Women turn to equity release to bridge pension gender gap

Almost a third (30%) of new drawdown single plans are being taken out by female customers

Caucasian woman in her 50s concentrating, peering at screen, working on home finances, planning for retirement

Growing numbers of women are turning to equity release to support themselves in later life, with many of those approaching retirement anxious about how they’ll fund retirement.

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Almost a third (30%) of new drawdown single plans are being taken out by female customers, according to the Equity Release Council’s Autumn 2021 market report, the highest level seen in the last two years. In comparison, only 14% of drawdown single plans were taken out by men, whilst 55% of plans were jointly held.

Previous research conducted by the Council, which is the trade body for the equity release sector, found that that almost half (48%) of women who have not yet retired are worried about running out of money when they stop work, compared to 41% of men. More than one in two non-retired women (53%) are also concerned about falling ill and having to pay for care, compared to just 20% of men.

Women often struggle to save as much as men due to disproportionate caring responsibilities, which can restrict their ability to work and pay into a pension. Analysis by insurer Aegon found that the average pension pot for a 65-year-old woman in the UK is just £35,800, which is around one fifth of the average 65-year-old man’s pension pot.

Those who have been unable to build up sufficient pension savings to fund retirement may therefore look at alternative options, such as unlocking some of their property wealth, to boost their income.

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However, equity release has some major drawbacks and won’t be right for everyone, so it’s vital for anyone considering taking this route to seek professional financial advice first.

One of the biggest issues with equity release schemes is that interest rolls up month on month, so your overall debt can increase in size very quickly. It’s therefore vital to choose a product offering a competitive interest rate.

According to financial website Moneyfacts.co.uk, while average interest rates for a lifetime mortgage have edged up to 4.26%, there remain several plans with rates below 4%. Overall, equity release rates have fallen more than two percentage points over the last five years.

A spokesman for Moneyfacts.co.uk said: “Homeowners who took out an equity release plan five years ago will find that rates have fallen significantly during that time. These homeowners may want to consider switching onto a new plan as it could result in lowing the cost of their equity release, however they will need to consider any additional charges or fees they may incur switching plans.”

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It’s also important to see whether any plan you’re considering offers you flexible features, such as the ability to repay some of the capital borrowed, or to ringfence a proportion of the value of your home so that you can pass it onto your beneficiaries. More than two thirds of plans now allow customers to make voluntary capital repayments with no early repayment charge, the Equity Release Council said, up from just over half a year earlier. One in four products offer customers an inheritance guarantee, while half provide downsizing protection. This means that if you release equity from your home and later decide to downsize, you can repay what you owe without penalty.

Get your free guide to equity release written by Paul Lewis

Calculate how much you could release from your home