Young adults are reconsidering their retirement finances and with its their plans as a combination of high inflation and interest rates impact their long term outlook.

Research by Standard Life found current economic conditions have prompted more individuals, especially younger adults, to consider their retirement finances. The study revealed that 16% of people were more interested in planning for retirement due to inflation, while 11% cited increasing interest rates as a motivating factor. Among younger generations, these figures rose to 21% and 15%, respectively.

Early financial planning can have a significant impact on the amount saved by young people, with analysis showing that individuals starting to contribute to a pension at age 22 with a £25,000 annual salary could accumulate a retirement fund of £434,000 by age 66 (not adjusted for inflation). However, delaying contributions until age 27 could result in a fund of £320,000 by age 66, £141,000 less than those who started contributing at age 22.

With the acknowledgement that the challenges faced by younger adults in the current economic climate are extremely difficult, a  report from later life lending specialist, Senior Capital identified what happens when the UK’s younger population do not successfully save for their retirement. Senior Capital finds that almost one in five pensioners (18%) across the UK will find themselves on the poverty line due to not having enough money in their pension funds.

Highlighting the sheer number of people that are affected by this crisis, the study found there are nearly 16 million people over the age of 60 across the UK, making up a fifth of the population, of which over-85s are set to double to 2.6 million in the next 20 years alone, according to The Health Foundation. In light of these findings, Rudy Khaitan, managing partner of Senior Capital, explained equity release loans allow pensioners to remain in their homes whilst also accessing their capital value to help fund their retirement and reduce pensioners’ mental health strain.

He added due to the increase in house prices over the last 50 years, thousands of pensioners now find themselves in a situation of having a significant amount of capital wealth, however, are unable to access this in order to fund their retirement in the present. In the early 70s, the average house price stood at £4,975, but according to the latest figures released by the Office for National Statistics (ONS) in July, the average house price has increased to £290,000. By engaging in equity release, those who are currently struggling have the opportunity to tap into the significant value tied up in their homes, whilst also remaining in them and accessing much-needed funds to alleviate their financial strains amidst the ongoing cost of living challenges Khaitan continued.

Reporting on the dire need for methods of accessing capital such as this, further findings from the report have revealed that one in seven pensioners now say that their biggest mental health strain is worrying about funding their retirement. Subsequent research highlights that many of Britain’s retirees are concerned amidst the cost-of-living crisis, with 22% already reducing or stopping spending on medications and 15%, skipping meals due to their financial situation. Senior Capital’s further data shows that 21% of respondents said that despite paying off their mortgage in full, they were still unable to live fulfilling lives due to not having enough money in their retirement funds.

Khaitan added: “There is a growing need for new products that offer greater flexibility and choice, particularly in the relatively underserved later-life lending market. For pensioners or anyone planning for their retirement, LTV is a critical component when assessing your quality of life during your later years, so it’s vital to investigate a multitude of options that can help ease your financial obligations, as remortgaging may not always be the right option.

“The right equity release mortgage product, particularly those that offer the greatest flexibility through limited prepayment penalties, can be the better option verses a more traditional mortgage when you want to unlock the value in your home without taking on additional monthly repayments. It allows homeowners to access the equity built up in their property, providing a tax-free lump sum to supplement regular income, whilst still retaining ownership and the right to live in their home for life or until they move into long-term care. This can be particularly advantageous for those who are retired or have limited income, as it offers financial flexibility and stability without the burden of servicing higher mortgage repayments.”