By releasing equity built up within their homes, people over the age of 55 could access substantial tax-free cash, says our financial expert.

Plans are afoot to extend the official retirement age from the current 66 years. It is expected to reach 67 between 2026-28 and hit 68 by the mid-2030s. ONS figures show that the UK is home to more than 11 million people aged 65 and over, around 18.6% of the population. In some areas the figure comfortably exceeds 25%.

Plans are afoot to extend the official retirement age from the current 66 years. It is expected to reach 67 between 2026-28 and hit 68 by the mid-2030s.

Given that the UK’s state pension provision is not particularly generous, many people are understandably concerned about how they may beat – or at least manage – a future squeeze on pensions.

The famed ‘triple lock’ guarantees that the state retirement pension increases in line with the highest of three different measures every year: a flat 2.5% rise, average earnings growth or inflation.

Those entitled to draw a state pension can look forward to a pay rise of 10.1% next month. It sounds generous, but after April 6 the maximum state pension will be just £203.85 a week.

And when we consider the sharp fall in the number of final salary pension schemes, coupled with the shadow of potential Treasury interference which could see pension-related tax breaks slashed, the importance of pension planning could hardly be over-stated.

Fortunately, for homeowners aged over 55, there may be a ready-made solution to the pension squeeze: their home.

By releasing equity built up within their homes, people over the age of 55 could find they have access to a substantial tax-free cash lump sum. The most popular method of releasing equity is to use a lifetime mortgage secured against the homeowner’s property. 

Unlike a ‘regular’ mortgage, a lifetime mortgage features no end date. Instead, it runs for the duration of the homeowner’s life (and their spouse) or until they both enter long-term care. At this point, the property is sold and the proceeds are used to pay off the initial lump sum and any accrued interest.

As a lifetime mortgage features no contractual requirement for monthly payments, those aged over 55 could be sitting on the answer to any future pension squeeze. Furthermore, the money released can (once any existing debt secured against the property is cleared) be used for anything the homeowner wishes. For most folks, this means improving their quality of life with home renovations or reducing worry by giving their finances a necessary boost.

A lifetime mortgage may affect the homeowner’s estate value and entitlement to means-tested benefits, which is why it is worth getting a personalised illustration from a qualified financial adviser in order that the risks and other characteristics of equity release are fully understood.

Mark Gregory, chief executive of Equity Release Supermarket, notes: “Although the pension squeeze is a genuine problem, the wealth accumulated in the homes of many people aged over 55 could provide the savings they need to enjoy their retirement years free from financial worry.”

For this reason alone, it could be worthwhile getting a personalised online quote to explore whether a lifetime mortgage would help overcome financial hurdles in later life. According to the company, Equity Release Supermarket are the only organisation providing personalised and immediate online equity release quotes from the comfort of your home.

For more financial advice, check out Peter Sharkey’s regular blog, The Week In Numbers.

This column is for general information only and cannot be relied on as financial advice for individuals. Consult your professional adviser.