At Key, we always help our customers understand that equity release is not for everyone. If you currently receive means-tested benefits, that could include you.
More than 1 million people have decided whether equity release is right for them with Key*, with a significant number securing a more financially stable future. However, doing this when you get means-tested benefits could change what you’re entitled to, so it’s always important to find out what’s best for your unique situation.
Several benefits are means-tested. It’s crucial to work out which, if any, apply to you.
What are means-tested benefits?
A means-tested benefit is a type of financial support of which your eligibility is decided once your income and capital (such as savings or investments) has been taken into consideration. For example, Pension Credit is a means-tested benefit that could be affected by equity release**, as whether you get it is based on your financial situation. Disability benefit wouldn’t be affected by equity release, however, as it’s a benefit paid regardless of income or capital.
Pension Credit and Council Tax Reduction are two common benefits which might be affected by equity release. Let’s see how that works.
To be completely clear, your State Pension would not be affected by any decision to take equity release.
However, the Guarantee Credit element of your State Pension might be. If you’re 66 or over, and your income is less than £163 a week, Guarantee Credit can top up the basic State Pension of £125.95 by £37.05 a week**.
If you have capital of less than £10,000, you can claim the full amount of Guarantee Credit. After that, for every additional £500 you have in your savings, you would lose £1 a week of your Guarantee Credit.
Council Tax Reduction
Much like Pension Credit, equity release could affect your eligibility to claim Council Tax Reduction. You are allowed up to £16,000 in capital before your Council Tax Reduction is affected.
While Pension Credit and Council Tax Reduction are two of the more common means-tested benefits, these might also be affected by taking out equity release:
Income Support, Jobseeker’s Allowance (where judged on income), Housing Benefit and Employment and Support Allowance (again, where judged on income).
For example, like Council Tax Reduction, if you claim Housing Benefit, you could lose it if you have savings or investments of £16,000 or more.
The government is rolling out Universal Credit. This will replace several of the benefits currently affected by equity release. If you have savings of more than £16,000, you may no longer be eligible for it.
The good news
If you’re thinking about releasing equity from your home, it’s very important that you discuss your situation with an accredited, expert equity release adviser. They will go through all your options and the implications of any decision you take, and use market-leading software to establish what benefits you are entitled to and which of those could be affected by equity release.
And if you decide to go ahead, you can spend the money however you wish, whether it’s paying off debts, making home improvements or travelling. Whatever you do decide to do, it won’t affect your eligibility to any benefits that aren’t means-tested, such as Winter Fuel Payment or free prescriptions if you’re over 60.
Things to consider
Our independent, specialist advisers search the whole market to find the right equity release plan for you. They’ll explain all the options available and that taking a plan reduces the value of your estate and may affect any means-tested benefits you’re eligible for.
You have to get specialist advice before releasing equity; it’s the only way to do it. The initial consultation is free with no obligation to proceed. If you decide to go ahead with an equity release plan our advice fee, usually 1.99% of the amount released, subject to a minimum of £1,499, is payable only on completion.
With a lifetime mortgage, the most popular form of equity release, you’ll still own your home. As with any kind of mortgage, it’s a loan secured against your home. All equity release plans we recommend have a no negative equity guarantee, which means you’ll never owe more than the value of your home.
You should always think carefully before securing a loan against your home.
Releasing equity from your home may affect your entitlement, either now or in the future, to State Benefits. However, if you are in any doubt about your eligibility, you should seek clarification from the Department for Work and Pensions, your Benefits Agency or the Citizens Advice Bureau before proceeding to release funds from your home.
Figures are correct as of time of publication.