As the equity release industry continues to face challenges to shed the negative perception it has been given by people over several decades, The Lang Cat has set out new measures to collaboratively normalise the planned drawdown of housing wealth in later life.

A report, which was produced by The Lang Cat alongside Royal London and Responsible Life, calls on the whole industry including the government, the Financial Conduct Authority (FCA) and the advice community to play a role in further improving standards and help deliver a solution.

The report states that currently, the median pensioner incomes don’t even reach the ‘Moderate’ standard of living defined by the Pensions and Lifetime Savings Association (PLSA). 

Using this benchmark, the report highlights that pensioners already suffer a retirement income deficit of over £48bn a year. 

In order to normalise the use of equity release, The Lang Cat has recommended that the relevant government departments should meet with industry regulatory and consumer representatives to collectively agree on a blueprint for what the well-functioning use of housing wealth in later life might look like.

It also asked for housing wealth to be incorporated into the Pension Wise guidance process and suggested that the Money and Pensions Service should encourage holistic wealth planning from mid-life onwards, including the option to consume housing wealth, when appropriate.

Other recommendations were to consider scrapping the £175,000 home allowance element of the inheritance tax (IHT) exemption and encourage the FCA to actively regulate to deliver positive outcomes and not simply to prevent negative ones.

For the FCA, it suggested the regulation of equity release be treated as more than simply a subset of mortgage regulation; it should also be regulated as an integral component of investment and income planning in later life.

It also asked the FCA to make it a requirement for advisers to complete equity release continual professional development (CPD) training on an ongoing basis, where relevant to their advisory activities, to make sure they’re better able to identify and act on situations where it is likely to be suitable, alongside other recommendations. 

The report also recommended that the advice community ensures back-office systems can 

accommodate housing wealth as an asset when advising clients while also building housing wealth decumulation into cashflow recommendations where appropriate when advising clients about retirement income.

Other suggestions for the advice community include undertaking CPD activity to ensure familiarity with equity release products and their uses and for advisory trade bodies to take a lead in actively encouraging advisers to incorporate housing wealth and equity release into advice processes.

Finally, it has called on the equity release sector to address remaining product shortcomings; be honest about the risks they could pose for customers and to develop regular income products to meet the needs of customers looking to use equity release to supplement their retirement income.

The Lang Cat also suggested that the sector work with the FCA, the Treasury and other government departments to develop and articulate a coherent strategy for the consumption of housing wealth in later life.

In addition, the report suggested producing guidance for advisers on equity release suitability across all relevant customer scenarios, as well as developing a collective communications campaign, and committing resources to address consumers’ concerns and misunderstandings about equity release.

In the report, The Lang Cat says: “We’ve set out some measures we think will help. These are individual and directed at the various players we’ve addressed throughout this paper but, to be clear, this isn’t an issue that can be successfully tackled on an individual basis.”

“We think it’s imperative to get all relevant parties together to agree and develop a new strategy. That will be the first step in evolving housing wealth from the asset of last resort to a normal facet of mainstream financial planning.”

Key Later Life Finance chief executive officer Will Hale says the report “not only clearly highlights the challenges facing consumers, policymakers, the regulator and industry participants when it comes to integrating housing wealth into retirement planning but also looks at potential solutions”.  

With the later life lending market currently worth approximately £153bn, Hale says there is “no doubt that it can play a significant role now and, in the future, when it comes to meeting the pensions shortfall”.

However, he suggested that “this potential can only be achieved if we focus on working together in overcoming barriers such as advice silos and lack of customer awareness around the benefits of incorporating housing wealth within their financial planning. Good customer outcomes and ensuring that people can use all their assets to enjoy the standard of living in retirement they aspire to should be our focus”.

Canada Life head of marketing (insurance) Alice Watson adds: “Retirement readiness is becoming a problem for modern retirement journeys as fewer people are able to rely on generous defined benefit incomes. Twinned with this, as the report mentions, is the struggle faced by younger generations trying to get on to the property ladder. The result is a squeeze on what becomes an increasingly limited pool of resources.”

“In these cases, tapping into housing wealth could be an answer, whether it’s to ensure care needs can be met, helping a first-time buyer to get a deposit or simply topping up your day-to-day income. An experienced financial adviser will be able to help discuss all the available options and to understand whether equity release is appropriate.”