New scheme aims to assist poorer older people release capital

Posted on: 12 June 2014 by Gareth Hargreaves

Industry experts propose “Equity Bank” to help low income pensioners utilise housing wealth for regular income

Mature homeownerThe Government should create a state-run “Equity Bank” to help low income older people generate extra income from their property argues a new report. “The UK Equity Bank” has been published today by the International Longevity Centre – UK (ILC-UK) and was produced by Professor Les Mayhew and David Smith of Cass Business School, part of City University London.

The authors propose that, after receiving the appropriate financial advice, an individual sells a portion of their home to the state in return for a guaranteed lifetime income. Upon death the property would be sold, the debt to the state paid and any remaining value passed to the person’s estate. The Bank would be carefully targeted at older retirees who own their own homes and live alone but are income poor.

The report points out that housing equity owned by the population aged 65+ is estimated to be worth around £1.4 trillion or, £122,000 per person on average (ELSA). In households with a deceased partner, home equity could be twice this average. Around 40,000 new people each year could benefit from the scheme.

The proposal responds to an influential 2013 House of Lords Committee report which argued that
“The Government should work with the financial services industry to ensure such mechanisms [for releasing housing equity] are available and to improve confidence in them”.(1)

The paper will be launched at an event to be held in the House of Lords on 12th June chaired by Baroness Sally Greengross, Chief Executive of ILC-UK, the leading international think tank on longevity and demographic change.

The authors argue that the Equity Bank should be owned and maintained by central government. It is important that the financial benefits are not eroded by higher taxes or the withdrawal of benefits and the Government is in the best position to make sure this does not happen. A trusted state-run scheme as described in the paper could also benefit from economies of scale and relatively low borrowing and administration costs. Because it would be carefully targeted, it would sit along-side and not replace existing commercial products.

Launching the paper, Professor Les Mayhew said “The proposed recent pension reforms, whilst welcome, do not address the needs of existing pensioners whose incomes are fixed and therefore unaffected. Its main purpose would be to improve living standards in retirement, as well as making more money available for every day tasks and services such as help around the home, home maintenance, holidays, etc. The proposal is aimed at a sizeable group of older home owners, perhaps as many as 400,000, who have relatively small incomes of, say, £15,000 per annum or less, consisting mainly of the state pension and limited additional sources.

Baroness Sally Greengross, Chief Executive of ILC-UK added: “The value stored in people’s homes could be used to provide greater income in old age and improve living standards. Whilst some people will chose 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 Government and the financial services industry.”

Professor Mayhew points out: “Even if only relatively small amounts were to be released each year, the Equity Bank proposal would generate macroeconomic as well as personal benefits to users. It would benefit local economies especially in places with disproportionate numbers of older people and income deprivation. Over time the Equity Bank would be self-financing but it is plausible that start up costs could be met from within existing welfare budgets.”


You can read the ILC report in full by downloading this PDF:

The UK Equity Bank - Towards income security in old age

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