Old lang syne

Most Scots reaching retirement in the 21st century will face a much brighter future than their predecessors last century. A longer and more active life is the prospect for most - the human dividend of decades of medical advances. Increased property wealth is also enjoyed by most retired people. This is brought about partly by the increase in homeownership in Scotland, particularly since council house purchase became possible from 1979. These higher numbers of homeowners have seen significant rises in house values since the 1970s. Many more people are now moving into retirement with assets which were simply not held by the majority of the Scottish population in the 50s, 60s and 70s.

So everything in the garden is rosy? Well, not everything, perhaps. Increased longevity is great news, but the 'inflation proof' pension is becoming a thing of the past for most pensioners, and consequently these extra years may have to be lived on fixed or declining real incomes. Similarly, while medical advances mean more active years for many, for others they bring more years of life while partially or even totally incapacitated, with no provision for care. The sad fact is that the majority of the 14,226 British people who turn 50 each week, according to the Office of National Statistics (ONS) figures, just do not address these issues, nor think of how they could affect them and their family in later years.

Also, a report Understanding the health of Scotland's population in an international context, commissioned by the Public Health Institute of Scotland, makes for sober reading. If the countries of the United Kingdom were regarded as separate, then life expectancy in Scotland would, for women, be the lowest in the European Union, and for men, the second lowest after Portugal. In 1995, Scottish men could expect to live 4.2 years less than men in the leader, Sweden. Scottish women could expect to live 5.2 years less than women in France. Scotland is only now achieving levels of life expectancy seen in the best performing European countries in the 1970s.

Grim reading

The ONS Government Actuary Department estimates that by 2021, 48% of the adult population will be over 50. By 2041, this will have escalated to 50%. Many of these adults will follow in the footsteps of their ancestors in failing to make adequate financial provision for their later years, while others may make provision but find the performance of their savings is disappointing.

This lack of forward planning or deficient return on investments did not used to be such a problem, as the answer lay in the State Pension, topped up by private pension contributions. The current generation of 50-plus adults will be on target for a pension worth 66% of their final salary, on top of the basic state pension of £84 a week.

It is unlikely that future generations will be able to enjoy a pension based on their final salaries. They are more likely to pay similar amounts as their parents into a Personal Account, the new national pension savings scheme to be introduced by the Government. However, this is likely to only provide 20% of their final salary, unless they make much higher contributions than their parents ever did. They will have to work longer and will end up with a significantly smaller pension than their parents, unless they invest heavily in their retirement which, as our experience shows, many have neither the funds or the inclination to do.

It is not only the current and future incomes of senior citizens that are at stake. In March 2006, Panorama revealed how increasing numbers of sick and elderly people, who have made no financial provision or alternative arrangements, may have to sell their homes to pay for their NHS care. The disturbing footage was a shock for many senior citizens, who had been looking forward to enjoying a peaceful, happy retirement in the homes they had worked so hard to buy, but had not necessarily made arrangements for their long-term care.

This lack of personal forward planning and future state pension provision, coupled with ever-increasing life-expectancy rates and the fact that they will not be able to collect their pension until they are 68, means that Britain's youth could be facing a bleak future as poverty stricken pensioners.

Finding a way

One potential answer for some people lies within their own bricks and mortar. Equity release arrangements, which include home reversion schemes and lifetime mortgages, are designed to release money to people whose wealth is tied up in their home, but who wish to maintain control over their assets and do not wish to sell their property nor to make monthly repayments. They are fast becoming the choice for many elderly people who wish to improve their finances in later life, and most providers accept applicants from the age of 60, with some taking applicants from the age of 55. The owner is granted the right to occupy the house till they die or go into care, at which time the money is paid back from the sale of the house.

Both schemes allow senior citizens to release money from their property which could then be used for a variety of needs, such as to pay for care in their own home, instead of perhaps being forced to sell it to pay for long-term NHS care. Alternatively, the money could be used to pay for the holiday of a lifetime, home improvements, a trust fund for the grandchildren, or even basic living expenses, to ensure that their or the borrower family benefit from the money they have invested in their property.

With house prices continuing to rise, fueled by a shortage of properties and increasing demand, equity release schemes could well be one of the answers to the UK's impending pension crisis. According to the Halifax, house prices have risen by an average of 187% across the UK since 1996, with the average UK house price rising from £62,453 in the first quarter of 1996 to £179,425 in the third quarter of 2006 -- an average increase of 10.6% a year, far ahead of income growth. Equity release will allow senior citizens to benefit from these rises, accessing and enjoying this pool of money they have accumulated, without having to sell their home. This extra income will become increasingly important in recent years, with future generations of senior citizens looking to boost their state pension and maintain their standards of living with a substantial financial top-up.

Funding retirement

It is only a matter of years before property takes a central role in funding retirement - when the next generation of workers retires, the pensions crisis will be a stark reality.

Sourcing information on equity release can be a challenge, as there are currently no dedicated online financial advice or welfare information resources available for senior citizens in Scotland. However, a new website which is designed for the over 55s, or those advising them - www.seniorissues.co.uk - has recently been launched by Caesar and Howie, The Central Scotland Law Group, which contains information on financial, legal, welfare, health and lifestyle matters.

Mortgage intermediaries may find it useful to look at a case study. Jean Malcolm, a 62-year-old widow from Edinburgh, had not worked for many years due to ill health, and decided to take out an equity release plan in 2006 to ease the financial pressure of her monthly outgoings. Jean is now able to stay in her own house for the foreseeable future, and her particular plan allows her to move house, if she so chooses.

Of course, there are some warnings. It is recommended that members of the client's family are aware of the intention to enter into an equity release contract before going on to the next stage, as it is liable to leave a hole in their inheritance. It is also very important to take advice from someone who is suitably qualified, such as an IFA, as they will be able to advise on the best scheme for the client's own particular circum­stances. They are also able to arrange the plan on the client's behalf, so clients do not have to worry about chasing people, and the adviser should keep the client informed at every step throughout the process.

There are many financial options and schemes available, and it is important to note that this website is intended to provide guidance only. Independent advice is of vital importance when making any financial decision. Therefore, it is essential to seek an experienced independent financial adviser who will only recommend providers who guarantee no negative equity.key points Scotland is only now achieving life expect­ancy levels seen in the European countries at 1970s levels.

By 2048, 50% of the adult population will be over 50, of which only a few can rely on a salary-based pension.

Clients considering equity release should be aware of its impact on an estate and inheritance rates.