The effect of equity release on your benefits

Chris Torney / 19 September 2016

If you opt for equity release, how will it affect the benefits you’re entitled to?



If you sign up for an equity release scheme in order to take money out of your property, there may be unintended consequences when it comes to any state benefits you receive or are entitled to.

Many such benefits are means-tested: this means the government or your local authority look at your savings, income and other assets when deciding what level of benefits, if any, you should be entitled to.

What benefits am I entitled to when I retire?

How equity release works

When you sign up for equity release, you either borrow money against the value of your home or sell a share in it to a company in return for the right to continue living there.

Typically, this generates a lump sum that you can use to spend in any way you see fit. 

But it is also possible to take the money as a regular monthly income through a process known as drawdown: if you don’t need all the cash straight away, this approach can help you keep interest bills down as you are only charged interest on the money you have actually taken.

Types of equity release explained

Benefits means-testing

Certain state benefits such as pension credit and council-tax benefit are paid to people who have relatively low incomes and low savings levels in retirement. 

When you apply for benefits such as these, the government or your council will carry out a means-test to see whether you are eligible and, if so, what level of payments you are entitled to.

If you are considering taking out an equity release plan in order to boost your retirement income, or just to generate a lump sum to spend on home improvements, say, it is important to consider the potential impact it may have on any benefits you are receiving or may be entitled to in the future.

Alternatives to equity release

Check your benefits

The website Turn2Us has a Benefits Calculator which lets you check what you should be eligible for. 

If you are already receiving benefits, this calculator can be helpful in working out what impact taking out equity release could have.

For example, if you are planning to sign up for drawdown equity release which gives you extra monthly income, this increase can be reflected in the income section of the calculator.

If you are receiving benefits, you are obliged to tell the authorities if your financial circumstances change, so there is every possibility that signing up for equity release could affect these state payments.

Bear in mind, however, that your state pension entitlement is not means tested so will not be affected by equity release.

What benefits could you be eligible for?

The opinions expressed are those of the author and are not held by Saga unless specifically stated.

The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.