I have a client who is considering an equity release from her house.She would have a lump sum of £50,000 invested to provide an income.She currently receives Pension Credit - guarantee credit - and Council Tax Benefit and doesn't know if it is worth doing.She has an assessed income period until 2009 , will the Pensions Service take no notice of the lump sum and the income until then?
Also will the council re-adjust her benefit immediately due to the £16,000 limit or wait until the PC is no longer payable ie until the end of the AIP?
Any advice gratefully received.Thanks.

If she is in an AIP, then her pension credit will not be affected by changes to her retirement provision (income and capital)

As long as she is in receipt of GPC she is passported to full CTB, no matter what her capital is.

At the end of the AIP the DWP will make a fresh assessment and if she still has the £50K then it will be taken into account.

If her capital diminishes over the next four years it is possible that the DWP might look at deprivation. As I understand it, this is currently the great unknown.

If the equity is used to purchase an annuity then at the end of the AIP only her income at that time will be taken into the calculations for PC etc.

However, the client needs to take some serious advice from an independent Financial adviser before taking such a step - £50000 is not going to produce that much in the way of additional income - the actual figure will be dependent on their age and on interest rates (unless they can get a good fixed rate) which can go down as well as up. The bottom line is that at the end of the AIP, they could actually find that they are not that much better off.....

Releasing equity to buy an income product is looked on as very dodgy by the FSA and CML.

The FSA did a mystery shopping excercise on equity release selling some months ago and said:

"Investing for income:

There are equity release products on the market that allow the consumer to draw down an income from their lifetime mortgage. Instead of recommending this route, advisers are recommending that consumers release a lump sum and reinvest it in, for example, an investment bond and take 5% withdrawals to provide a regular income stream. As well as being more expensive for the consumer, reinvesting capital in equity-backed investments unnecessarily exposes the consumer to risk."

CML's good practice gude says:

"It is generally inadvisable to borrow money purely to invest it. A realistic rate of return on the investment is most certainly going to be less than the Lifetime mortgage interest rate and this can only be justified in exceptional circumstances.
If an investment is going to be considered, advisers need to comply with the requirements of COB 5 and COB 6 (which cover advice and disclosure of investment products)."

I have a similar question, except that rather than a lump sum, the client has a monthly income from an equity release. The award was done quite recently, and the Pension Service (according to the client) advised that its value would be ignored.

Is this monthly income treated as income from capital, and so taken into account when calculating Pension Credit?

Help appreciated.

It depends on the details of the scheme. Some provide staged releases of capital which is treated as income for PC but is not taxable. Some povide an annuity which is both taxable and income for benefits. Some *may* be drawdowns under control of the customer in which they're neither but will be normal capital.

Look closely at the detail.

As far as i can gain from the client it was a regular payment for life, but the client was a bit vague. She said the Pension Service disregarded it, but they also disregarded her IIDB so was begining to doubt myself a little.