Many households are facing financial struggles and are looking at ways to generate capital and/or income. Two options that may be available for the over 55’s are to either release equity from their property of take capital or income from their pension pots. Both options can have a long-term impact on finances, so need to be carefully considered and we recommend that independent financial advice is sought before making your decision, however, here is some information to start with.

Pension drawdown – Is this the right option for you?

Pension drawdown is available to the over 55’s and allows you to access your pension pot within a ‘money purchase pension pot’ but not defined benefit/final salary schemes. You will need to make use of the Flexible Access Drawdown option either within your own pension or by moving it to a scheme that can accommodate this (there may be fees to move it). Usually, 25% of the fund can be taken as a tax-free cash lump sum and after this the remaining pot is treated as taxable income. Any funds you don’t withdraw remain invested, but any withdraws can affect the potential for growth as well as increasing the risk of running out of money later on. The long-term impact pension drawdown can have on finances means that those considering this option should weigh up all options before making a final decision

The over 50’s are entitled to free guidance from ‘Pension Wise’, so you can contact them at www.pensionwise.gov.uk for an appointment but most Independent Financial Advisers will offer a free consultation.

Equity Release – is this the right option?

Equity release allows the over 55’s, to borrow some of the equity in their own home via an equity release loan. This is secured against the property’s value but does not have to be repaid during the borrower’s lifetime, unless they sell or move into a permanent care. You can use Equity release to purchase a property as well as release money trapped in your property. The downside is that interest is added to the loan, which can result in the loan and interest significantly impacting the inheritance the borrower leaves behind.

There are many equity release deals available on the market, many of which are at highly competitive rates which reduces the risk of the option. There is greater flexibility to repay interest and/or capital as you go along which has made these loans more attractive to those wanting to release cash from their property.

Again, borrowers should still be aware that taking equity release will likely have a long-term impact on their finances and, as such, it is a requirement before taking out equity release to speak to an independent financial adviser first.

If you need help or advice with releasing capital please contact me, Claire Blake on M: 07767 308783 or E: claire@bdfinancial.co.uk.