Ged Hosty discusses some of the issues today's retirees are facing and how they can affect their retirement income
The government is at last tackling some of the issues raised by increasing longevity. However, at present many elderly people face more immediate pressures, which are likely to worsen in the coming months.
From an adviser's perspective, much of what is being proposed now could have a material impact in a fairly short timeframe, especially if the proposals are targeted as suggested.
In the very short term, many elderly people are facing a financial crisis. While the cost of living for everyone is increasing at above the government's target rates, the elderly are particularly affected. The elderly spend a higher proportion of their income on utilities and council tax, and with average annual energy bills now reaching £1,000 a year, many pensioners are struggling to meet their day-to-day bills.
Over one million pensioners are spending more than 10% of their income on fuel, with energy prices continuing to rise, some by over 17%, therefore it is unsurprising that an increasing number of elderly are entering retirement with debt. According to a recent study by Help the Aged and Barclays a quarter of all people approaching retirement age had outstanding consumer credit commitments with mean amounts owed by credit users in their late 50s and early 60s higher than any other age group.
Debt in retirement is very often a matter for concern as most retired people have no earned income. As an equity release provider we are seeing an increasing number of people using the value tied up in their home to pay off debts. While for some people this may be a financial necessity, the value of one's home should not be expected to pay essential living costs as this is, and always should be, the role of a pension.
As all advisers know, for homeowners with sufficient equity, trading down is often the most sensible financial option.
However, there are two factors which prohibit many homeowners: the first is an emotional one - it is likely that they have lived in the same house for a number of years and have built their lives around neighbours and local services; the second a financial one, as it costs money to move house and there is sometimes little opportunity to trade down without moving to a completely different area. Likewise, for consumers who have already traded down a further move may not be practical.
Even for those wishing to move, the credit crunch is creating a further problem; the ability of the elderly to actually sell their property both at a price that is acceptable and within a timeframe that fits their requirements. The recent FSA Mortgage Effectiveness Review (March 2008) found that 37% of consumers began looking for information on lifetime mortgages two to three months before making a purchase. Only 22% looked over 12 months ahead. With the current stagnating property market, the question is could many homeowners realistically complete a sale and purchase within the timeframe that they need to access the capital?
On a practical level, some clients choose not to trade down due to the fact that much of the capital released from the sale of their home will be eaten up by the cost of adapting the new home to meet their needs. We have called repeatedly for the government to provide practical help to mitigate some of these costs such as stamp duty, estate agency fees, removal costs and HIPs, which can mean that on average the cost of moving will be between £5,800 and £7,800 while in more expensive areas, such as Greater London, the cost rises to around £17,000.
The government is addressing the appropriateness of housing for older people in the Green Paper 'Homes for the Future'. All new-build homes will be made older people-friendly by 2013 by including wider staircases, downstairs showers and room for wheelchair manoeuvring.
If more people choose to downsize, this will in turn free up more housing stock, especially larger homes for young families and help tackle the current housing crisis which is, in part, due to a lack of available housing; especially those looking for family homes. Yet 56% of over 65s, or over 5.4 million people, live in homes with two or more spare rooms.
Long term care
However, the government also needs to balance the housing shortage with the cost of providing long term care. This is one of the reasons why they announced that there will also be extra funding for the disabled facilities grant (DFG) from £146 million to £166 million and an increased handyperson scheme for quick repairs and adaptations in the house, ensuring that older people can continue to live independently and more comfortably in their own home.
While the two schemes are seemingly in conflict with respect to freeing up housing stock, the reality is that new build properties are going to take some time to filter through and the real benefits may take a decade or more to be felt nationally.
Advisers specialising in the needs of the elderly, whether long term care, pension planning or equity release are only too aware of the fact that the full extent of the problem has not been realised and while the government's plans are positive more immediate solutions are required.
The '60s baby boomers are approaching retirement and, since their birth, lifestyle and medical improvements have created a scenario whereby, for every decade that passes, we live roughly an extra two years longer. One in five children born today can expect to live to 100 years old and according to the Government Actuary's Department figures, about one in 10 of today's 65 year olds will go on to celebrate their 100th birthday, which has major financial implications for society both now and in the future.
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