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Alpha Real Capital research reveals UK pension schemes are increasingly focusing on Lifetime Mortgages as an asset class

New research [1] from Alpha Real Capital (“Alpha”), the specialist manager of secure income real assets, reveals UK pension schemes are increasingly focusing on Lifetime Mortgages as an asset class.

A survey of 100 UK professional pension fund investors reveals that over the next two years, 88% expect pension schemes to begin investing into Lifetime Mortgages, with 29% predicting significant demand.

When compared to other long-dated assets, 87% of survey respondents see the attractiveness of Lifetime Mortgages for pension funds and other institutional investors increasing between now and 2024. In the current environment, 97% of UK professional investors interviewed agree with the view that Lifetime Mortgages offer a combination of factors that pension funds and other long-term investors find attractive including duration, yield, a link to mortality and potential inflation protection. Over half (54%) ‘strongly agree’ with this view.

Alpha’s research found some 86% say an attractive feature for pension fund investors is the fact that Lifetime Mortgages have durations which are highly correlated to a borrower’s life expectancy – loans are repayable when they either die or move into long-term care. In fact, 29% say this is a ‘very attractive’ feature.

When asked to select the three most important benefits of investing in Lifetime Mortgages for institutional investors, 73% of professional investors surveyed selected providing secure, clearly defined cashflows, this was followed by 61% who chose the ability to receive long-dated secure cashflows, and 45% who selected their longevity linkage.

Boris Mikhailov, Head of Client Solutions at Alpha Real Capital said: “Pension funds and other institutional investors are increasingly looking to diversify their portfolios, and for asset classes that can delivery steady and reliable returns. To date it has been a virtually untapped opportunity for pension schemes, who can access parts of Lifetime Mortgages market that insurers who have been long-established investors cannot. Using the pension scheme flexibility, Lifetime Mortgages as an asset class could generate long dated investment grade quality cashflows at 4% higher yields than comparable government bonds. So, it is no surprise therefore that over the next two years, 95% of professional UK pension fund investors believe the institutional investor they work for will develop a strategy for investing in Lifetime Mortgages.”

Phillip Rose, CEO at Alpha Real Capital said: “The UK equity release sector has evolved considerably since the first product was introduced over 50 years ago. Through regulatory reform, product development and the introduction of customer safeguards, Lifetime Mortgages have become the fastest growing segment of the UK mortgage market while generating the fewest registered complaints across all home finance products. They have also become a preferred investment for insurance companies and are now being offered by high street lenders to their customers.

“With broader market acceptance, attractive yields and long-dated cashflows, Alpha views Lifetime Mortgages as an attractive opportunity for defined benefit pensions schemes seeking long-dated assets.”

Next Finance , May 2021


[1] Alpha Real Capital commissioned the market research company Pure Profile to survey 100 UK based professional pension scheme investors. Interviews were conducted online in March 2021.

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