Q. I am approaching 65, my wife is 63, and we have a shortfall on the savings plan to repay our mortgage, which stands at £40,000 when it is due in a few months time. The value of our home is £300,000. We could move to a smaller property, but we are very settled in our home and would prefer not to. We have looked at extending the mortgage beyond retirement, but we would prefer not to have to struggle to fund the repayments which are necessary once my income goes down on retirement. Can you suggest anything?
A. One of the side effects of the pressure on lenders to be more responsible is that it is increasingly difficult to find mortgage lenders willing to accept mortgages beyond retirement. There is an alternative, which is not for everyone, but might help you achieve the objectives you have set out. A Lifetime Mortgage enables you to borrow against the value of your property in a similar manner to a conventional mortgage, but there are no monthly repayments of interest or capital. Instead, the interest rolls up each year and is added to the value of the outstanding loan, which only becomes repayable when you both die, or if you both go into long term care. There is an organization called the Equity Release Council, and lenders who are members offer certain guarantees, such as that the outstanding loan will never grow larger than the value of the property. This means that the amount you can borrow is less than most mortgages (the proportion increases the older you are), and the interest rate tends to be a bit higher. There are a number of conditions which need to be met, but it is possible that you could use a lifetime mortgage to repay your existing loan, enabling you to stay in your home, but use your retirement income to maintain your standard of living. For full details speak to a Chartered Financial Planner who is also a Lifetime Mortgage Specialist, who can go through all the advantages and disadvantages of these plans.
Q. I am a 25 year old graduate and I am about to join my employers Group Personal Pension Plan. Part of the documentation I have to complete is asking me to select my preferred retirement date, but I don’t know what this should be. It seems that the government is constantly increasing the retirement age. Can you offer any advice?
A. The important thing to remember is that there is a distinction between the State Retirement Age (which is set by the government) and your preferred retirement date. An individual receives their State Pension from their State Retirement Age. For many years the state pension age for men was 65 and the state pension age for women was 60. But, from 2020, both men and women’s state pension ages will be 66, increasing to 67 between 2026 and 2028 and then linked to life expectancy after that. Given your relatively young age the State Retirement Age may well increase further still before you receive a Basic State Pension.
However, you are free to retire and draw benefits from occupational or private pension arrangements earlier than State Retirement Age. Currently you are able to take benefits at any age over 55, which rises to 57 by 2028 and is intended to remain 10 years prior to the prevailing State Retirement Age.
If you would prefer to retire at sometime closer to 57 than 67, the important thing is to plan for your retirement and make sufficient pension savings now and in the future. By selecting a preferred retirement date, this will enable you and your adviser to plan how you are going to fund your retirement with appropriate levels of pension contributions.
If you have a question you would like Trevor to answer, please email it to: yourmoney@rwpfg.co.uk or post it to Your Money, Rutherford Wilkinson Ltd, Northumbria House, 21-23 Brenkley Way, Blezard Business Park, Newcastle upon Tyne, NE13 6DS.
