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Equity Release News What would early access to a state pension mean for you?

What would early access to a state pension mean for you?

By Equity Release Supermarket on the 7th December 2020

It’s no surprise that the COVID-19 pandemic has left Brits feeling uncertain about their financial future.

For the over 60s in particular, the prospect of higher living costs and employment worries have many pre-retirees looking to access their private pension pot before the state pension age, in an effort to shore up their finances.

Some have already committed to drawing their pension early, with research by the Equity Release Council (ERC) finding one in six (16%) were planning on accessing their private pension pot before the state pension age as a result of mounting financial pressures.

With the national pension due to go under review again in 2023, could we soon be able to access our full state pension earlier? And what might these changes mean for future retirement funding? 

Continue reading, below, to find out.

How does the state pension look right now?

Currently, you can access your state pension in the UK from age 66 (some private pensions can be accessed after 55 years old). If you reach or have reached state pension age after April 2016 (known widely as the ‘new state pension’), then the full pension you stand to receive is £175.20 p/w (£9,110.40 p/y).  For the poorest pensioners, the safeguard of pension credit provides £173.75 a week, 

The state pension amount you receive, however, is dependent on your National Insurance contributions. For instance, to qualify for the full state pension amount, you need to have at least 35 years of full National Insurance contributions (up from 30 years pre-2016). To receive any state pension at all, you need at least 10 years of National Insurance contributions.

For those that have worked long enough to qualify for the new state pension, it is reassuring to know there is a financial provision in retirement, but there still remains a shortfall between total pension income and the total cost of retirement.

As found by the Pensions and Lifetime Savings Association, retirees now need an annual income of £33,000 (or £47,500 for a couple) for a ‘comfortable’ retirement. For a retirement of 20 years, that totals a staggering £478,000.

Even with the new state pension providing more income, from where are retirees expected to find the extra cash to enjoy their golden years?

What might retirees expect in the future?

With the state pension age set to rise again to 67 between 2026-28 and age 68 between 2037-39, people are now understandably asking whether greater pension flexibility, through earlier access to the state pension, should be offered at the next review date in 2023.

The impact of such a change would, in the short term, provide pensioners with a basic level of retirement income, but it would be smaller than the current state pension. For those aiming for a ‘comfortable’ retirement, this would put even greater emphasis on the need to source additional income streams.  

Equity release could help

While early state pension access is still to be considered, property wealth is fast emerging as a viable way to bolster a state pension in later life.

In fact, the Equity Release Council has found that, on average, property wealth equates to 12 years of full state pension payments. For homeowners, this untapped wealth could be the ideal solution to retirement funding woes.

This is where equity release can come in handy.

Equity release allows homeowners that are over 55 to unlock some of the value of their home and turn it into cash. Releasing equity can be a useful asset if you need to ‘top up’ your state pension and/or private pension or need extra funds for any other reason.

A benefit of a lifetime mortgage (the most popular type of equity release plan) is that no repayments have to be made, which means the money released is yours to spend as you wish. The downside is that if no repayments are made, then the final amount to be repaid (upon death or a move into long term care and usually through the property being sold) will be greater.

Thankfully, at the moment interest rates are at an all-time low and fixed for life. This means, for example, if you borrowed £100,000, it would take 30 years for the final amount to be repaid to double to £200,000. And this doesn’t take into consideration the ‘off-setting’ effect of house prices over the longer term.    

The new breed of lifetime mortgages are incredibly flexible and there are now over 400 different plans to choose from, enabling you to tailor a plan to meet your needs both now and in the future.  

So, if you are at all worried about your finances in retirement, it is worth taking a closer look at equity release.

To find out more about how equity release can support your retirement plans, contact the Equity Release Supermarket team on Freephone 0800 802 1051 or email us today.


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