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Should the Government offer equity release?

Advisers say money could be better spent raising awareness of retirement income options

A thinktank has called for the creation of a “UK Equity Bank” to provide annuity income in retirement in exchange for the Government taking a stake in retirees’ property.

The report, from Cass Business School and the International Longevity Centre, says equity release backed by the Government could help asset-rich but cash-poor consumers. 

The report argues the Government provision could boost options for UK pensioners. 

It says: “Our proposal is aimed at a sizeable group of older homeowners who have relatively small incomes of, say, £10,000 per annum or less.”

ILC UK chief executive Baroness Sally Greengross (pictured) says: “The value stored in people’s homes could be used to provide greater income in old age and improve living standards.

Greengross

“While some people will choose to downsize, there is a large group of older people on low incomes for whom moving house would be impractical but for whom a higher income could significantly help improve their day-to-day life.

“Traditional equity release schemes may not work for this group of the population and new ideas, like the Equity Bank, deserve serious consideration from the Government and the financial services industry.”

The report says the debt to the state would be expressed as a percentage of the property value, to be repaid upon death, and proposes the annuity rate be set by the Government and linked to inflation.

It also notes the potential strain of the service on Government finances and says the policy should be phased in, starting with over-75s.

Authors Les Mayhew and David Smith acknowledge the scheme could not assist pensioners with limited assets. 

But they argue it would allow more people to stay in their homes or finance care costs without the need to sell property.

The report also accepts tax rules do not always make equity release an appealing option.

Derbyshire Booth managing director Greg Heath says: “It is difficult to see what this could offer which is not already provided by the private market. 

“If anything, the process would probably just be slower and more bureaucratic.

“The money could probably be better spent raising awareness of people’s options for generating income in retirement. There are still negative connotations around equity release because of legacy  issues from the 80s.”

Key Retirement Solutions director Dean Mirfin says Government intervention is unnecessary because the UK’s private sector equity release market is functioning well.

He says: “The UK Equity Bank is a good debating point and positive for the equity release market as it highlights the wealth pensioners have in their homes and how it could be used for retirement income. 

“It also highlights the issues and complexities of the relationship around benefits and taxation.

“But many taxpayers will find it very hard to understand why the Government should start offering loans against people’s houses when there is already a well-established, well-regulated, successful and growing private industry enabling homeowners to release equity from their homes.

“Lobbying would be better directed at reviewing the approach to taxation and benefits for those releasing equity.”

Expert view

Mayhew

The proposed recent pension reforms, while welcome, do not address the needs of existing pensioners whose incomes are fixed and therefore unaffected. The main purpose of this proposal would be to improve living standards in retirement, as well as making more money available for everyday tasks and services such as help around the home, home maintenance and holidays, among other things.

The proposal is aimed at a sizeable group of older homeowners, perhaps as many as 400,000, who have relatively small incomes of, say, £15,000 a year or less, consisting mainly of the state pension and limited additional sources.

Les Mayhew is professor at Cass Business School

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