There are moves afoot to change the law so that retired people who raise money on their home do not lose their means-tested Pension Credit.
It has been estimated that there are more than two million older people living in accommodation worth more than £50,000 but on incomes so low they get means-tested benefits.
Many of those people might consider taking out equity release from their homes but the complex benefit rules are putting many people off.
However, if you are considering such equity release schemes then it is imperitive independent financial advice is sought. It is apparent that people who do not seek such advice, but deal direct with certain providers who permit this, are not getting independent advice & as a consequence are losing means tested benefits, thus defeating their objective of alleviating their finances.
So how does equity release affect any benefits?
Well, only means tested benefits are affected. Disability (DLA), carers allowance & similar benefits are NOT affected. They are not influenced by income & so will remain in situ.
So which means tested benefits are we talking about?
The main benefits that are affected by equity release are pension credit, savings pension credit & council tax benefit. The important facts are as follows & need to be established.
NB. Any increase in capital is not taken into account by The Pension Service during a five year Assessed Income Period (AIP). It is only reviewed at the end of the five year period.
For Council Tax Benefit, no change will occur whilst a pensioner is in receipt of Guarantee Pension Credit. They will continue to receive full Council Tax Benefit.
If a claimant is only in receipt of Pension Savings Credit, they will lose Council Tax Benefit if their capital exceeds £16,000. However, if they have sought equity release to undertake home improvements, or for a holiday, or to buy essential items, which might for example include a car, that capital will not be taken into account. They are likely to have to prove their expenditure, but will not lose out on Council Tax Benefit if they can.
The most likely to lose out are those on Pension Savings Credit only who seek equity release and simply keep it in their bank account without having plans to spend it. Again, correct advice from a specialist equity release adviser would deter clients from attempting this as there are equity release schemes available such as drawdown plans.
These equity release schemes allow you to take a lower initial cash lump sum, with a cash reserve facility which allow you to take further ad-hoc payments in the future.
The advantage of these equity release schemes are that by taking a lower initial lump sum it can keep you within the benefit limits. Once, your equity release funds have diminished in the bank, they can then be ‘topped up’ by a further drawdown from the equity release scheme, again to the extent they do not affect your benefits. This process can then be repeated in the future to the extent of your reserve facility.
To obtain independent & tailored advice on this subject of means tested benefits please contact Equity Release Supermarket who are one of the leading specialists in this area.
Equity Release Adviser
