Clients may want to repay on schemes

You are probably aware by now of the recent product launches from Just Retirement and Prudential. But it is wise not to let the headlines distract us from considering the overall structures of the products.

It would be easy, in particular, to become distracted by the low rate offering from Just Retirement. Currently the saving on a 50,000 loan over 20 years between this lowest rate and the highest available is over 40,000.

While this is great news when it comes to potential long-term savings, clients could be resting their laurels in thinking that these latest offerings will always be the lowest cost and most flexible options available to them in their remaining years.

That may well be the case but in the past few months alone we have seen so much innovation and so many rate cuts that it has all the hallmarks of a trend as lenders and reversion providers jostle for a share of the market.

But running in parallel with this, as I have mentioned over previous weeks, has been a steady increase in the period over which early repayment charges can be applied, and also more complex (for the client and adviser) formulae for calculating these charges.

You can be pretty sure that any scheme which steals the rate limelight will come with this catch.

The two most flexible products, from Just Retirement and Prudential, also potentially have two of the most expensive ERCs. With Just a 50,000 loan could attract as high an ERC as 10,000 and the same loan with Prudential an ERC of up to 12,500.

While it can viably be argued that depending on gilt yield or base rate these ERCs may not apply or indeed my be considerably lower than stated, it can also be argued that it is unlikely any client will repay early one of these schemes. Or can it?

A clear requirement to repay a scheme from a client where funds will be available to facilitate this is a straightforward requirement which should lead to a different provider.

The equity release client who never anticipates early repayment may well be happy with any option that meets their needs.

Now though, given product innovation and persistent movements in base rates, should we not also be asking whether clients want the flexibility to repay, for example by remortgaging? Dean Mirfin is business director at Key Retirement Solutions