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Equity release set to grow as pensions weaken

Monday, 3 December 2007 12:00 AM

Weakening pension provision is set to force retirees to turn to their property to fund their old age.

The over 60's will own £2.21 trillion of equity in their homes by 2036 at today's prices, according to new research published by equity release organisation Sovereign Reversions.

This marks an increase of 61 per cent on the current level of £1.37 trillion.

By 2036 there will be 20.8 million over 60's in the UK, equating to almost a third of the whole population, (29 per cent). At present the figure is only 21 per cent.

The elderly are set to turn to equity in their homes as pension provision becomes increasingly insufficient.

Between 2024 and 2046, the normal state retirement age will increase from 65 to 68, meaning people will be forced to work longer.

Coupled to this final salary schemes are being consigned to history, making pensions more dependent on uncertain investment outcome. Age dependency ratios are also increasing, making it harder for working families to support more ageing relatives.

These factors are set to combine to force pensioners to look to the equity in their property for support.

"Equity release is riding the demographic mega-trend of the ageing population. The UK's savings and assets are increasingly concentrating in the hands of the older generation," said Graeme Marshall, chief executive of Sovereign Reversions.

"Older people typically own more valuable homes than the average and the vast majority have no mortgage debt left. For many, the value of their home will become an obvious source of income to help fund their retirement as traditional means of income and support are eroded."

Up to 80 per cent of the over 60s are homeowners, ahead of the 70 per cent average for the population as a whole.

After deducting any remaining mortgage debt on their property the average equity for a homeowner over the age of 60 currently stands at almost £265,000, meaning the over sixties own almost half the UK's £3.3trillion of housing equity at present.

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