How equity release affects benefits and Pension Credit

Understand the impact taking out equity release could have

If you receive a lump sum from an equity release provider, you might lose your entitlement to some means-tested benefits. This could take away money that you rely on for living expenses, so you should understand how equity release may affect your benefits before you go ahead with it.

What benefits can be affected by equity release?

If your access to benefits is based on your savings and income, these may be affected by equity release as the money you unlock from your home may increase the amount you have in the bank. The main ones to consider are:

• Energy grants for those on certain means-tested benefits
• Council Tax Reduction
• Universal Credit

How does equity release affect Council Tax Reduction?

Having a low income can mean you’re entitled to a reduced rate of Council Tax, depending on where you live in the country. Typically, pensioners who have under £16,000 in savings qualify for Council Tax Reductions, or if you are still working then local authorities set their own limit, which is usually £16,000 or less. If releasing equity leaves you with over £16,000 in savings, you could lose your Council Tax Reduction.

How does equity release affect Universal Credit?

If you have less than £6,000 in savings after releasing equity, your Universal Credit entitlement won’t be affected. But if you have savings between £6,001 and £16,000, your claim will be affected, and if you have savings over £16,000 you will lose your entitlement to Universal Credit altogether.

You can check your benefit entitlement by visiting www.gov.uk/benefits-calculators.

What counts as savings for benefit eligibility?

Any money that you can access relatively easily, or financial products that you could sell on, are counted as savings for the purposes of a benefits means test. This includes:

• Cash
• Money in bank or building society accounts, including current accounts
• Money in a tax-free childcare account
• National Savings accounts, certificates and Premium Bonds
• Income bonds or stocks and shares
• Property (other than your primary residence)
• Lump sum taken from a pension fund, redundancy pay or tribunal awards

Things that don’t count as savings and so won’t affect your situation include:

• Possessions such as jewellery, furniture, or a car
• Business assets
• Life insurance policies that haven’t been cashed in
• Charges for currency conversion if your capital is not held in sterling
• Social Fund grant payments
• Arrears of certain state benefits
• Pre-paid funeral plans

What benefits aren’t affected?

Benefits that aren’t means-tested, and so are not affected by equity release include:

• Attendance allowance: if you're State Pension age or older and do not get Disability Living Allowance this is paid regardless of your savings, income or capital.
• Personal Independence Payment (PIP) this covers some of the extra costs of a long-term health condition or disability for people aged 16 and over and who haven't reached State Pension age.

How does equity release affect your pension?

• Does equity release affect the State Pension? Private and state pensions are unaffected by equity release, as they are available to everyone regardless of income.
• Does equity release affect Pension Credit? This is an additional means-tested benefit that tops up the State Pension. Your savings allowance is £10,000 before it affects eligibility for Pension Credit. For every £500 in savings over this amount, you’ll lose £1 per week in credit.

Money kept by you from an equity release lump sum is classed as savings. This means that you’ll receive less Pension Credit if your savings exceed the £10,000 threshold.

If you’re receiving Pension Credit, you also qualify for other benefits such as Housing Benefit, Cold Weather Payments and help with NHS services. These could be impacted by the loss or reduction of Pension Credit.

What if the equity release money is being used to pay off a mortgage or loan?

If you’re using equity release to pay off your mortgage, or any secured loans, the money you raise will be transferred directly to the mortgage provider or loan company and will not pass through your bank account, which means it doesn’t count as savings so your entitlement to benefits will not be affected.

If you were making regular monthly payments to pay the mortgage or loan, clearing it may mean more money will accumulate in your bank account and that, in time, could affect your entitlement to benefits.

Find out more with Saga Equity Release

Saga Equity Release is a no-obligation, no-pressure advice service dedicated to finding out if equity release is right for you, provided for Saga by HUB Financial Solutions Limited. As part of the advice service we look at the impact equity release could have on your benefits.

If you’d like a quick indication of how much equity you could release from your home, simply enter a few details into our equity release calculator. Equity release is available to UK homeowners age 55 and over and is a loan secured against your home.

Or call the Saga Equity Release team on 0800 096 7120. Lines are open Monday to Thursday, 9am to 8pm. Friday 9am to 5.30pm and Saturday 10am-3pm (excluding bank holidays).