Moving Pension Pots & Equity Release Horror Stories Debunked

Pensions and equity can both be topics of stress for us all. Wanting to know exactly what we should be doing, and knowing the advice we’re being given is sound, is very important to all of us. With that in mind we aim to provide some clarity on both your options & the consequences of accessing or moving your pension pot, and shed some light on the truth behind equity release horror stories.

Pension Pot Options

When the rules were relaxed on pension holders having access to their pension pots, an event such as the COVID pandemic and its consequences were not considered. In 2020 figures from the ABI (Association of British Insurers) showed that the number of people accessing their pension as a form of flexible income grew by 56% between April and September of that year.

This example, though caused by an extreme event, illustrates two things. Firstly, how useful it is to be able to access funds when needed, something which would not have been possible before the rule changes, but secondly, that the ease with which the pension pot can be accessed for immediate use or to move to another savings provider is a cause for concern if pension holders are unaware of all the pros and cons.

The government is therefore rightly concerned that whilst accessing pension pots should be simple and easy to do, it wants pension holders to be more aware of their options so that they are fully informed before moving or accessing their money.

Currently, pension providers are only obliged to tell their customers that free and impartial advice is available from Pension Wise, the service promoted by the government to help individuals aged 50 and over with a defined contribution pension, understand the options available to them.

In new rules which have just been set out, the Department for Work & Pensions (DWP) is proposing that pension scheme managers and trustees make sure the individual has either received or opted out of receiving Pension Wise guidance, before allowing their application to proceed.

Pension schemes would also be required to offer to book a Pension Wise appointment on the individual’s behalf. If the appointment is declined, the DWP is proposing that pension holders will have to formally opt out, before they can proceed to the next step.

The DWP is right to make individuals pause and give them the option to be better informed before taking the plunge. However, when the consultation is complete, it is to be hoped that the final rules will not be too draconian in respect of Pension Wise appointments and end up increasing extra administration costs for pension providers and inhibiting access to funds for transfer or for immediate use.

An alternative way to access funds without accessing your pension is Later Life Lending, otherwise known as Equity release.

Equity release horror stories debunked

Equity release horror stories are easily found online. It is an emotive topic in the UK. On top of this there are even customers who have gone through a seamless, transparent & successful equity release process who are uncomfortable talking about it. It seems to be an odd point of shame for some of us.

At Central Financial Services we’re only interested in helping our clients. If later life lending wasn’t a feasible, safe option we wouldn’t provide it. 

There are many myths perpetuated around equity release – the top three most egregious are;

Myth 1: You will lose ownership and control of your property.

With a lifetime mortgage you will be the owner of your home for as long as you want to live in it. This is in the same way as you would for a regular mortgage and as with any mortgage providing you meet the condition of the lifetime mortgage.

Myth 2: You will owe more than the value of your home. 

As part of the Equity Release Council statement of principles, all lenders must now feature a “No Negative Equity Guarantee”. This means you will never owe more than what your home is worth once sold, even if it is sold for less than the amount owed.

Myth 3: It’s not possible to reduce the outstanding debt

There are products that offer you the option to make partial repayments with no early repayment charges. There are also products that allow you the option to pay monthly interest so the debt will not increase as much as it would if you let the interest roll up.

With this in mind, your equity release options are;

  • Lifetime mortgage: you take out a mortgage secured on your property provided it is your main residence, while retaining ownership. You can choose to ring-fence some of the value of your property as an inheritance for your family. You can choose to make repayments or let the interest roll-up. The loan amount and any accrued interest is paid back when you die or when you move into long-term care.
  • Home reversion: you sell part or all of your home to a home reversion provider in return for a lump sum or regular payments. You have the right to continue living in the property until you die, rent free, but you have to agree to maintain and insure it. You can ring-fence a percentage of your property for later use, possibly for inheritance. The percentage you retain will always remain the same regardless of the change in property values, unless you decide to take further cash releases. At the end of the plan your property is sold and the sale proceeds are shared according to the remaining proportions of ownership.

We’d love to hear from you if you have any questions at all about later life lending / equity release. Contact us here.

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Really easy to deal with. Straight forward, very efficient and everything explained. Made a somewhat stressful time much easier for me.
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Central Financial Services is a trading style of Central Financial Services (UK) Ltd which is an appointed representative of HL Partnership Ltd which is authorised and regulated by the Financial Conduct Authority. There may be a fee for mortgage advice. The precise amount will depend on your circumstances but we estimate it will be £250. Your home(property) may be repossessed if you do not keep up repayments on your mortgage. Please note Buy to Let mortgages are not regulated by the FCA. Registered in England and Wales Reg. 8807671 Registered Address: 170 Halton Road, Sutton Coldfield, B73 6NZ.