Table of Contents
Issues and Insights
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- Pension freedoms: Bringing equity release into the retirement equation
- The facts
- The implications
- Mortgage Market Review unintentionally boosts equity release’s role in retirement planning
- The facts
- The implications
- Equity release competition set to heat up in 2015
- The facts
- The implications
The Market – What You Need to Know
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- The potential target market is large, and growing
- There are more outright homeowners than people buying on a mortgage
- Market value expands 29% in 2014, and is expected to grow near double digit figures for the next five years
- Customers are releasing larger amounts of equity while drawdown plans continue to be the most popular form of equity release
- The market has benefited from the forward thinking approach of the FCA
Market Drivers
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- 72% of people above the age of 65 own their house outright
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- Figure 13: Housing tenure, by age of household reference person – England, 2013/14
- An ageing population, driven by improved longevity expands the target market for equity release
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- Figure 14: UK population, by age, 2014-34 (2012-based projection)
- Average age of equity release customers increases to 71
- Consistent growth in property prices increases the attractiveness of equity release…
- …as well as the average value of a property where equity is released
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- Figure 15: UK mix-adjusted house prices, 1999-2014
- Rates on the market decline in early 2015
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- Figure 16: Equity release average and best buy rates, January 2014-February 2015
- Lifestyle improvement tops reasons for release
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- Figure 17: Reasons for equity release, full year 2014
Market Regulation
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- Pensions freedoms should move equity release into the spotlight
- Forward-thinking approach from the FCA has paved the way for product innovation
Market Size
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- Volume of plans and overall value of advances both grow at record rates in 2014
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- Figure 18: Sales of equity release schemes, 2008-14
- New sales volume expected to increase 74% in five years
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- Figure 19: Forecast of the volume of new equity release scheme sales – Fan chart, 2009-19
- New equity release advances to increase to over £2.3 billion in 2019
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- Figure 20: Forecast of new equity release advances, at current prices – Fan chart, 2009-19
- Figure 21: Forecast of equity release schemes, at current and constant prices, 2014-19
- Forecast methodology
- Fan chart explanation
Market Segmentation
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- Drawdown plans remain the favourite form of equity release
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- Figure 22: Proportional distribution of new equity release sales, by product type, 2010-14
- Average amount of equity released increases for both drawdown and lump sum products
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- Figure 23: Average amount released, by product type, 2013-14
Key Players – What You Need to Know
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- Aviva and Just Retirement enjoy successful years as the industry edges closer to a duopoly
- Aviva and Just Retirement broaden their sales channels
- Providers diversify and extend product range
- Equity release providers ramp up advertising spend with 38% increase spending in 2015
Market Share
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- The market is dominated by three major providers
- Aviva maintains its position as market leader with over 50% market share
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- Figure 24: Equity release market share by value of new sales, 2014
- Aviva boosts new sales values by 74% after a tough 2013
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- Figure 25: Top three equity release providers, by value of new sales, 2011-14
- Just Retirement also steams ahead with 54% increase in new value sales
Competitive Strategies
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- Product providers
- Intermediary activity
- The market organises and consolidates
- New entrants and products
Brand Communication and Promotion
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- Advertising spend on equity release increases 38% over 12 months to April 2015
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- Figure 26: Recorded above-the-line, online display and direct mail advertising expenditure on equity release schemes, 2011-15
- A growing emphasis on digital marketing
- Aviva boosting advertising spend
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- Figure 27: Recorded above-the-line, online display and direct mail advertising expenditure on equity release schemes, by advertiser, 2011-15
- A note on adspend
The Consumer – What You Need to Know
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- Pensions coverage is comprehensive, but pension pot size may not be sufficient
- Nearly one in four people over 45 are expecting/currently have one source of retirement income
- Consumers often misunderstand equity release product features
- Most consumers are expecting a frugal retirement
- One in 10 home-owners over 45 would consider equity release
- Many consumers view equity release as a final resort, but also as a valuable option
- Barriers to uptake
- Trust and awareness
Retirement Income Sources
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- Survey background
- Most respondents will be able to draw on a private pension
- Half of all home owners above 45 expect to/have access to non-pension incomes
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- Figure 28: Expected/actual retirement income sources, by tenure, February 2015
- Men are more likely to have investments and their own private pension
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- Figure 29: Expected/actual retirement income sources, by gender, February 2015
- Nearly one in four over-45s only expect/have one source of retirement income
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- Figure 30: Number of different types of expected/actual retirement income sources, February 2015
Equity Release Awareness
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- Equity release products are often misunderstood by consumers
- Consumer understanding of what they can do with the money can improve product appeal
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- Figure 31: Equity release awareness, February 2015
- 45-54-year-olds show better awareness of product features
- However, more can be done to improve product transparency amongst 65-74-year-olds
- One in five over 45s have not heard of equity release schemes
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- Figure 32: Equity release awareness, by age, February 2015
- The majority of over 45s are unaware that equity release providers must offer advice
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- Figure 33: Equity release awareness on advice and guidance, February 2015
Financial Wellbeing in Retirement
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- A sizeable minority worry about their financial security
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- Figure 34: Retirement financial situation, February 2015
- 44% of consumers are getting by but unable to save for luxuries, representing a large target market
- 40% of people are confident about their financial situation in retirement
- People who own a home are more likely to be/expecting to be financially comfortable in retirement, yet those ‘getting by’ remains the same
- 17% of people above 45 who are buying a home are struggling/expecting to struggle financially in retirement
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- Figure 35: Retirement financial situation, by tenure, February 2015
- A quarter of all 45-54 year olds are/will be struggling financially in retirement
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- Figure 36: Retirement financial situation, by age, February 2015
Consumer Willingness to Use Equity Release Schemes
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- 12% of owner-occupiers would consider equity release
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- Figure 37: Likeliness to apply for equity release, February 2015
- 16% of people above 45 who are buying on a mortgage may consider equity release
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- Figure 38: Likeliness to apply for equity release, by tenure, February 2015
- Openness toward equity release decreases with age
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- Figure 39: Likeliness to apply for equity release, by age, February 2015
Attitudes toward Equity Release
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- Many consumers view equity release as a final resort
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- Figure 40: Equity release attitudes, February 2015
- A fast-track to funds? Not equity release
Barriers to Uptake
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- Leaving behind less for loved ones
- Equity release can undermine consumers’ sense of security
- Poor value for money
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- Figure 41: Equity release attitudes, February 2015
- Trust concerns
- Consumer awareness is low for now
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- Figure 42: Equity release attitudes, February 2015
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