A big discussion point for many advisers and their clients recently has been the Autumn Budget and its various impacts.
There was no shortage of speculation about the new government’s plans for our finances, and particularly around boosting tax revenues. One idea floated, which did not come to pass, covered the potential to reduce the size of the tax-free lump sum which could be accessed from a pension pot.
The pension lump sum forms a crucial part of financial planning for those reaching their later years, and the suggestion it could be under review clearly led to plenty of discussions between advisers and concerned clients.
In some cases, these discussions led to pension-holders pushing ahead with making full or partial crystallisations in a bid to beat the Budget. In the end, the cap didn’t happen, a move that has prompted some savers to try to cancel their pre-emptive withdrawals.
However, the situation has served to highlight the importance of understanding all of the options available to homeowners as they head into this stage of their life. After all, there are alternatives to the pension lump sum – for some clients it may be worth considering releasing equity from their home, instead of tapping into their pension.
Or, if the lump sum is indeed capped further in future, it may be that later life lending is utilised alongside the lump sum in order to deliver the level of funds required by the client.
Even outside of lump sum considerations, homeowners will need to consider how they can best tap into both their pension funds and their property’s value, making it all the more important for advisers to work closely with lifetime mortgage lenders.
Ultimately, it’s about ensuring clients benefit from a broad range of potentially complementary options, rather than being siloed in one specific direction.
UNLOCKING LARGER SUMS
One area that Standard Life Home Finance has specialised in has been supporting advisers with clients who are looking for larger than average lifetime mortgages.
This may be because the client has a more valuable home, perhaps £1m or more. Even if, in percentage terms they only want to release a relatively small portion of the equity, this can equate to a large cash figure.
In other cases, it’s down to more affluent clients who hope to release a larger sum in order to support their lifestyle, particularly if they do not want to touch their pension assets yet. These larger loans can work as either an alternative or as a complement to the pension lump sum.
For advisers working with this client group, it’s really important to identify later life lenders who have experience and are comfortable with larger loan sizes, since this will not be available from all.
EMBRACING INNOVATION
A key factor in the growth of larger lifetime mortgages, in my view, has been the level of product innovation we have seen in this market.
This is exemplified by the range of products that make it easier for customers to make payments towards the mortgage, reducing the eventual liability. At Standard Life Home Finance, we have taken this a step further with our Horizon Interest Reward lifetime mortgage, which rewards customers with a discounted interest rate for the duration of the lifetime mortgage when they commit to making monthly interest payments for a specific payment term.
It’s just one example of how providers in the later life market are being creative in designing products that actively deliver for borrowers, particularly those who are in a position to make payments towards their loan on a regular basis. By doing so, they can reduce the compound interest, and therefore the total cost of borrowing, on their lifetime mortgage.
THE ROLE OF ADVICE
What’s also undoubtedly true is that property needs to play a far greater role in the advice process for financial advisers with older clients. It’s not going to be enough to focus solely on their pension provisions or investment portfolios when constructing a financial plan for their later years; the properties they hold and the equity available to them will also need to be a central consideration, as for many it’s arguably a customer’s largest asset    .
Consumer Duty is a pressing concern for all advisers, with the need to demonstrate not only that the client reaches a positive outcome but all options were given due consideration.
That’s why it’s vital for advisers to include later life lending within their process. There will be situations where the client is better off by focusing on unlocking the equity in their home, rather than turning to their pension pot, but that is only possible if advisers work closely with innovative providers who understand their client base and have tailored products to best suit their needs.
