If you’re considering equity release, understanding the impact it may have on your current means tested benefit entitlement can help you decide if equity release is right for you.
Whether you claim universal credit, pension credit or are eligible for a council tax reduction, our specialist advisers have put together some information to help you consider if equity release might affect you.
Understanding the impact of equity release on means tested benefits
Your eligibility for some state benefits are impacted by the amount of money you have in savings and if you are receiving income. These benefits therefore can be stopped or your level of entitlement can decrease with equity release, as your savings may exceed the threshold or you may have more income at your disposal.
If you are looking to release equity from your home, your adviser will discuss if you would like to receive a single lump sum or a drawdown. Each option can also have an impact on your entitlement to some benefits as larger lump sums can cause your savings to increase above the threshold.
The impact on your benefit entitlement will be determined through a means tested benefits calculation which will help determine which benefits you may still be entitled to and which ones could come to an end due to releasing equity.
When exploring your options with your equity release adviser, you will be provided with a personalised report. This will explore what benefits may be affected and how this might affect your circumstances.
How means tested state benefits are affected by equity release
Some means-tested benefits, such as Pension Credit, Universal Credit and Council Tax Reduction, can be affected by equity release as your eligibility is based on the amount of money you have in the bank.
Depending on how much you keep in savings, you may still be eligible with the amount you can claim decreased.
By releasing equity from your home, you can increase your capital, potentially making you ineligible for some state benefits.
Your entitlement may not always be affected, so it’s important to discuss your circumstances with an equity release adviser for a personalised illustration and recommendation.
If you’re using equity release to pay off secured debt, the money can be transferred directly to the lender, and therefore potentially leaving your benefits entitlement unaffected.
State benefits affected by equity release
Not all benefits are affected by equity release, only those which eligibility is determined by your income and savings.
Some benefits that may be affected include:
- State Pension Credit: the guaranteed credit component of pension credit may be impacted by equity release.
- Universal Credit: having more than the threshold in savings can stop your Universal Credit entitlement.
- Council Tax Reduction: if you have more than the threshold in capital, you may no longer be eligible for Council Tax Reduction.
- Housing Benefit: equity release can affect your eligibility for Housing Benefit if you have more than the threshold in capital.
Which state benefits are not affected by equity release?
Some non means-tested benefits may not be affected if you take out an equity release plan, this can include:
- State Pension is available to those who meet the eligibility criteria, this means your eligibility will not be affected if you take out an equity release plan. Your state pension entitlement is not affected by your income or savings.
- Personal independence payment (PIP) is a non means tested disability benefit which means if you meet the criteria, you will be eligible to claim it regardless of your income or savings.
- Attendance allowance is available to those who are state pension age or older and do not receive disability living allowance, regardless of income or savings.
What savings affect means tested state benefits eligibility?
Your eligibility for some means tested benefits can be affected by how much money you have in savings, but what about other assets?
Some other types of money or financial products can affect your eligibility including:
- Cash
- Money in your current accounts or building society accounts
- Money in a tax-free childcare account
- National Savings accounts, certificates and Premium Bonds
- Properties (other than your primary residence)
- Income bonds, stocks and shares
- Lump sums taken from a pension funds, redundancy pay or tribunal awards
Some types of savings that won’t affect your eligibility include:
- Possessions including cars and jewellery
- Business assets
- Social Fund grant payments
- Arrears of certain state benefits
- Life insurance policy that hasn’t been cashed in
- Charges for currency conversion if your capital is not held in sterling
- Pre-paid funeral plans
Using equity release to pay off debt
If you use your equity release money to pay off a mortgage or secured loan, the money will be paid directly to the loan company, this means it will not pass through your bank account.
If you choose to pay off debt with equity release, your entitlement to benefits won’t be affected as the funds will not be used for savings in your account. However, if you choose to clear a mortgage or loan, more money may accumulate in your bank account and increase your savings as you will no longer have to make payments towards them, which could affect your benefits in the future.
Will equity release affect my pension?
Your income from your private pension will depend entirely on how much is in your pension fund, which can sometimes mean retirees need additional funds to support their lifestyle.
Whether you are of state pension age now, or looking ahead to the future, you may be considering the impact of equity release on your state pension. Equity release will not affect your state pension or private pension as these are not means tested and are available to anyone regardless of your income or savings.
If you are of pension credit qualifying age, you may already receive pension credit. Your entitlement may be affected if you release equity from your home, reducing your weekly income.
Pension credit is a means tested benefit, so if your equity release takes your savings above the threshold, your eligibility may be affected.
What happens if I move into long-term care?
When releasing equity from your home, your adviser will explain that it will not need to be paid off until the last person on the plan passes away or moves into long-term care.
If the last person on the plan moves into long-term care, the equity release will be paid off through the sale of your home and you will keep any remaining funds.
At Bower Home Finance, we only recommend Equity Release Council approved products, meaning you will have a ‘No Negative Equity Guarantee’ with any plans our advisers recommend. This means that you and your family will never owe more than your home’s value. So, you don’t need to worry about leaving your family in debt due to your equity release plan.
Which equity release option is right for me?
At Bower Home Finance, our advisers will work closely with you to understand your circumstances and discuss the implications of any decision you take. This will help to shape any recommendations they may make and equity release options they might suggest.
There are two main types of equity release, home reversion plans and lifetime mortgages.
Home reversion plans allow you to sell part or all of your home to your equity release provider below the current market value, in return you are able to stay in your home ‘rent free’ until you pass away or move into long-term care.
A lifetime mortgage is a loan secured against your home and will not need to be repaid until you pass away or move into long-term care. This can be available as a single lump sum or as in drawdown facility.
Explore your equity release options
At Bower Home Finance, our advisers are on hand to help you understand your options and how equity release may affect your benefits and weekly income through means tested benefits calculations.
Whether you’re looking to pay off existing debt, such as an existing mortgage or loan, adapt and improve your home, or increase your disposable income in later life, releasing equity could provide you with a tax-free sum to help support those plans.
Our equity release advisers will work with you closely from the beginning to answer any questions you might have and explain the costs involved with equity release.
See how much equity you could release from your home using our equity release calculator.
