There has been a lot of discussion of the impact of the Government’s autumn reforms on pension savings but this is not the only area of retirement advice to be affected both by the proposed reforms and by the cuts in the comprehensive spending review. Equity release could be as dramatically affected by the rapidly changingpension and benefits rules.
The two most significant changes for the equityrelease market are the cuts to social welfare spending and proposals for reform of the state pension system.
In the spending review, Chancellor George Osborne set out cuts to welfare and benefits spendingof £7bn.
A significant amount of this will come from local authority budgets which are the biggest spenders on adult social and long-term care,so elderly people could seea significant impact.
The Government is to increase funding by £2bn to help protect social funding but this is still short ofthe estimated £5bn funding gap that currently existsin adult social care.
Carers UK chief exec-utive Imelda Redmond says: “Local authorities are receiving an overall reduction in revenue from centralGovernment of 26 per cent. There is a risk that care and support services will stillsee deep cuts unless local authorities prioritise care. Unless they do so, the dignity and independence of older and disabled people will be undermined and morefamilies will be forced out of work and pushed to breaking point to care for them.
“The £2bn new investment in social care will be of some relief in the short term but with our ageing population, the need for far-reaching reform of the delivery and funding of social caremust continue to be a top Government priority.”
The equity-release industry has consistently pointed out its suitability as a way of helping to fund any shortfall in care funding but statistics from trade body Ship show an overhaul of the benefit system is long overdue,with advisers and clients struggling to understandthe link between benefits and equity release.
Ship’s figures show nine in 10 advisers believe there is a lack of clear and consistent information about the interaction between equity release and state benefits, with 23 per cent of advisers routinely referring clientsto sources of information outside their businessesfor equity-release queries.
Ship’s figures suggest over 50 per cent of equityrelease customers aremissing out on benefitsthey are entitled to dueto a lack of understanding of the system.
Ship director general Andrea Rosario says the changes in the spending review will add complex-ity to the system in theshort term.
She says: “Following the Chancellor’s comprehensive spending review and the announcement of a single universal credit to replace many other welfare benefits, many people may be unsure of what they are entitled to, which is where financial advice can play an inval-uable role. However, ifeven advisers are struggling to easily navigate theconvoluted benefits’ system, how are they to reassure their clients?
“I would urge the Government to take stock and listen to advisers, simplify the current system through the introduction
of clear guideAndrea Rosario:’I would urge the Government to take stock and listen to advisers, simplify the current system through the introduction of clear guidelines and look for better ways of communicatingthe information they do provide’
lines and look for better ways of communicatingthe information theydo provide.”
But the decision to overhaul the state pension system could be even more significant than thechanges to social welfare.
Although the green paper from the DWP has yet to appear, if pension minister Steve Webb sticks tohis stated intention ofeliminating means testingby introducing a single,flat-rate state pension, this would noticeably simplify the advice process forequity release.
LV= head of equity release Vanessa Owen says: “We applaud the Government for biting the bulleton simplifying the statepension. It will give certainty to those using other assets to fund their retirement, such as releasing the equity in a property. For the first time, people can be safe in the knowledge that they are able to use the money tied up in their home to improve their standard of living, without fear thatthey will lose out on state benefits in retirement.”
Laterliving later lifeplanner Simon Chalk endorsed the plans tosimplify the state pension and introduce clarity for pensioners and says for lower-earners this could mean a substantial boostfor retirement income.
“The Government’s intentions of replacing the complex state pension system with a single universalpension of £140 a weekwill be of enormous valueto pensioners taking out equity-release plans.
“The move will see the current means-tested system abolished, removing the worry and uncertainty that retired homeowners experience when they access some of the value in their property. Currently, homeowners taking equity release while receiving means-tested pension credit risk losing some or all of this benefit, which can be worth almost £35 a week in many cases.”