly among disadvantaged British subjects. In all probability, many will not even reach age 75 to enjoy their hard-earned pensions.