The return of ‘my house is my pension’?

The government is encouraging older people to rent out their homes to increase income. Is this ever a good idea?

The old adage ‘my house is my pension’ – predictably popular in an era when house prices boomed – is now accepted to be an unwise approach to retirement saving. But is the government inadvertently reviving an outdated idea?

Earlier this month, housing minister Grant Shapps announced that councils are to be given millions to help elderly people “stay independent” by downsizing and freeing up their homes for families.

The plan, called the New Deal for Older People, will ease the housing shortage and improve incomes for the elderly, according to Shapps.

Councils will be tasked with helping older people downsize to rented accommodation with their houses rented out to younger people by the local authorities. The houses will pass back into the owner’s estate on an agreed date.

However, several advisers and other experts have objected to the government scheme.

Some objected to the policy’s moral undertones, while others warned the scheme will be costly, complicated and bad for clients.

Objections

Liz Faye, managing director of Palm Financial Care, said it is unlikely she would recommend clients participate in the scheme.

“I have yet to meet an elderly client at the point of needing care who would opt to move out of their family home and swap that for a smaller house,” she said.

Faye said that, for some vulnerable older people, an unfamiliar, smaller home that may be further away from their network of friends and family will never replace long term care (LTC).

Jeremy Davies, founder of LTC trade body Symponia, added: “It is one thing to move out and rent the family home to someone they know, but to have the local authority deciding who lives in the home is ridiculous. I cannot see this ever working.”

Own terms

Jim Boyd, director of corporate affairs at Partnership, said the scheme could encourage elderly people who need more income to unnecessarily give up their homes.

“Elderly people may be resistant to moving and could feel displaced from their communities, which is why equity release might be better than downsizing,” he said.

Andrea Rozario, director general of Safe Home Income Plans (SHIP), the equity release trade body, added: “Older people may well want to consider downsizing, but on their own terms and with the ability to take the money released immediately, or else look at alternative options such as equity release.”

Shaky success

Grant Shapps pointed to a similar scheme in Redbridge, where the local authority assists elderly people in downsizing and renting out their homes, as a sign the scheme could be a success.

But there are concerns that the scheme would not work nationally.

Boyd said placing the costly responsibility for renting out the housing on local authorities at a time when they face budget cuts by 2015 is unwise.

Rozario added that, without compulsion to participate, the scheme is unlikely to get off the ground. “As no-one will be forced into taking part in the scheme, how many older people will choose to leave their family homes which they are likely to have emotional ties to and move into a smaller property?” she said.

Ros Altmann, director general of Saga, said the government scheme implies the elderly do not deserve housing as much as younger people.

“Recent studies suggesting older generations are ‘hoarding’ housing have come across as extremely offensive to older people. The implication is that they do not deserve to live in the house they are in,” said Altmann. “Social engineering is not likely to strike a chord with older people.”

Find out more

Visit: www.ifaonline.co.uk/category/pensions-retail/equity-release