Today I am sharing some interesting data from my friends at HSBC regarding how British people choose life insurance.
This information comes from an online survey of over 2,000 people in the UK conducted on behalf of HSBC Life Insurance. It provides some interesting insights into who is – and isn’t – getting life insurance, and their reasons for doing so.
As you can see from the graphic below, the study revealed that more than two in five people in the UK have life insurance (43%), with another one in five (20%) saying they have critical illness protection. The latter provides protection (generally in the form of a one-off tax-free payment) if you become seriously ill or injured. It is typically purchased in addition to life insurance.
Financial worries are a key factor for those Brits who have researched their options but still decided against getting life insurance. One in two (50%) who’ve considered getting a policy but decided not to go ahead say that it’s because they’ve had to tighten their belts.
Reasons for Choosing a Policy and a Provider
Brits with a policy said the primary reasons they got life insurance were: buying a home (19%), having a child (14%), planning for funeral costs (10%) and retirement planning (9%).
Perhaps surprisingly, people with long-term partners were more likely to say they had a single (54%) than a joint (42%) policy. Those couples who had a joint policy were most likely to say the main reason they chose it was simplicity (37%), followed by “level of cover” (30%) and budget (19%).
The biggest driver for those with life insurance or those who had considered purchasing it in the past two years was price (25%), closely followed by trust in their chosen provider (18%), and confidence that a claim would be paid (13%).
Understanding of Terms
When it comes to key terms relating to life insurance, only around a third of people in the UK say they fully understand the phrases “level cover” and “decreasing term”.
More than two in five Brits (42%) say they don’t know what “decreasing term” means, and more than one in three (36%) don’t fully understand “level cover”.
Most people (53%) say they think “level cover” is the most important consideration when choosing which life insurance policy to purchase, after the terms were explained to them.
Purchase Preferences
People in the UK who have life insurance are pretty evenly split when it comes to how they bought it, with 49% purchasing through an adviser and 47% completing their transaction online.
And overall, those without any cover are more likely to say they’d buy online if they did decide to purchase a policy (58%), compared with through an adviser (40%).
But there are some interesting differences in age – with nearly half (48%) of 16-24-year-olds without insurance saying they’d prefer to use an adviser, more than any other age group. Meanwhile the 45-54 age group were the most likely to say they’d go online (65%).
Closing Thoughts
Many thanks to my friends from HSBC for allowing me to share and discuss their data and graphics.
Nobody would pretend life insurance is an exciting subject, but in these uncertain times it’s something we all need to think about, cost-of-living crisis notwithstanding. Life insurance protects your loved ones financially if you die. It can help minimize the financial impact that your death could have on your family and provide peace of mind for you and them.
Most life insurance policies are designed to pay a cash sum to your loved ones if you die while covered by the policy. This can help them cope with everyday money worries such as mortgage payments, household bills and childcare costs. It may also cover funeral costs. You can take out life insurance under joint or single names, and you can pay your premiums monthly or annually.
I discussed this subject in more detail in my blog post Do You Need Life Insurance? (mentioned earlier) and I recommend checking this out if you haven’t already. You may also want to speak to a personal financial adviser to find out more about life insurance and what might be the best option for you.
As always, if you have any comments or questions about this post, please do leave them below.
Disclaimer: I am not a professional financial adviser and nothing in this post should be construed as personal financial advice.
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Today I have a guest article for you by my colleague Jackie Edwards.
Jackie is a professional property investor and property restorer. In her article below she sets out the case for investing in alternative rental properties – in particular, for the growing over-50s market.
Over to Jackie then…
While discussion around the mortgage and rental market often focuses on younger people – particularly first-time buyers and millennials – just as important are the over 50s.
A 2022 report in The Guardian sheds light on an alarming trend: individuals over 50 are finding themselves compelled into room-sharing arrangements, a consequence of being priced out of independent living options. The data supports this unsettling shift, citing a steep 114% surge in room search enquiries from people aged 45-55, compounded by a staggering 239% uptick in enquiries from those in the 55-64 age bracket.
Despite being often well-experienced and highly skilled, these individuals find themselves at the mercy of a punishing housing market. This situation signals a promising investment opportunity for businesses and individuals prepared to invest in accommodation tailored for those aged over 50. Already, a handful of forward-thinking schemes across the nation are demonstrating this growing potential.
What’s Required
Of course, a range of factors need to be considered when providing bespoke housing to over-50s. Disability, for example. According to the Office of National Statistics, the incidence rate of disability increases significantly after the age of 50, and it becomes more likely that the applicant will need adaptations to their accommodation.
As anyone living with a disability will know, it can be difficult to find accessible housing. According to disability advocates Eachother.org.uk, only 9% of UK rentals are suitable for people with a disability. Landlords that can prepare and provide accessible accommodation, at reasonable asking prices, will be providing a valuable service which is very much in demand.
What a Rental Requires
With that in mind, it’s important to consider the specific needs of the 50s-and-over market. According to PropertyRoad.co.uk, 15% of all rentals are now occupied by people over 50, an increase of 61% from the previous recorded figures in 2012. This may not necessarily be a bad thing, however.
In the Guardian’s survey of the renting situation, an interesting factor was highlighted. While many older people are pushed into renting as a result of rising costs, many others actually prefer the flexibility of not being tied to a mortgage and, crucially, the feeling of community that comes with communal living.
One scheme the Evening Standard highlights is a house sharing scheme that specifically matches up younger and older people, with company the key factor, but with a degree of agreement from the younger party to assist with chores and housework.
Intermediate Rent
As highlighted by ShareToBuy.com, intermediate rent is a scheme where renters agree to charge lower rentals (generally at least 20% below the standard private market rates in the area) in exchange for longer-term contracts. For the younger generation who may be looking to move around a lot, these schemes are less attractive. For over 50s, who are happy in one area and looking for something affordable for the medium to long term, it may well be an excellent option.
What is crucial is that landlords and property businesses offer these properties more widely in bespoke packages for over 50s. Currently the market in such properties is very limited, though a few smaller companies and organizations have embraced this challenge. They include Cohabitas, certain schemes on Spareroom, Flatmates.co.uk and RoomPortal.
More needs to be done with alternative rental accommodation for this niche – yet rapidly growing – demographic. A lot of focus is placed on millennials, but much more needs to be done for older renters, to help them find high-quality and long-lasting accommodation. For landlords and businesses who want to generate a stable rental income while also offering a valuable service to older individuals, this could represent a very appealing proposition.
About the author: A career in property investing led Jackie Edwards to develop a passion for restoring old homes. And even in her free time, she’s renovating her own with her husband. They’re both semi-retired (though by no means retirement age) and to keep her interest alive Jackie writes articles on home and lifestyle. In any free time she has, she’s walked by her two dogs Barker and Corbett and she volunteers for a local foodbank.
Many thanks to Jackie for an interesting and thought-provoking article.
Obviously not everyone will have the money to invest in alternative rental accommodation directly. If, however, you are attracted to the idea of investing in this sector, a more affordable option is presented by Assetz Exchange.
Assetz Exchange is a P2P property crowdfunding platform. They focus on lower-risk, socially beneficial accommodation, such as supported housing for people with physical or mental disabilities.
Properties are bought jointly by investors under the usual crowdfunding/P2P model. Most are then leased to charities and housing associations. This means they are securely funded and there is a low risk of defaults.
Of course, defaults could still happen in certain circumstances – but as investors jointly own the property in question, ultimately you could still expect to get your capital (or most of it) back when the property is sold.
I have been investing with Assetz Exchange since February 2021 and have gradually built up the amount I have with them. I put an initial £100 into AE in February 2021 and another £400 in April. In June 2021 I added another £500, bringing my total investment up to £1,000. Since I opened my account, my AE portfolio has generated £143.56 in revenue from rentals. That’s a decent rate of return on my £1,000 (staged) investment and does illustrate the value of P2P property investment for diversifying your portfolio when equity markets are volatile (as at the moment).
I now have investments in 23 different projects and all are generating rental income as expected. Capital values have declined slightly overall – in line with the UK property market generally – but of course this isn’t really relevant until or unless you want to sell up. Overall I am very happy with how my AE investment has been doing, and the fact that projects are generally beneficial to society as well.
To control risk with all my property crowdfunding investments nowadays, I invest relatively modest amounts in individual projects. This is a particular attraction of AE as far as I am concerned. You can actually invest from as little as 80p per property if you really want to proceed cautiously.
As always, if you have any comments or questions about this article, you are very welcome to post them below.
Disclaimer: I am not a qualified financial adviser and nothing in this blog post should be construed as personal financial advice. Everyone should do their own ‘due diligence’ before investing and seek professional advice if in any doubt how best to proceed. All investing carries a risk of loss.
Note also that posts may include affiliate links. If you click through and perform a qualifying transaction, I may receive a commission for introducing you. This will not affect the product or service you receive or the terms you are offered, but it does help support me in publishing PAS and paying my bills. Thank you!
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A quickie today spotlighting a site that I know will be of interest to many readers of this blog. Coincidentally, it’s run by a near-neighbour of mine in south Staffordshire.
As the name suggests, Over 60s Discounts lists discounts, deals, vouchers and concessions for people in the UK aged 60 and over. Many of these are exclusive to Over 60s Discounts.
Over 60s Discounts operates on a membership basis, but the good news is that it is free to join. Once you are registered, you will be able to browse the latest discount offers on the website and also have them sent to you by email. If you see an offer you like, all you have to do is click ‘Get Code’. You will then be provided with a voucher code to use at checkout on the brand’s website. Printable vouchers and e-vouchers, which you can use in-store, are also provided.
There are some great deals on offer, as you can see from the sample selection below.
If you’re 60 or over, I highly recommend checking out Over 60s Discounts. It’s a new website and obviously still evolving, but already it offers an impressive range of deals, discounts and concessions. If you’re looking to make your money go a little further in the current cost-of-living crisis, it will definitely help you achieve this.
As always, if you have any comments or questions about this post, please do post them below.
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As regular PAS readers will know, I recently joined U3A, a non-profit organization offering a range of leisure activities for retired and semi-retired people. I thought I would set out my experiences and impressions here for anyone who may be interested in joining U3A themselves, either now or in the future.
But first, here’s a bit more info about the organization itself…
What Is U3A?
The University of the Third Age (U3A for short) is an international organization providing educational and social opportunities for retired and semi-retired people, typically aged 50 and above.
The primary goal of U3A is to encourage lifelong learning, personal development, and social engagement among older adults. Unlike traditional universities, U3A doesn’t offer formal degrees or certifications. Instead, it focuses on informal, peer-led learning and skill-sharing.
U3A groups offer a wide range of classes, workshops and activities, covering subjects such as arts, literature, history, science, technology, languages, fitness, and more. These activities are typically organized and led by the members themselves, with individuals who have expertise or interest in a particular field volunteering to share their knowledge with others.
U3A promotes active ageing, mental stimulation and social interaction. It aims to help older people stay engaged, connected, and mentally sharp. It also seeks to foster a sense of community, where members can continue to learn, explore new interests, and make new friends in a supportive and non-competitive environment.
My U3A Experience
I joined the U3A in Lichfield, Staffordshire, early in 2023. I am 67 and (as you may know) semi-retired. I live on my own nowadays and am conscious of the need to stay mentally and physically active as I get older and build new connections and friendships, in real life as well as online 🙂
I am actually now a member of two local U3As. I joined Lichfield originally, but then discovered there was another, smaller U3A in the town where I live (Lichfield is about four miles from me). It’s no problem belonging to two or more U3As and I am by no means alone in this. People generally join one local group first, then sign up to another as an associate at a lower cost. More about this later.
Lichfield U3A – like most others – has a monthly general meeting where there is usually a guest speaker. Every U3A also has a wide range of smaller groups devoted to interests from music appreciation to rambling. These typically meet monthly or fortnightly.
The first general meeting I went to was on the subject of Schooldays Remembered. It was an icy cold day and I was impressed by the number of people who turned up at the meeting hall. I would say the average age was about 70, with women outnumbering men by about two to one. The female presenter was very professional and showed us a series of slides depicting (primary) school days in the mid-20th century. Up to a point I enjoyed it, but I had some reservations, e.g. when the speaker encouraged us all to join in a chorus of ‘All Things Bright and Beautiful’. Considering that many U3A members are from professional backgrounds, including teachers, lawyers and medics, I did find the overall tone a bit patronizing. The speaker revealed that she also ran sessions in care homes and I couldn’t help feeling I was getting a preview of what may be in store for me in the future 😮
Afterwards we went for tea and biscuits. I got chatting with another new member, who I found shared my reservations. He told me he didn’t much enjoy his schooldays and didn’t especially want to remember them! As for me, I have only fragmentary recollections of primary school days. I remember my secondary school days a lot better – not with any great affection, but they weren’t awful either. Personally I would have preferred a more grown-up presentation about education and how it has changed over the decades. I don’t want to be too critical, though. Most people there seemed to enjoy the session, and it did have its entertaining aspects.
I have since been to a couple of other meetings which I enjoyed more. There was a particularly interesting one about the history of travel firm Thomas Cook & Sons. The speaker gave a very informative talk, including slides showing ads for early trips and excursions organized by the company (these were also available to browse afterwards).
As a side thought, there appears to be a circle of professional guest speakers who offer talks to groups on a wide range of subjects, for which they are presumably paid a fee. Not a bad sideline to supplement your pension, I’d have thought!
Beside the monthly meetings, I have also taken part in a quiz which was good fun (my team won – no particular thanks to me – so I took a bottle of wine home). I have also joined several interest groups. These include one for short walks (around 3-4 miles, quite sufficient for me). This has been good for getting some fresh air and exercise and meeting and chatting to other U3A members. The walks are all fairly local. One unexpected benefit has been discovering some beautiful locations I was unaware of, despite living in the area for over 20 years.
I also joined a play-reading group. This meets once a month in a local theatre, with members each taking a part to read. Currently we are reading Lord Arthur Savile’s Crime by Oscar Wilde (the stage adaptation). I was quite active in amateur theatre in my 20s and 30s, so it has been good fun getting back into this again.
I also joined a science and technology group. I’ve only been to one meeting so far, but this was a very interesting session about global weather patterns.
What Else Is On Offer?
Obviously I have only scratched the surface personally. There are dozens of other interest groups available. I have listed a selection below.
art appreciation
birdwatching
croquet
history
philosophy
photography
music appreciation
guitar playing
Mah-jongg
needlecraft
psychology
gardening
architecture
There are also quite a few reading groups. This is a very popular activity, so multiple groups are needed to keep the numbers at a meeting manageable. I haven’t joined one only because I am already a member of a local book club (nothing to do with U3A).
In addition, there are various one-off activities. I’ve already mentioned quizzes. Visits to local places of interest are also popular, as are concert and theatre trips.
Financials
As Pounds and Sense is a money blog, I should say a word about this.
I was actually surprised how inexpensive U3A is. I paid an annual membership fee of just £12 to Lichfield U3A. I also paid £6 to my nearest local U3A to join as an associate member. This gives me access to all groups and activities in both U3As.
Some interest groups do also impose a small charge at meetings. This is no more than a pound or two and covers room hire and/or tea and biscuits. One thing you may find as a U3A member is that you need to carry around a little more small change!
I should also mention that as a U3A member you will receive (at no extra cost) a print magazine titled Third Age Matters. This is published five times a year and contains a range of informative articles about U3A and issues affecting older people generally.
Thoughts And Impressions
It is obviously early days as far as my personal journey with U3A is concerned. But I have been impressed with the range of events and activities on offer. I should maybe add that most take place during the daytime rather than the evening, so you do need to have some time free in the day to benefit from your membership.
U3A is very much run by members, for members. Of course, that is how they keep the costs so low. It does mean that if you find U3A is for you, there is some expectation that you will get involved in helping to organise and run events as well, even if only preparing the tea and biscuits!
As with so much in life, the more you put in to U3A, the more you are likely to get out of it 🙂
If you want to find out more about U3A groups in your area, my recommendation is to search online for U3A plus the name of your nearest town or city. Most local U3As have a website using a standard template and hosting service provided by the national organisation. Here is a link to the site for my local Lichfield U3A, for example. As you will see, the website isn’t exactly cutting edge, but it does the job well enough.
I do think it’s a shame there aren’t more opportunities for U3A members to interact online as well as in real life. Ideally it would be nice if there was a members’ message-board, or at least a Facebook page, where members could chat, ask questions, share photos, and so on. But having run an online forum for writers for a number of years, I am under no illusions about how much work this can entail.
On the plus side, there are also some national and regional U3A events, including summer schools. You can find out about these through your local U3A and Third Age Matters.
I hope you have found this article interesting and it has given you some insights into U3A and what it has to offer. As always, if you have any comments or questions, please do leave them below.
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Today I have a guest post that may be of interest to many readers of this blog.
It has recently been reported that nearly 100,000 retirees have returned to work due to the cost of living crisis and the realization that they need more money to live in reasonable comfort.
To help those in or nearing retirement, my friends at Equity Release Supermarket have set out some of their top tips for older people on how best to manage their finances, time, and boundaries with loved ones, to support their overall mental and physical well-being.
Many consider retirement to be the first time in their adult lives that they can relax and prioritize doing what they enjoy most.
This new-found freedom can be overwhelming, however, and establishing a new routine can take time. What’s more, as the cost of living crisis continues, those in and approaching retirement likely need to pay closer attention to their personal finances and outgoings.
Mark Gregory, Founder and CEO at Equity Release Supermarket, explains: “We speak to hundreds of over 55s each week and, for many people, the prospect of spending more time with loved ones and being able to offer support to their family is what they look forward to most. We also see how people want to use retirement as an opportunity to pursue budding interests or fulfil personal goals.
“As a result, it is important that those in and approaching this stage of their life manage both their time and money, helping to get the most from their retirement plan and budget.”
To help, the experts at Equity Release Supermarket have shared steps for retirees to keep on top of their time and finances to ultimately support their well-being and achieve their retirement goals.
Set goals by creating a retirement plan
Whether retirement is a few years away or you’ve already stopped working, we recommend making a retirement plan.
Start by thinking about your long term goals, such as places you want to travel to or whether you’d be interested in learning a new skill in the future. Then, consider what day-to-day activities you enjoy doing, such as spending time with grandchildren or visiting friends, as well as tasks you want to tick off your to-do list. This could include anything from giving your garden a makeover to clearing out old items from the loft.
Mapping out your days, weeks, and even years with goals and activities that will bring you fulfilment will help you organize your priorities for retirement. You could write these goals down in a notepad or even create a vision board.
Regardless of your process, make sure your retirement plan is something you can physically refer to in the future, rather than just having all the ideas up in your head.
Check in with your budget
When it comes to planning your yearly budget, you will need to establish how much money you require for your outgoings and living costs, as well as any big expenses you have planned for retirement. This could be anything from a bucket-list travel destination to supporting a son or daughter in buying their first home.
If possible, you should also aim to create an emergency savings pot, to use for any unexpected expenses.
However, it is important to remember that just because you have set your budget, those figures are not set in stone.
There are many factors that can affect your outgoings, from the ongoing cost of living crisis to personal changes such as marriage, divorce, moving house/downsizing or serious illness. Be flexible with your budget and priorities to accommodate these changes and the impact they may have on your personal finances. You might find that you need to seek out other financial options or guidance to support both your retirement and your loved ones.
It’s also important to continually check whether the money you’ve set aside for big expenses is working for you and your well-being. You might realize that you want to spend more money on things you hadn’t planned for, such as renovating the house or going on a once-in-a-lifetime holiday – in which case, you will need to update your financial plan accordingly.
Communicate with loved ones
Although creating a clear plan for retirement is essential, you also need to be mindful that life does not follow a set path.
From your physical health and mobility to ticking off your travel plans, your goals and potential limitations in retirement will adjust over time – and that’s fine and to be expected.
As difficult as it may be to admit, it can become a burden to spend your free time exactly as planned or support loved ones as much as you hoped. In these instances, it is important to keep communicating with your loved ones and be honest with them, so they can offer you support too. This will help to alleviate any pressure you may be feeling and allow your family and friends to be more accommodating of your situation.
Take care of your physical and mental well-being
It is important to make time in retirement for activities that will aid your well-being, especially as loneliness and depression are increasingly prevalent in later life.
Without the daily company of colleagues, you need to ensure you still get chances to socialize and see friends. Whether it’s arranging a coffee catch-up or joining a new local club, there are plenty of ways to incorporate social activities into the week without spending too much money, seeing both old friends and making new ones.
You can also take up activities that will benefit your physical and mental health at the same time, such as walking or low-impact exercises such as Pilates or yoga.
Think about the future
Although retirement may have been the end goal for your working life, it doesn’t mean you should stop planning for the future.
For example, you can make financial decisions that will save time and money in the long run. This could include minimizing your monthly outgoings to pay off existing mortgages quicker, as well as potentially providing you and your loved ones with more freedom later down the line.
If you’re planning to leave an inheritance to your children or family members, it is also worth considering gifting this money instead. Money gifted through equity release [or otherwise] becomes exempt from inheritance tax, provided that the giver lives for seven years afterwards. This can be a useful strategy for those who want to offer more financial support to loved ones throughout retirement and see the positive impact of this themselves.
So there you have it, five tips for getting the most from retirement. For more information about finances in retirement, visit the Equity Release Supermarket website.
I do agree it’s important to cultivate a strong social network in retirement, both with existing friends and family and with new friends and connections.
Time and again, studies have found that older people are both mentally and physically healthier when they foster relationships with others and maintain strong social connections. By contrast, social isolation and loneliness in old age have been linked to higher risks of heart disease, obesity, depression, cognitive decline, and so on.
Staying connected is especially important if (like me) you live alone. Social groups such as U3A are inexpensive to join and offer a wide range of activities, from rambling to guitar-playing, bird-watching to music appreciation. It’s well worth checking if there is a U3A group in your area. I recently joined not one but two local U3A groups and plan to write a post about this soon.
it’s also important to pay careful attention to your finances in retirement. On the one hand, you need to watch your income and expenditure to ensure you don’t run out of money in old age. On the other hand, though, you don’t want to deprive yourself without good reason and end up leading an unnecessarily frugal existence in what should be your ‘golden years’.
If you’re unsure about your finances, it can be a good idea to have a chat with a professional financial adviser. You definitely don’t need to be super-wealthy for this. Take a look at my blog post 10 Reasons Over-50s May Need an Independent Financial Adviser for more information. Most advisers (including mine) will be happy to arrange an initial meeting free of charge and without obligation.
As always, if you have any comments or questions about this post, please do leave them below.
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This is the third in a series of collaborative articles on the subject of equity release. This one looks at the important question of whether you can still rent out your house (or part of it) if you take equity release.
As the equity release industry expands, UK-based older homeowners are being offered more flexible retirement mortgage solutions to combat the problem of insufficient funds in retirement.
While equity release is a fantastic product, there are some terms and conditions that may put limitations on what you do with your property.
74% of UK-based retirees own homes, and many of those live in large family properties where the kids have moved out. With the chance to make up to £7,500 tax-free a year through the government’s Rent-a-Room scheme (including qualifying Airbnb lets), renting out a room or your whole property can be a great way for retirees to generate extra income.
But if equity release is something you’re considering, the big question is, can you rent out your house after taking equity release?
Equity release expert John Lawson of SovereignBoss explores this topic in the following report to help you understand all the equity release criteria to ensure you make a sound decision.
What is Equity Release?
Equity release is a financial product designed for older homeowners to unlock the cash in their property while still living there.
What’s great about these products is that repayments are completely voluntary and there is no risk of foreclosure. Instead, the loan and any compound interest are repaid when the last homeowner passes away or enters long-term care. Money taken through equity release is tax-free and can be used for any purpose.
Finally, equity release borrowers can opt to release their money in a lump sum, place it in a drawdown facility, or receive it as a monthly income.
Lodgers v. Tenants and Equity Release
One of the key components to an equity release loan is that you need to live in your home for at least six months a year and it must be considered your primary residence. Does this mean you can welcome lodgers or tenants?
There are some key differences between the two:
A Tenant – A tenant generally has more rights than a lodger due to a Tenancy Agreement. The landlord will need to get permission to enter the rented space and must conduct regular gas safety checks (if gas is connected). Once a contract is signed, a landlord can evict the tenant after six months, providing acceptable practices are followed. A landlord will also need to return the tenant’s deposit as per The Tenancy Deposit Scheme (TDS).
A Lodger – On the other hand, a lodger can be removed from the property at any time, given ‘sufficient’ notice. This is usually 28 days but can be less. A big difference between a tenant and a lodger is that a licence is signed instead of a lease agreement. The document will set out the terms and conditions of the agreement and the rules of the property.
Very importantly, the general rule with equity release is that homeowners may have lodgers but not tenants. (1)
Can I Rent Out My Home with Equity Release While I’m on Holiday?
In short, no. As per the logic above, you may not rent out your home while you’re on holiday, even if you live in the property for only six months a year. That being said, these rules could differ from one lender to the next. Therefore, should you receive income from renting out your home for half a year while moving to your holiday home, it’s worth consulting your financial adviser to see if they can find an equity release plan that permits this.
Airbnb and the Rent-a-Room Scheme with Equity Release
The great news is that Airbnb and the Rent-a-Room scheme are both considered to be lodger agreements, so you can rent out one or more rooms in your home using one (or both) of these options. With the UK being a popular tourist destination, this is a great form of retirement income, and you have the opportunity to mingle with guests and entertain people from across the world.
Of course, some areas are more popular than others for this. But even if you don’t live in a tourist hot-spot, there may still be a demand for short-term accommodation for people attending business meetings, conferences, sporting events, concerts, and so on.
In Conclusion
Equity release is a great way to gain access to property wealth, but can limit your opportunities to make money through rentals. It’s therefore important to weigh up the pros and cons carefully.
Your best bet is to discuss your future plans and intentions with your financial adviser. In general, as stated above, you can’t rent out your home once you’ve unlocked equity. But you can usually make extra income by taking lodgers, and that can be a great way to keep you busy (and supplement your pension) during your retirement years.
This is a collaborative post.
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This is the second in a three-part series of collaborative posts about equity release. This article looks at the likely effect of rising interest rates on the equity release market.
The equity release industry is booming. Homeowners from across the UK may find the financial freedom they desire by unlocking one of these attractive products.
If you’re a homeowner over 55 and haven’t heard of equity release, you need to do your research. These products allow you to access cash tied up in your property for any purpose you wish. No tax is payable on this money, and you will never be obliged to move out of your home.
John Lawson from SovereignBoss has done extensive research on the future of the equity release interest rates. He has discovered that after reaching an all-time low in March 2021, equity release interest rates are rising. The big question is, how significant will the rate increase be, and will this have a short-term effect on the industry as a whole? Let’s take a look at what Mr Lawson has to say.
Interest Rate Increase
When interest rates rise, the equity release sector is inevitably impacted as well. In March 2021 interest rates hit a historic low, with some homeowners having the opportunity to unlock equity with fixed rates as low as 2.3%. This unprecedented rate drop was exciting because it wasn’t much more expensive for a homeowner to opt for an equity release than it was to have a traditional mortgage. Plus, with no repayments required in one’s lifetime, retired homeowners could save a fortune by eliminating monthly mortgage payments. (1)
Recently interest rates have increased slightly but are still quite low. Current rates range between 2.9% and 6.4%. The interest rates you achieve will be lender-dependent, but they will also be determined by your age, health condition and property value.
Experts predict that interest rates are set to rise until 2024. And with the latest announcement by the Equity Release Council (see below), now could be the cheapest opportunity to access the cash tied up in your property through an equity release mortgage.
New Compulsory Optional Repayments
In addition to interest rates rising but still being stable, on 31st March 2021, the Equity Release Council enforced guidance on lenders to offer all their lifetime mortgage clients the option for penalty-free voluntary repayments. This means that homeowners can now repay up to 40% of the amount borrowed each year.
The exact offer you receive will depend on the lender you select. But in principle, if you have the means to do so, you could pay off your equity release plan within three to 10 years, restoring your property’s value.
But that’s not all. Once you’ve released equity, there is no risk of foreclosure. You can stop and start making repayments whenever you wish. Voluntary repayments are a great idea if you can afford them, as they reduce the overall cost of your loan by preventing compound interest.
So How Badly Will the Industry Be Affected?
With interest rates still reasonable and the above announcement by the Equity Release Council, the industry is set for another record-breaking year. Eighty percent of experts agree that the industry’s value is rising, and we at Sovereign Boss are excited to see further innovation from lenders and the Equity Release Council.
In Conclusion
Whether now is the best time to opt for an equity release product is very personal. You will need to consult a financial advisor who will help you determine the best course of action for your needs. If it’s in your interest to unlock equity at this stage, however, you’re likely to find a fantastic deal, with product flexibility better than ever.
So, while interest rates are rising, they’re not too much of an issue at this stage. And there is certainly no indication that there will be any short-term impact on the equity release industry. On the contrary, we are set for another record-breaking year.
That being said, it’s too early to predict the long-term impact that interest rates increase will have on the industry. But SovereignBoss considers it their responsibility to keep you updated with the latest industry trends.
This is a collaborative post.
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Today I have the first in a series of three collaborative posts on the subject of equity release. This one examines the growing popularity of equity release and why it looks set to boom in the year ahead.
The equity release industry saw a massive expansion in 2021, with a record-breaking sum of over £4.8 billion being unlocked by retirees across the UK. This unprecedented growth has been welcomed amid a global pandemic, as the Equity Release Council helps regulate a retirement product that has given many retirees the means to a desperately needed income in these tough economic times.
Mark Patterson, the equity release expert from EveryInvestor, joins the ranks of fellow industry authorities in predicting that 2022 is set to be another record-breaking year. Let’s take a look at what’s expected and determine if unlocking equity is a good idea over the next few months.
What Is Equity Release?
Equity release is a widely popular financial product for UK-based homeowners older than 55. In a nutshell, it gives you the opportunity to use your property’s equity but still live at home. With a third of UK retirees having less than £10,000 in retirement savings, equity release offers a lifeline to many. What’s more, the money can be used for any purpose.
According to figures from the Equity Release Council (ERC), equity release clients borrowed a total of £4.8 billion last year, a 24% rise on 2020’s figure.
Why is the Equity Release Industry Growing Amid a Tough Economy?
While many industries have crumbled in the wake of Covid 19, the equity release sector has grown tremendously. This is for several reasons, including:
Equity release provides financial security in a tough economic time.
The Equity Release Council has made the industry safe and is shifting a historically bad reputation.
Interest rates hit an all-time low in March 2021, and homeowners have received the best deals yet, with fixed-for-life interest rates.
Finally, growth inspires growth. As the industry expands, lenders offer more flexible products with bonus features, such as a free valuation or no completion fee.
What’s Predicted for 2022?
The future of equity release looks bright in 2022, and 80% of experts predict growth, with some believing this will be vastly beyond regular inflation. There are some key industry features that are likely to impact the industry (1).
First, the Equity Release Council announced on 31 January 2022 that all equity release lenders must offer the opportunity for voluntary loan and interest repayments. This announcement is welcome for potential borrowers, as voluntary repayments can vastly reduce the cost of your loan, yet there’s no obligation or risk of foreclosure.
On a slightly less positive note, equity release interest rates will rise in 2022 and should continue to do so until 2024. However, this could actually mean further industry growth. Rates are set to rise only slightly, and homeowners applying now will likely begin their equity release plans before we see any further increases.
Should I Unlock Equity from My Home at This Time?
With the market as it stands, it is a good idea to unlock equity if you’ve been planning to do so. However, it’s more complicated than just looking at the state of the industry.
Whether or not you should unlock equity from your home will depend on your personal circumstances and stage of life. What’s great is that equity release is safe; it’s overseen by the Equity Release Council and regulated by the Financial Conduct Authority (FCA).
However, to determine if it’s a good idea to unlock equity from your home, you should speak to a financial adviser. After all, seeking advice is compulsory when opting for an equity release product. The team at EveryInvestor will always encourage a whole-market financial adviser as they have an overview of the whole equity release market.
In Conclusion
Between flexible plans, the opportunity for voluntary repayments, and interest rates still low, now is a great time to release your property value through equity release. With another record-breaking year ahead of us, the industry is booming, and many more retirees are set to sign up to an equity release plan. Could you be next?
This is a collaborative post.
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If you invest in funds rather than individual stocks and shares, you’ll almost certainly know that in many cases you can choose between two options, income or accumulation. Today I thought I’d explain what this difference is and share a few thoughts on the subject. I will be referring to my own experiences in this regard.
But to start by answering the question in the title, the difference between income and accumulation Funds is basically as follows:
Income Funds pay any income generated by your investments as, well, income. The money will appear in your account ready for you to withdraw (or reinvest). Or it may simply be paid directly into your bank account if you prefer.
Accumulation Funds, on the other hand, use any income generated by your investments to buy more units in the fund concerned. Your holding in an accumulation fund (and its value) should therefore build over time. But you won’t typically receive any income from the fund.
You might therefore think that if you want to draw an income from your investment, an income fund is the way to go. In practice it’s not as simple as that, though. For one thing, if you want to withdraw money from an accumulation fund, you always have the option to sell some of your holding, and there can be significant advantages to proceeding this way.
I will discuss this in more detail below, focusing on my personal pension as an example. Of course, everyone’s circumstances are different, so the decisions I took (and am still taking) may not be right for you. But I hope it will give you food for thought.
Why My SIPP is Mostly in Accumulation Funds
Regular readers will know that for some years I saved for my pension in the form of a SIPP (Self Invested Personal Pension). I use the Bestinvest platform for this and have always researched and chosen my investments myself. My SIPP currently has 14 funds in it. You can see a screen capture below.
As you can see, most of these are accumulation (Acc) funds with a couple of income (Inc) funds. While I was building my pot it seemed sensible to put most of my money into accumulation funds.
I am not by any stretch claiming that this is a ‘model portfolio’ that anyone else should emulate. I picked these funds based on recommendations I read in the press (and online) at the time, and there may well be better options now. I aimed to diversify as broadly as possible across different market sectors, geographical areas, investment types, and so on.
I put my SIPP into drawdown three years ago and now take £200 a month from it. I did consider switching to income funds at that time, but after careful thought (and research) decided against this.
The small number of income funds in my portfolio don’t typically generate enough to cover my monthly withdrawals. So each month I log in to my online dashboard and sell the necessary amount from whatever fund I pick that month. I must admit there is nothing very scientific about this. I typically just sell from funds I already have large holdings in.
Obviously having to do this every month is a minor hassle. However, in my view it has advantages as well. If you hold mainly income funds, the money they generate will vary from month to month. Sometimes there might not be enough to cover your monthly drawings, meaning you would still have to sell some funds anyway. Conversely, there might be months when more income is generated than you need, so you would end up with ‘spare’ money sitting in your account and not working for you.
Overall, then, I like having my SIPP money in accumulation funds because each month I can sell enough to cover my drawings that month, no more and no less. All the rest of the income that is generated by my accumulation funds is automatically reinvested.
Interestingly, despite the fact that my annual withdrawals amount to almost 6% of the value of my portfolio, the overall value of my SIPP has continued to grow since I put it into drawdown three years ago (see graph below). I am not convinced that would be the case if I had switched to income funds across the board.
The standard advice is that you should withdraw no more than 4% of your portfolio each year to try to preserve its value. I have actually been taking nearly 50% more than that in the middle of a pandemic, and yet the overall value has still gone up by almost £4,000 in the last year alone. Obviously past performance is no guarantee of what may happen in future, but it is certainly food for thought.
Further Thoughts
Of course, pension funds aren’t the only sort of investment where this applies. You could, for example, be investing in a tax-free ISA, and again face the choice between income and accumulation funds. If you are aiming to build a pot, there is (of course) a strong argument for going with accumulation funds. But even if you want an income, the arguments above on behalf of accumulation funds still apply.
One further consideration is tax. If you are investing via a SIPP or ISA (or some other tax-efficient wrapper) this obviously won’t be an issue. But if you’re investing outside one of these, you do need to be aware of the tax implications.
With an income fund it’s fairly straightforward. The money you receive will count as taxable income (or taxable dividends in some cases) and be taxed accordingly.
With an accumulation fund, it’s more complicated. The income that is rolled up and reinvested is known as a ‘notional distribution’ and you will still be liable to pay tax on it at the appropriate time. This is explained in more detail in this excellent article from Shares Magazine.
As I say, investing outside a tax-efficient wrapper can be complicated, especially with accumulation funds. I would therefore recommend taking professional advice if you find yourself in this position. Ideally, though, ensure all your money is invested within a tax-free wrapper (SIPP, ISA, etc.). You won’t then have to worry about tax at all!
I hope you have found this post of interest. Whether you agree or disagree with my approach, I’d love to hear from you. Please leave any comments or questions below as usual.
Disclaimer: I am not a qualified financial adviser and nothing in this article should be construed as personal financial advice. All investment carries a risk of loss. You should always do your own ‘due diligence’ before investing, and seek professional advice if in any doubt before proceeding.
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Today I’m addressing an issue that will be critical to many people approaching (or in) retirement. That is, how much to draw from your pension pot (and other investments) to supplement your state pension.
I’ll start by telling you about a conversation I had recently that made me think about this…
Talking to Mike
A few weeks ago I had my annual review with my financial adviser, Mike (if you want to know why a money blogger needs a financial adviser, you can read my post about this here). It was done by video call on this occasion, naturally.
One major topic of conversation was the fact that later this year (God willing) I will reach my 66th birthday and start receiving my state pension. I should qualify for the full state pension, which from April 2021 will be £179.60 a week or £9,339.20 a year.
As Mike pointed out, when you add this to my other income from this blog, my small private pension, other investments and my solar panels, this will put me in quite a strong financial position. So he recommended that at that time I reduce the amount I draw from the other investments or even stop taking anything at all and let them carry on growing year by year (financial downturns permitting).
I could see where Mike was coming from. If I don’t actually need the money it might be sensible to leave it all where it is. For both practical and psychological reasons, however, I told him I don’t want to do that. Here are the two main reasons I gave him:
1. If I take no income from my investments, I will still be somewhat dependent on my blog for income. While I have no plans to stop running Pounds and Sense at the moment, I don’t want to have to rely on it to cover my outgoings as I grow older. Also, the income from my solar panels will end in about ten years – possibly sooner if there are any major technical issues (or I move).
2. I don’t have any particular beneficiaries I wish to leave my money to (I live alone since my partner Jayne died a few years ago and we didn’t have children). I don’t therefore see any merit in accumulating a large ‘pot’ that simply goes to benefit my sisters (much as I love them). I would rather enjoy the money while I can, while aiming to ensure that it lasts me out.
I told him my plan was therefore to reduce my withdrawals to a sensible level where my capital should be preserved and hopefully continue to grow a little. Four percent is a common rule of thumb for this, so I am looking at that as a starting point (though willing to accept Mike’s expert advice on the exact level). I plan to review this every year, based on my needs and circumstances and how my portfolio has been performing.
If I have more money coming in than I require, I don’t see that as a problem. I will spend it (maybe on a few extra holidays), save it or reinvest it, and maybe give some to charity and/or friends/relatives who are in need. As they say, you can’t take it with you, so I have decided that will be one of my guiding principles going forward!
I shared these thoughts in a subsequent email to Mike but haven’t so far received a reply from him. If I do, I’ll update this post accordingly 🙂
That Crucial Question
I am obviously not alone in facing a decision of this nature. With most people nowadays relying on a pension pot to finance retirement rather than a guaranteed lifetime pension, many of us will have to grapple with the question of how much income we should be withdrawing to supplement the state pension.
And yes, I know the state pension will continue as long as we need it. But while it is obviously an important source of income for most people in retirement, it is nowhere near enough to finance a comfortable retirement on its own.
Of course, none of us comes with a sell-by date. Pension planning would be so much simpler if we did. If we knew the exact date we were going to expire, we could plan our retirement precisely.
So if I knew I was going to die in five years, I could live the (moderately) high life, burn my way through my savings and investments, and leave just enough for my relatives to pay for my funeral!
On the other hand, if I knew I could look forward to another thirty years, that would of course be wonderful, but I would need to plan carefully to ensure my pot didn’t run out before I did. But as none of us knows how long we have on this planet, a long-term strategy is the only sensible option really.
The question of how much to draw from your pension pot (and other investments if any) therefore needs very careful thought. In particular, the following considerations may apply:
It’s clearly sensible to try to ensure that enough money will remain in your pot to see you through to deep old age (e.g. 100).
If you’re keen to pass on a legacy to your children (or some cause dear to your heart) you will need to be more cautious about how much you withdraw.
On the other hand, if you aren’t so worried about passing your wealth on, then there is no point in depriving yourself now.
Tolerance for risk is another factor. If you worry that the 4% rule is too chancy, you could reduce your withdrawals to 3% or less.
There may be other considerations too. For example, if you have a life-limiting medical condition, that may alter the equation in favour of a more bullish approach.
There is also the matter of whether you own your home. If so, you will have the scope to raise extra money if needed by downsizing or using equity release.
Tax may be an issue as well. The state pension counts as taxable income and so do most private pensions. If the total amount you draw exceeds your personal allowance, you may have to pay tax on it. This is something you might want to discuss with a financial adviser.
And finally, if you have a particular ambition or goal you wish to achieve during retirement (going on a world cruise, for example), you will of course need to ensure enough money is set aside to cover that when the time comes.
As mentioned above, a common rule of thumb is that to provide the best chance of preserving the value of your investments, you should limit withdrawals to no more than 4% of your capital per year. So if, for example, you have a pension pot of £50,000 and draw 4% annually from that, that would be £2,000 a year or about £167 a month. Drawing that would hopefully ensure that the value of withdrawals is on average balanced out (at least) by growth in the value of your investments.
Of course, the 4% rule is only a rough guide and needs reviewing regularly according to how your portfolio performs.
When pension freedoms were introduced in 2015, there was some concern that people might ‘blow’ their pension pot on a luxury car or a yacht, but actually I think the vast majority of older people are more sensible than that. Indeed, I think the opposite mistake is more common – people drawing too little and leading a life in retirement that is unnecessarily frugal rather than enjoying the money they accrued during their working lives. But in any event, this is a question we all need to think very carefully about as we attempt to chart a balanced course into retirement and old age.
So those are my thoughts on this important subject (one I know many people don’t really like to think about). But what is YOUR view? Please post any comments or questions below as usual
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