Equity release products as a form of pension security
Equity release products as a form of pension security

Summary/Abstract: The number of pensioners regularly increases in Poland. In 2010 there were 6.4 million of pensioners (which constituted approximately 17% of populations) but in 2060 there will be 11.4 million of pensioners (it will be approximately 37% of population). Pensioners will look for additional forms of financing because their state pensions will not be high (replacement ratio will not be high). Equity release products are one of solutions of that problem. Reverse mortgage is a financial product which enables conversion of capital allocated in real estate into liquid financial resources. The aim of the article is the analysis and assessment of the use of reverse mortgage as an additional pension security. Values of the supplementary life annuities under reverse mortgage agreements were calculated for each province capital in Poland. Life annuity calculations and the methodology developed by the Social Insurance Fund were used in the study. In addition values of pension gaps for each city were calculated. The study results indicate that a reverse mortgage can be a good additional pension security, provided that lenders use life annuity calculations. Supplementary annuities under a reverse mortgage can compensate for the missing financial resources, which are the consequence of retiring due to the low gross replacement rate.

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