Older homeowners on benefits have long shunned equity release schemes but a project is helping them tap their housing wealth to boost their independence, writes Jeremy Dunning
About a million older homeowners have at least £100,000 of housing equity, yet their incomes are so small that they qualify for means-tested benefits. With pension credit worth just under £200 a week to a couple, many struggle to find the £20-30 a week to pay for services such as shopping or gardening that are crucial to pensioners’ independence.
However, equity release – drawing on the value of your home to supplement your income – has been viewed with suspicion. A number of products were banned in the 1990s after a mis-selling scandal left many people at risk of losing their homes. Though now regulated, equity release products can be expensive to organise and effect entitlement to benefits.
A report out this week shows how the Joseph Rowntree Foundation – in tandem with local authorities, charities and the financial services sector – is looking to make equity release affordable for this group of older people.
It has launched pilots to run until summer 2011 in the London boroughs of Kensington & Chelsea and Islington, and in Maidstone, Kent, to test the home cash plan provided by financial products company Just Retirement.
The pilots have had low-key publicity so far with the authorities ensuring first that their staff and those of partner organisations have been fully trained on providing information on the new product to clients.
This has meant that take-up and interest among the target audience have been low.However, expectations are high that the plan could help income-poor but asset-rich older householders use their housing wealth to maintain their independence and remain in their own homes for longer.
Importantly, the Department for Work and Pensions has said the scheme should not affect entitlement to pension credit.
The project is being led in Maidstone by Zena Cooke, the council’s director of resources and partnerships.
The council, which is not responsible for social services, wants to use the project to improve health and well-being among the target group, which is estimated to number about 500.
Cooke says feedback has been encouraging. “For us the issue is around social inclusion and the fact there’s this group of older people who were never going to be eligible for social care intervention. It’s the ability to have that little bit of extra care at home.”
The report for the JRF, by independent consultants Rachel Terry and Richard Gibson, suggests there are four features of the scheme that may garner it more interest than other equity release products.
● The involvement of councils in drawing attention to the scheme and providing training for those likely to be talking to older people about it.
● The ability to draw down relatively small sums compared with other equity release loans.
● Benefits entitlement is likely to be protected because initial drawdowns would be well below the savings threshold (£10,000) at which entitlement to pension credit is affected and regular drawings are not allowed.
● Ensuring that financial solutions other than equity release are examined, including checking that the customer is claiming all the benefits to which they are entitled.
Gibson says: “It’s possible that some people who might have been cautious will feel it’s worth investigating a bit further.”
Under the pilots, older people gain access to the home cash plan on the recommendation of financial adviser Just Retirement Solutions.
Roger Pangbourne, head of compliance at JRS, estimates that at least half of those who request information about the plan will be advised not to go ahead with the scheme, either because they can claim more benefits without the need to draw on the home’s equity or they can access savings from family.
However, Pangbourne believes there is scope for the pilot to be rolled out, adding: “We’ve had interest from other local authorities wanting to join the pilot a little later.”
Improving take-up of equity release has featured in the debate on the government’s planned reforms to adult social care funding, but it was not included in its green paper proposals last year.
Emma Stone, assistant director of policy and research at JRF, warns that the scheme should not be seen as a solution to long-term care funding issues.
“It’s not going to be the massive thing that helps address the funding issues of long-term care but it will make a significant difference for people who are in a position to support themselves through drawing down equity,” she says.
Andrea Rosario, director-general of the equity release trade body Safe Home Income Plan, which is also involved in the pilots, says that, given the impact of the credit crunch, it is too early to say whether they will lead to a range of products hitting the market.
However, she says the long-term outlook for the market is good. “People are living longer and more people are coming into the arena with more wants and desires,” she says.
“We believe that, as time goes on, there will be many different reasons why people will be thinking of equity release.”
Paul Coles, chief executive of Age Concern Maidstone, says he wishes the JRF’s home cash plan had been available 18 months ago when a client of his first came to see the branch asking for help to buy a mobility aid.
The woman and her husband own a terraced house in the town, though he is now in a care home.
She accessed funding from a charity to pay for the aid. But Coles believes the JRF scheme would have been more suitable because she needed £1,000 and would have had ongoing costs too.
Coles says the woman is typical of numbers of clients in some parts of Maidstone whose lives could be enhanced through the extra income offered by the scheme.
Age Concern staff will now be helping to provide information about the product, particularly those who provide services in people’s homes, such as foot care.
“The key thing about it is the reduced amount of fees and that you aren’t asking people to tie up a lot of the legacy and the conflict that could cause in the family,” says Coles.
“A reason I liked it was that the drawdown amounts aren’t large enough for that potential conflict but they are enough to provide for some things such as an aid or for presents for grandchildren.
“The limited amount also reduces the likelihood of elder abuse issues.”
JRF’s home cash plan
● The minimum initial borrowing is £5,000, and further £2,000 sums can be borrowed.
● These are far lower than current schemes and below the £10,000 threshold at which savings reduce entitlement to pension credit.
● The interest rate for the initial drawdown is 7.29% per year.
● The set-up fee is £275, below provider Just Retirement’s usual £500 rate.
● The advice fee is £299, below the standard £799 rate.
● Legal fees are about £425, and all three fees can be added to the initial borrowing.
● The loan is repaid when the home is sold.