Those in defined contribution pension schemes, whether an occupational or personal pension plan, are concerned about the growth rate of their pension fund during its life, and the purchasing power of the lump sum available when pension age is reached.

Anybody now close to pension age will be particularly concerned with recent developments that could impact on their pensions. But many people in this category now find themselves sitting on, or more precisely, sitting in, a very valuable asset - their home!

An option for retired people who own their own home is to look at an equity release scheme. This is where you can gain an income from the wealth tied up in the value of your home - provided that you own your own home, and that the mortgage has been cleared of course!

A number of organisations offer Lifetime Mortgages and Home Reversion Plans in Ireland. Lifetime Mortgages are lifetime loans, and you can choose to have no monthly repayments. The loans are repaid on the death of the mortgage holder, and come from the proceeds of the sale of the house. A Home Reversion Plan is where you can sell part of your property to a lender for cash, and continue to live in your home. The loan is paid off from the proceeds of the sale of the house after death.

According to a study by Seniors Money, the leading provider of Lifetime Mortgages in Ireland, which looked at the relationship between property values and the State pension, Mayo residents have never been better placed to look to their own homes and utilise a small element of their equity to boost retirement income.

Figures reveal that average property values in Mayo are now running at a staggering 22 times yearly State pension incomes.

Contrast this with ten years ago, when property values here only ran at 14 times the State pension of the time. Pensioners can now take some comfort in the knowledge that their retirement need not have to be the cause of financial worry.

Danny Jones, Seniors Money Consultant in Mayo, said: “Although there has been much commentary of late on the recent cooling in the Irish property market, this does not negate the huge increases Irish property values have experienced over the last decade.

“And while lobbyists have urged the government to increase pension provision, it is unlikely that we will see radical reforms of State pension in the near future.

“Ireland’s ageing population should be made aware of any possible solutions to this equation - while basic state pension will remain the same, many are in the position to boost this income by availing of the consequences of the Irish property boom, and results from Seniors Money latest Index would signal that more and more people in Mayo are doing just that.

“A lack of adequate pension provision and a high rate of home ownership underpin the demand for lifetime mortgages which is expected to grow strongly over the medium-long term.”

Twelve months on from the last Index released by the market leader, figures from the Seniors Money 2007 H1 Index, have highlighted significant increases across the board when it comes to this post retirement financial option.

The Index tracks consumer activity within the post retirement finance market and as Seniors Money is the leading specialist in this sector, its experiences tend to mirror general market activity.

According to Danny: “It has been a tumultuous year for the Lifetime Mortgage market, which has received much press coverage over the last twelve months; however demand for this post retirement financial solution has gone from strength to strength as consumers become more aware of the benefits and of the relatively small amounts that can be drawn-down.”

Big increases evidenced by the Index results included:

- Loan approval amount has increased by over 50% since the first half of 2006

- Interestingly, although the average loan amount rose significantly, up 21%, it did not reflect the steep rise in the average approval amount.

- In 2007 those who took a Lifetime Mortgage only drew down an average of 11% of the value of their home

“What can be surmised from the results of the Index is that our clients in Mayo are using the Lifetime Mortgage for the exact purpose it was intended for - as a financial tool with which to supplement their current income to allow them to maintain a reasonable standard of living.

“We believe the findings are extremely positive as they reinforce the fact that those over 60 approach this financial decision in the prudent manner that we advise.

“They are not drawing down the maximum possible; instead they only take what they need - therefore cutting down on the amount of interest accrued and leaving plenty of equity in their property for the future,” said Danny.

What is more, not only are people using their equity as a financial tool, it seems that they are also learning the benefits of reinvesting this equity back into the home - thus increasing the value even more.

Home improvements have topped the poll with 58% of customers choosing to reinvest their money in their home.

By taking advantage of the increases in the value of their property, many are choosing to simply reinvest the money into their home so they can maintain the comfortable surroundings of their own home, while simultaneously boosting the value of the property.

Danny said: “There are over 10,000 seniors in Mayo and for some of these pensioners the lack of a substantive regular income has resulted in many homes remaining relatively untouched for a number of years, with some properties falling into a state of disrepair.

House price increases over the past number of years are enabling a growing number of seniors to upgrade or even to just maintain their property.

Taking out a Lifetime Loan on your property and spending the money on home improvements naturally increases the value of the property: so the parent’s lives are improved while the children’s inheritance remains intact".

Other findings from the Index included:

• Debt consolidation remained a distant second on the list of possible uses for the money released from a Lifetime Mortgage- with only a quarter of borrowers citing this as a potential use.

• Extra income was the third most popular choice amongst those who took out a Lifetime Mortgage. Over a fifth of applicants (22%) said the facility of supplementing their income was one of the primary reasons for choosing to use their home as a financial tool.

Commentators suggest that the number of people aged over 65 is set to treble to 1.5 million over the next 20 years as the younger population remains static.

Therefore, it is easy to see how financial planning in retirement is increasingly moving up in position on the public agenda.

Of course, you should always be aware of any pitfalls when purchasing such a mortgage.

The Citizens Information Service offers the following advice:

• You must insure your home, noting the mortgage lender's or home reversion company’s interest in the policy. (See section on ‘Home reversion schemes’ below)

• You are obliged to keep your home in a good state of repair

• If you fail to maintain your home, you may be forced to sell it. The mortgage lender/reversion company may carry out the repairs instead and add these costs to the amount you owe (with interest)

• If you move out of your home permanently (in some cases for more than a specified number of months) you can be forced to sell your home

• Some schemes forbid you from making certain renovations, such as putting up a safety ramp or railing, as it may reduce the market value of your home

• You may have to pay valuation fees, fees for independent legal advice and fees for financial advice you obtain.

As with purchasing any financial product, make sure that you get sound, independent advice before making a decision.

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