Is Your Home Your Pension?

Fluctuations in the stock market have had an adverse effect on the value of many people’s pensions. At the same time, many people have seen the value of their home rise sharply.

It is no surprise that financial services groups are developing a range of new products, (generically labelled ‘equity-release schemes’) aimed at retired people, which seek to allow them to use the value of the equity tied-up in their homes as a source of income.

The ‘traditional’ way of doing this has been to take out a loan, against the house, and use it to purchase an annuity. Nowadays, a wide variety of equity-release schemes is on offer. Each had its own advnatages and disadvantages.

For example, an insurance company may lend an annual sum, based on the amount of equity in the house. The loan provides income for the homeowner and is repaid when the house is eventually sold. As it is in the form of a loan, the money is tax-free and it also reduces the value of the estate for Inheritance Tax purposes.

Professional advice should be taken when considering any form of equity-release scheme.