We have outlined in our other blogs the types of equity release products available and how they differ. It is important that you seeks advice before committing to these products. Using equity release can affect any means-tested benefits you may receive, including Pension Credit.
What is Pension Credit?
Pension Credit (PC) is an income-related benefit made up of two parts – Guarantee Credit and Savings Credit.
Guarantee Credit tops up your weekly income to £173.75 for a single person or to £265.20 if you’re in a couple. Savings Credit is an extra payment for people who have saved some money towards their retirement. You don’t pay tax on Pension Credit and can still be eligible if you own your own home or have savings.
If you receive Guarantee Credit you may also be entitled to Housing Benefit, Council Tax Reduction and Cold Weather Payments. Always check the gov.uk website for the most up-to-date information and to check the criteria for applying.
How does equity release affect my Pension Credit?
If you are considering equity release but also receive PC you will need to speak to a qualified financial advisor as it can get quite complicated.
Your income and capital will be considered before you are offered PC. If they change due to you using equity release to release funds, you may no longer be eligible. A single lump sum released from the value of your home will obviously increase your income and capital above the Government threshold for these benefits.
Pension Credit accessed income periods (AIP)
Some claimants of PC may have been given an assessed income period (AIP). This is a period of time when the Department of Work and Pensions (DWP) does not require you to report any changes in certain types of income, called ‘retirement provision’. This includes income from a pension (other than state pension), an annuity or capital.
Therefore if you take a lump sum out of the equity of your home, or use equity release to give yourself an income, you do not have to report this to the DWP because it counts as ‘retirement provision’.
If you were receiving PC before 6 April 2016 an AIP may have been set. However, no new AIPs have been set since this date. An AIP can be for a fixed amount of time or indefinite if you are over 75. Certain circumstances such as death or moving into a care home may cause it to end early.
If you are on Pension Credit but don’t have an assessed income period
If you decide to use equity release while on Pension Credit but haven’t been given an AIP, you must report any changes in income and capital to the DWP. Obviously most people use equity release to have more disposable income to use for things like paying off debts, repairs or hobbies. Your PC may be reduced or stopped altogether once the equity release is taken into account.
Use our Equity Release Calculator to work out how much cash you could release.
It is important to take expert advice on equity release before deciding whether it is right for you. Contact us to find out more from one of our highly trained equity release advisors.