Equity release could offer a solution to the retirement funding deficit left by proposals in Alistair Darling's Pre-Budget Report this week, industry experts have suggested.
In his Pre-Budget Report on Wednesday, The Chancellor said that "under the existing rules, the highest earners benefit disproportionately from tax relief on pensions."
To make the system fairer, he intends to reduce pension tax relief for people with incomes in excess of £150,000, as announced in his 2009/2010 Budget; to do this "as fairly as possible," he has decided to "include employer pension contributions in the definition of income for this tax measure."
Andrea Rozario, director general of equity release trade body SHIP (Safe Home Income Plans), believes that the changes to pensions laid out in the Pre-Budget Report by the Chancellor strengthen the case for the government to consider equity release as a viable tool for funding retirement.
Commenting on the report, Ms Rozario said while "The reduction in tax relief on pension savings and the reduction in the future value of public sector pensions may help balance government books," the measures "will cut the future pension income of millions."
She added: "With straightened economic circumstances and an ageing population, the issue of how we fund retirement is a problem that is not going away. We believe that the government has a duty to pensioners to consider all retirement funding options - including equity release."
Ms Rozario believes that pensioners should be given sufficient information about equity release, which could help them to boost their incomes with the estimated £700billion of equity tied up in their homes.
This money could be used to improve pensioner's quality of life, she said, as well as potentially allowing them to remain in their homes instead of downsizing or moving into care.
Ms Rozario concluded: "In July Baroness Patricia Hollis led calls for a formal government review into the use of equity release for retirement funding and recent statements from the Conservatives indicate that they are looking at the matter. We urge those in government to go further in promoting it as a viable mainstream option for retirees."
© Fair Investment Company Ltd
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