Equity release schemes are likely to be the subject of a major education drive after a Financial Ser...
Equity release schemes are likely to be the subject of a major education drive after a Financial Services Authority (FSA) report revealed many pensioners do not understand how these products work.
In its ageing population report, Financing the Future, the FSA said consumers in their 50s, 60s and 70s had insufficient understanding of these retirement products to know if they were getting the best deal.
Although equity release schemes will not fall under mortgage regulation rules until 2004 when the FSA takes over regulation of the sector, it is so concerned people do not know what they are buying it will try to arm consumers with key questions to ask about equity release before they go to purchase products, said an FSA spokeswoman.
'Our concern is that consumers might not fully understand some of the complexities and risks with these products (including lifetime mortgages and home reversions),' says the FSA in its report.
'While the market is still small compared to other decumulation products, such as annuities, equity release products could develop into a significant market given the growth in housing equity and the increasing burden of self-provision in retirement.'
The FSA is to produce specialist literature encouraging consumers to ask if there is another way of accessing funds or increasing retirement income, or whether trading down might be better than taking out a full home reversion. Literature will also equip clients with enough knowledge to ask about the pros and cons of equity release, and encourage buyers to shop around.
Annuities and income drawdown products will be included in the education process, as consumers have a similar lack of understanding about how these products work, where money is invested and the implications using such products can have on an individual's income and tax position.
