One of the first questions people tend to ask a financial adviser when they’re considering an equity release loan is how it’ll impact their pension. Understandably, having saved for many years to earn a pension, nobody wants to sign up to something that could impact your income in later life.
Will Equity Release Impact My Private Pension?
An equity release loan has no impact on any private pension you hold. It also doesn’t stop you drawing a state pension, but it can affect any pension credit benefit on top of that, meaning you might receive less overall.
A successful application for an Equity release loan has no bearing on any private pension you hold. It also doesn’t stop you drawing a state pension, but it can impact any pension credit benefit on top of that.
Continue reading to get the full details about Equity Release and your pension.
- – The reasons to release Equity from home
- – Equity Release while being on state benefits
- – Equity Release interest rates
- – Equity Release Solicitors costs
We update all our guides regularly. If you are researching Equity Release and we haven’t got an exact guide that helps you, keep coming back as we update daily.
Does Equity Release Affect Your Pension?
When it comes to any private pension you have, equity release has zero bearing on what you do with that money. A private pension is exactly that – private – and so deciding to take out an equity release loan won’t affect it in the slightest.
Many people will reach 55 and then combine a lump sum pension pay-out with an equity release cash sum in order to pay for something they normally wouldn’t be able to afford – either clearly large sums of debt, or perhaps a second property to use for rental income or as a holiday home.
The same is essentially true of your core state pension benefit. If you’ve paid the required national insurance contributions, you’ll be entitled to a state pension when you reach the requisite age regardless of whether you’ve decided to take an equity release loan or not. The state pension isn’t means-tested, it is only decided on by your national insurance contributions in your working life.
Because equity release loans offer much better value if you’re older, it’s best to speak to a financial adviser (make sure you speak to an FCA registered financial adviser). It may be that it makes sense for you to draw a private pension earlier, and then rely on equity release later – mortgages for over 70s or over 80s through equity release offer significantly returns than if you went down that route as soon as you turned 55.
The only pension that can affect equity release is Pension Credit as it is means tested
According to the Equity Release Council 37,000+ people used Equity Release schemes in 2018, releasing over £3.06bn from their properties.
Does Equity Release Affect Your Pension Credit?
The only area in which equity release can have an impact is if you’re entitled to pension credit. This is a means-tested benefit that tops up your state pension by almost £40 per week if you’re entitled to it. However, if you have capital over £10,000, which your equity release is likely to give you, you’ll lose some of that entitlement. Every £500 you have in savings over £10,000 loses you £1 per week in pension credit.
As an example, if you have £30,000 in savings after taking out an equity release loan, you’ll lose the entitlement to pension credit, as the £20,000 over the limit of £10,000 would mean you lost entitlement to the £40 credit. But that means you lose £2,080 per year, which you might judge is acceptable when it means you’ve £30,000 in the bank.
As with any situation, when applying for equity release you need to speak to a professional adviser who will sit down with you, look over your unique circumstances and give you a range of options.
How Can Money Savings Advice Help You With Releasing Equity?
Here at Money Savings Advice, we have partnered with some of the UK’s leading Equity Release brokers. They have already helped thousands of people get the best Equity Release deal and they can do the same for you.
Choosing an independent adviser means they won’t recommend a scheme unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.
If you would like to speak to one of these brokers who can provide you with a ‘whole market quote’ then click on the below and answer the very simple questions.