Retirement savings gap
The ageing population is a wicked problem that may be expressed in various ways, including:
- increasing dependency ratio of retirees:workers
- inter-generational unfairness arising from an increasing tax burden on fewer workers or decreasing wealth transfers to the next generation
- fiscal pressures from rising costs of pensions, welfare, healthcare and aged care
The retirement savings gap is the macro-level indicator used in the World Economic Forum (White Paper 2019).
Whilst solutions are sought through more effective savings initiatives and more aggressively invested pension funds, the World Economic Forum has made a number of recommendations that included:
“Press the financial services industry to improve its retirement products and better understand the demand for more flexible offerings that provide greater asset diversification.”
This is where Futureproof has focused its research & development to identify a solution at both a micro-level for Pre-retirees and Retirees and also at a macro level for Governments, by putting home capital to work.
Pre-retirees will soon be better prepare for future retirement through the funding of voluntary superannuation or pension fund contributions and insurance products (such as deferred annuities and insurance bonds) using their home capital, rather than after-tax cash dollars.
Governments lacking solutions to the retirement funding gap inevitably look to an increased tax or new levy , tightening up of pension eligibility and introduction of user-pay models for healthcare, aged care and other services, to protect their fiscal positions. With the ageing population and increased fiscal pressures, it has never been more important to be self-funded with the security of long-term income essential to enjoy a comfortable retirement.
Retirees will soon be able to secure tax-free annuity income in retirement, without depletion of their home equity.
This leaves all thei home wealth fully intact to fund future health services and aged care, if needed, or to leave to the family.
Home capital is the only untapped remaining asset class of sufficient size and depth to make any real difference to the fiscal issues arising from the growing retirement funding gap.
Home capital, provided it can be responsibly released through our new financial instrument, the Equity Preservation Mortgage® which has the capacity to deliver massive new capital inflows to the capital markets through mortgage lending, asset management and RMBS securitisation.
Our breakthrough innovation
Fintech & insurtech disruption
New financial instrument
Our smart mortgage is a new financial instrument most simply described as a new financial instrument that is a new form of equity release that monetises home capital, without depletion of home equity.
Our Equity Preservation Mortgage® is quite unlike all other existing equity release mortgages (reverse mortgages, shared appreciation mortgages, shared equity mortgages or retirement interest-only mortgages), both in the way it operates and in the financial outcomes it delivers for both Lenders and Borrowers.
Over $5M has been invested to date in research & development, design and product build of the Equity Preservation Mortgage™.
Our new mortgage is at the core of the design of each of Futureproof’s nextgen financial products scheduled for market release in Q2 2024.
Nextgen smart mortgages
There are 3 variants of our Equity Preservation Mortgage® equity release mortgage:
- Principal + Interest
- Interest-free (zero interest)
Each of these smart mortgages may be written as either:
- Fixed term
Our Equity Preservation Mortgage® is the funding engine or funding mechanism to a range of bespoke financial products designed by Futureproof to meet different financial needs at each life stage, without depleting home equity.
The Interest-Only version of our Equity Preservation Mortgage® is a variable rate mortgage that underpins Futureproof products designed for Retirees who wish to maximise annuity income, whilst preserving existing home equity.
What this means to a Borrower is that whatever home equity they have at the commencement of the loan term, is guaranteed to be preserved and fully intact at the end of the loan term.
Principal & Interest version
The Principal+Interest version of our Equity Preservation Mortgage® is a variable rate mortgage that underpins Futureproof products designed for Pre-retirees who wish to accept a lower annuity income, but have no debt repayment at the end of the loan term.
Because the loan principal is fully repaid by the end of the loan term, all home equity (i.e. both existing equity + future equity created as a result of capital appreciation during the loan term), is protected and preserved.
What this means to a Borrower is that the capital tied up in their home can be responsibly monetized, whilst still enjoying full growth of their home equity during the loan term.
No Interest version
The zero interest version of our Equity Preservation Mortgage® underpins Futureproof products designed to be Sharia compliant and to be announced soon.
Because there is no interest charged, this is the only form of equity release mortgage suitable for use as a reverse mortgage. Without loan interest, there is no compounding cost, no LTV or LVR restriction, no age restriction and no negative equity risk.
What this means to a Borrower is that all the upsides of a reverse mortgage can be enjoyed, with none of the usual downsides of traditional equity release products.