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The European Pensions and Property Asset Release Group, EPPARG, hosted a panel discussion highlighting Global Perspectives and Opportunities at the Equity Release Summit held at Church House in Westminster on 23 May 2024.

The session, chaired by EPPARG’s Head of Secretariat Samantha Seewoosurrun, explored the key findings of the Global Equity Release Roundtable 2023 Survey Report, which was conducted through a collaboration between EPPARG and EY, and which was formally launched on the same day. 

An overview of the report was provided by Ben Grainger, Partner at EY, with panel members including EPPARG’s Deputy Secretary General Lennart Grabe and EPPARG members Robert Majkowski from FHD in Poland and Claudio Pacella from 65 Plus – Moltiply Group in Italy.

Key findings from the Global Survey

The purpose of the Global Survey, which was first conducted in 2020, was to gather information from across the 13 participating countries with two key objectives in mind. Introducing the survey, Ben Grainger explained that one goal was to “understand where firms are facing similar challenges in different countries around the world,” and encouraging these countries to work together to overcome these problems. Additionally, the survey was a means of comparing and contrasting the equity release products and “the way firms interact with their customers so they can learn from each other,” he noted.

Turning to potential growth forecasts, Ben underlined that across the 13 countries, new originations currently amounted to slightly less than $20 billion per year, while “the potential predicted by the participants is that the market could grow more than threefold to $60 billion in the next 10 years.”

Looking back at the practice not only in the UK, but in other markets, may help to rationalise the survey’s predicted growth of equity release origination volumes, noted Ben. He explained: “We have the same demographic problems in the UK, and equity release is a possible solution. The UK has the same large amount of property wealth held in older populations.”

In fact, the survey estimated that, across the participating countries, $23 trillion of property is held by over 60s. He considered that it didn’t seem hard to get all of those countries to a $2 billion or $3 billion market. Ben concluded that the survey “reiterates that there’s a lot of potential for growth and a lot of potential to support individuals in retirement around the world in this (equity release) market.”

The survey highlights that there is no “one-size-fits-all” solution for the way markets are put together around the world, as well as differences in the funding landscape. It underscores some of the differences “in many countries that operate equity release as a home reversion product, which is a property purchase rather than a loan, versus a lifetime mortgage, which is more popular in the UK,” Ben pointed out. 

Ben also noted that there are countries where the interest rate on lifetime mortgages is fixed and in others it is variable, which is another example of differences in the markets. The way equity is released can also vary, “both within home reversions and equity release mortgages across the country, with lump sums tending to be the most popular. But also, a lot of cash is released through drawdown facilities like you see in the UK,” Ben Grainger said.

A lack of funding, Ben explained, commonly limits growth in equity release markets. More specifically, “a lack of suitable funding that allows you to develop the products that customers want.” Interest rates are another factor, he observed, that restricts market growth, but the report found that “customer perception and customer knowledge, and awareness of the product” were the main barrier to growth in markets. These factors are not easy to resolve, Ben summed up.

Sharing experience from the Swedish market and the benefits of high-quality international standards

Lennart Grabe, the Deputy Secretary General of EPPARG, explained that although elderly populations are increasing, and modern healthcare can preserve the elderly’s quality of life for longer, “no pension system seems to exist” to adequately fund the active lifestyle they still want to enjoy.

Lennart introduced equity release in Sweden over 20 years ago, when he chose to implement lifetime mortgages. “It was of paramount importance that I could prove that it was a serious, well thought through product with ambitious standards for consumer protection,” he said. Lennart designed his product and marketing activities in line with the Safe Home Income Plan standards used in the UK. 

These SHIP standards eventually became the Equity Release Council standards, which Lennart described as a “very good role model for us all”, to this day. Having applied the SHIP standards to it, the equity release product introduced by Lennart dominated the Swedish market in view of its No Negative Equity Guarantee – in other words, prioritising the needs of consumers.

”We defined the business that has prevailed in the Swedish market,” he said. When EPPARG was founded, representatives from other countries “all had strikingly similar experiences. We soon realised the benefits of sharing experiences,” at which point EPPARG agreed to a “common, pan-European standard for all countries” that would ensure a safe market for both consumers and investors. 

“Well proven pan-European standards give industry strong arguments in dialogue with rule makers in seeing to it that local legislation and regulation does not hinder or hamper this business,” Lennart proclaimed. Conversely, “a common standard also makes it possible to develop cross-border business,” noting that this brings benefits in funding, marketing as well as building volume. Pan-European standards give equity release products more credibility and a better reputation, he explained.

Protecting the customer in the Polish home reversion market

Robert Majkowski, CEO of FHD from Poland, explained how Poland transitioned from socialist to capitalist economics after observing that capitalism has been successful in Western Europe. Robert described Poland adopting capitalism as “a huge movement for our nation”. 

Similarly, he continued: “What we also did in the home reversion and lifetime mortgage product was we have started to learn. Learn from more developed markets what to do, and how to create the market which was not existing, but which had started to grow quite quickly.” The code of conduct Poland uses for equity products today was inspired by the SHIP, now Equity Release Council, standards that many European countries followed. 

As a result, Polish markets “started to share the same impression that we have to take care of the client, the customer. The customer should be our main focus and we should protect the client to protect the market,” Robert highlighted. “Our way of thinking is almost the same,” he said, but noted that Polish markets do face the same hindrances to growth as other European markets do. 

Robert boldly stated: “I believe personally that equity release should be a piece of the puzzle for pension schemes across all of Europe.” Sharing the same product standards and the same mission with the rest of Europe would only further enhance consumer protection, Robert suggested. However, because of funding constraints, Polish banks are reluctant to offer lifetime mortgages, but Robert stated that there is “great potential” in Poland’s equity release markets in the near future.

Facing funding challenges in Italy

Explaining the market situation in Italy, Claudio Pacella, CEO of 65 Plus – Moltiply Group, in Italy, explained that: “The problem that we had was not the potential of the market, it was not the regulation, it was the funding.”

“We started our experience as advisor and servicer,” he said, and the funding initially came from Italy’s banks. “Our idea was to help originating little portfolios of equity release mortgages in each bank,” which he hoped would lead to a relevant volume for the market. However, this approach did not help to move the market, due to capital requirements and “an asset and liability management that looked unusual according to banks’ experience”. Moreover, “cash flows’ modelling and interest rate swaps depend on actuarial know-how which is not common in the banking framework,” he noted. Finally, banks didn’t offer an ‘interest only’ version either, Claudio underlined.

To resolve their funding issue, “we tried to step back from banks, and we started talking to pension funds,” Claudio explained. He cited Italy’s already existing pension funds for professionals “such as lawyers, notaries, and so on.” However, “even if the asset was perfectly fitting their needs, they needed an established market with high volumes to start investing at industrial scale”. 

Upon concluding that funding constraints in Italy were too tight, “we had the fortune of joining and contributing to the founding of EPPARG, with whom we shared standards, experiences and know-how” as well funding projects, Claudio explained. “The last piece of the puzzle was the funding,” he added, which has now allowed Italy to offer “an open market product that is our own, as well as that of some of our friends in EPPARG.”

It took two years, but now funding is allowing Italy to successfully create an origination platform; Claudio compared the process to share funding from the UK to “the opposite of Brexit – this was continental Europe wanting to enter the funding of the UK”. He described the funding project as a successful start-up and hoped that it would be “a very successful development for all the participants.”

Winding up the discussion, Samantha Seewoosurrun thanked the four panelists for their contributions to the panel session before taking some questions from the floor. She invited the audience to follow EPPARG’s website and social media channels to keep up to date with its activities.