As an option for boosting pension income, equity release should be considered only with qualified independent financial advice, says the charity Age UK.
Equity release allows you to borrow money against the value of your home today, and to remain living there. Your home is then sold by the lender after your death, to redeem the debt. Equity release as such is favoured by many wishing to boost their pensions income, while still remaining in their family home, close to their children and grandchildren. For many, it is a more attractive option than selling their home and enduring the upheaval of moving to a smaller property.
Age UK found that a third of those using equity release have done so to clear debt – as around 25% of people still have considerable credit commitments when they come to take their pension income.
Half of those surveyed used the bulk of the cash they raised for essential house repairs.
Both these factors indicate that, in practice, equity release used in this way makes little long term change to pensions income, and is doing little to address the underlying problems faced by pensioners in relation to pension planning. In fact, financial problems can be exacerbated, as equity release can reduce the means-tested pension credit element in pensions income. The result is a pension income that is lower in the long term.
“Equity release is clearly a useful tool to ease financial pressures in later life, but anyone considering it as an option should first seek good quality information and advice,” said Michelle Mitchell, director of Age UK.
