Media Release | 26th July 2021Financial advisers shun home equity release strategies for retirees

Fourth Line, a leading RegTech risk management and compliance system for financial advice, was recently commissioned by Pension Boost, the leading independent specialist in the government’s Pension Loans Scheme (PLS), to analyse Statements of Advice (SOA) reviewed by Fourth Line post the introduction of the PLS reforms in July 2019.

The Retirement Incomes Review (RIR) headed up by Mike Callaghan, the report from which was released by the government in November 2020, highlighted the clear linkage between 'home ownership as an important influencer in retirement outcomes and how people feel about retirement'. Importantly, the Review’s terms of reference were to consider the Australian retirement income system as being based on three pillars:

  1. a means tested Age Pension;
  2. compulsory superannuation; and
  3. voluntary savings, including home ownership.

The Fourth Line research, which included coverage of 15 advice licencees and 1,980 authorised representatives (advisers) across the nation sought to determine the extent to which financial advisers were considering private savings, including equity release from home ownership when advising their pre/post retiree clients and the findings were illuminating.

Key highlights from the analysis of approximately 5,000 SOAs written from 1 July 2019 to 15 May 2021 included:

  • Approximately 50% of the SOAs were for people agreed 55 or older, and of these, the average net wealth was $1.53 million allocated across:
    • superannuation of $668,000
    • private savings of $332,000
    • property of $677,000 (net of secured loans)
  • Unsurprisingly, for those aged 45+, 73% of all SOAs reviewed contained advice on super and pensions
  • For those over 55, 14% of SOAs contained advice on private savings
  • For those over 65, only 18% of SOAs included advice on Centrelink Age Pensions (juxtaposed to RIR’s finding that 71% of seniors are receiving the Age Pension); and
  • Surprisingly, for those over 65 who have similar levels of assets in property as in super, not one SOA mentioned home equity release or reverse mortgage strategies for consideration by clients.

When reviewing this information, Fourth Line cautioned that the average/median balances tended to represent households rather than individuals, particularly when it comes to super and pensions.

ASFA currently advises that the amount of super a couple requires for a 'comfortable lifestyle' in retirement is $640,000, whereas the analysis conducting by Fourth Line would indicate that the clients of financial advisers are well ahead of this level and appear to be targeting a more aspirational retirement lifestyle than ASFA’s comfortable standard of $62,800 pa would provide for.

Notwithstanding this seemingly positive outcome in super, given the relative wealth tied up in property, this research raises the question of why advisers are not considering equity release strategies including a review of the government and private sector product options as part of a comprehensive retirement plan.

It potentially also draws into question whether the lack of advice on home equity drawdown strategies is in keeping with the client best interests’ obligation.

David Travers, CEO of Fourth Line said: “Fourth Line’s unique and deep data sets enable us to interrogate not only the level of compliance of the advice provided and identify opportunities for improvement, but it also enables us to review the types of products being recommended. This research is an example of the data being harnessed to shed light on the financial advice being provided.”