Europes homeowners could increase their retirement income by as much as 20bn a year if they tapped into the value of their property using equity release, Towers Watson claimed today.
Equity release products are generally offered by banks and insurers, and allow a homeowner to either borrow against the value of their property or to sell it at a discount and then continue to live in it until they die.
According to the consultancy's Equity release – accessing housing wealth in retirement report, these products could help to close the growing gap between the income people expect in retirement and the amount they actually receive from their workplace and state pensions. This problem is expected to be exacerbated as Europe's ageing population puts increasing pressure on public finances.
Naren Persad, a director at Towers Watson, said: 'Most people are not saving enough, either in private pensions or other products, to make up for future reductions or delays in state pensions. Individuals will need to think more widely to be able to provide themselves with the lifestyle they expect in retirement.
'With around two-thirds of older Europeans owning their own homes, we believe the market for equity release products will grow significantly and play a substantive role in closing the pensions gap.'
The report noted that equity release products are currently most common in the UK and Ireland, but said there was likely to be significant potential demand for them across Europe in the future, with Germany and France identified as particular growth markets.
It warned, however, that the leading rule insurers could potentially plan in the equity release market was at risk of being stymied by the way products are treated under the new rules being introduced to govern Europe's insurance industry, Solvency II.
This is because the ability of equity release assets to match long-term insurance liabilities is not currently recognised under the proposed regulatory requirements. Persad said: 'It is not too late for policymakers to act in order to support the development of a transparent and competitive market for equity release products, whilst maintaining the prudential objectives of Solvency II.'
According to Towers Watson, equity release providers have been lobbying parliamentarians and other stakeholders in both Brussels and London to increase knowledge of how their products work, and the damage the rules as they stand could do.
Steve Kyle, secretary general of the European Pensions and Property Asset Release Group, added: 'Traditional pension mechanisms are unable to cope with the combined impact of the challenges which we are now experiencing in Europe, namely a rapidly ageing population, growing youth unemployment and sluggish economies, and equity release can be an innovative and timely solution.
'However the equity release schemes may be stifled as an unintended consequence of the Solvency II regulations. We are engaging with stakeholders across Europe to resolve this and thus far the dialogue has been constructive.'