In today’s world it is safe to say that perception is everything.
Perception is the general impression people hold; it may be a generalisation and not completely accurate but we cannot deny its power.
Once the consumer – and press – has a negative perception, changing it is like turning an oil tanker – it takes thought, effort and time. The equity release market is one such example.
The horror stories which are, unfortunately, still brought up today by some media outlets all occurred at a time when regulation was many years away and the products were very different to those we have today.
Thankfully many of those involved in today’s equity release market are passionately working to change the reputation created by those products from yesteryear.
In this case, perception, as usual, has been slow to change, however there is movement and the pace of change is only likely to increase as time moves on and economic circumstances develop.
Eating or heating
There is growing press comment on the rising cost of living, particularly for the older generation. Some commentators suggest they face a real inflation rate of double normal inflation as they use a higher proportion of their incomes on the items affected.
For example, fuel and food, the costs of which have risen at their fastest rate for 17 years and energy prices which now cost an average of £100 more per annum than just a year ago.
A recent article on this issue in The Telegraph online was interesting. Among the dozens of comments made by the public on the article there were a large number of retired people who were facing significant problems.
The comments made it clear there are great swathes of retirees out there currently having to choose between ‘eating or heating’. This is a decision that no one wants to make but there seems little hope of improvement.
If you ask the older generation, already retired, how they are, you often get the response ‘can’t complain’. Their attitude tends to be, ‘I’ve managed in hard times before and I can do it again’. But this may be unrealistic.
Managing in times of rising inflation is even harder when you’re on a fixed income in retirement, especially when interest rates are low and your savings value is being eroded. When they feel it necessary to cut back on basics like food and heat in order to make ends meet they desperately need options, one of which may be equity release.
The growing numbers facing this dilemma highlights the need for quality advice and suggests that demand for options such as equity release products will only continue to rise in the next few years.
Pensions crisis
On top of the current economic climate is the growing pensions crisis. In an attempt to mitigate this issue, legislation is due to be agreed this month to set up Personal Accounts for Pensions which will come into force in 2012. This will oblige employees to contribute to a pension account and while this may help future retirees, it will not benefit those near retirement now.
It is well documented that a significant minority will have insufficient pensions. Add to this the fact that we are all likely to live longer than in the past and will therefore need our retirement incomes to last longer and potentially cover ever-increasing costs of maintaining our homes and paying for medical care means more experiencing financial hardship in retirement.
Considering alternatives
So consumers will need to consider a range of alternatives in retirement and equity release is one of those options. Even the FSA acknowledge this in its paper, ‘Finance in and at retirement’, published in December 2007.
In this paper the Financial Services Authority (FSA) found that consumers find decumulation products – annuities, pension income withdrawal and equity release – difficult to understand and the general awareness of State benefits was also poor. As a result the FSA will be launching a ‘Managing in Retirement’ Guide this month, which will include information on how to boost income in retirement. This is bound to include information on equity release and may encourage consumers to seek advice.
All these issues continue to suggest a growing interest and demand for equity release as a possible solution. The stigma or negative perception will disappear as these products become more commonplace.
Perception of these products is already changing and it is up to the advisory community to ensure it is ready and able to provide sound advice for those looking at all their retirement options.
Our generation of ‘greedy consumerists’ may all yet have to become as thrifty as a pensioner if the credit crunch continues.
