At Equity Release Supermarket, there is one question which crops up repeatedly: will equity release impact my eligibility for state benefits?
Whilst this is difficult to answer without thoroughly assessing your circumstances, there is certain advice we can offer to help you decide on whether you should enter an equity release scheme.
One of the first things to consider is whether your benefits are “means-tested” or not. Let’s firstly dig down into what means-tested benefits are and consider how and why these differ when applying for equity release.
What are means-tested benefits?
Broadly speaking, the benefits offered under the UK’s welfare system can be split into three types:
- Contributory/Recent work benefits
- Disability/Universal benefits
- Means-tested benefits
Contributory benefits are those offered by the state to those who have paid National Insurance contributions to cover work interruptions, such as unemployment, maternity, sickness, retirement etc. This is an example of a ‘non-means tested’ benefit, i.e. one which isn’t based on a claimant’s income or savings. Similarly, disability and universal benefit entitlements are indifferent to one’s finances, and, instead, are only concerned with the claimant’s eligibility.
That brings us to the third type of benefit: those which are means-tested. Unlike the other two categories, means-tested benefits depend on the amount of income and savings you have as these can affect your eligibility. Means-tested benefits are available to people who can demonstrate that their income and savings are below a certain level.
Here are some examples of means-tested benefits:
- Income-based Jobseeker’s Allowance
- Income-related Employment and Support Allowance
- Income Support
- Pension Credit
- Tax Credits (Child Tax Credit and Working Tax Credit)
- Housing Benefit
- Council Tax Support
- Social Fund (Sure Start Maternity Grant, Funeral Payment, Cold Weather Payment)
- Universal Credit
Before we consider how these could potentially be affected by taking out an equity release plan, it’s worth checking your eligibility for means-tested benefits. If, for instance, you are entitled to more than you currently receive, you might be able to supplement additional income with a successful claim.
If you are about to retire, or already have retired, we recommend calling the Pension Credit Freephone number (0800 991234) to check your eligibility. Currently, the earliest age a person can qualify for Pension Credit is 60. However, this is set to increase to 66 from 2020.
Will my means-tested benefits be impacted by releasing equity?
As a rule of thumb, if you are under 65 and after releasing equity your savings are less than £6,000, or you are over 65 and you are not retaining more than £10,000, your benefits should not be affected.
However, benefit entitlement is not always that straight-forward and the answer will entirely depend on your circumstances and the type of equity release scheme that you choose.
Here’s an example of one of our customers who took out a lifetime mortgage:
Brian was aged 65 and his home was worth £200,000. He wanted to release equity of £30,000 to buy a new car and bathroom, but he was in receipt of Pension Credit and Council Tax benefit.
As Brian was immediately spending the money and he did not retain any capital in his savings, there was no change to his benefits. This is because he only kept his existing savings of £5,000 in the bank. He released £30,000 on the Aviva Lifestyle Flexible Plan and also had another £15,000 available in the reserve facility created by recommending a drawdown equity release lifetime mortgage.
This money in his reserve did not impact his benefits, as he has not accessed the capital. If Brian applied for more capital from his reserve, it is important that he retains less than £10,000. Aviva will allow you to take small amounts of at least £2,000 and if Brian did this, his savings could still be kept below £10,000.
Our advisers strongly recommend that Brian retains receipts for the purchase of his new car and bathroom as the benefits agencies may request these in the event of a further assessment in the future.
What if I have savings in the bank?
As highlighted in Brian’s story, applicants over 65 are allowed up to £10,000 in savings before their means-tested state benefits are affected. If your savings exceed this limit, you run the risk of having your benefits reduced or completely removed.
It is worth remembering that this could change depending on your circumstances, so we recommend getting in touch with one of our expert advisers to confirm whether there could be any adverse effects on your entitlement to state benefits.
Our advisers can provide you with an indicative benefits analysis to help you claim any entitlement and to ensure that any entitlement you receive is unaffected.
To find out whether equity release will affect your benefits, please contact the Equity Release Supermarket team on Freephone 0800 802 1051 or email [email protected].