Many older people have equity tied up in their homes that could be used to provide them with a greater income in later life and improve their standard of living. Traditionally, the ways to unlock the equity in people’s homes have been through downsizing, equity release lifetime loans or home reversion plans. However, not everyone is in a position to downsize, there are pros and cons to each approach, and all have associated costs. The Equity Bank would provide a new way for people to unlock the equity in their home. It would be a state agency which provides people with a low cost fixed lifetime income in exchange for a fixed share of the equity in their home. The Equity Bank would take a charge on the person’s home and recover the value of the equity from the person’s estate after their death. The event was chaired by Baroness Sally Greengross, Chief Executive of the ILC-UK. Nick Kirwan, Director of the ILC-UK Care Funding Advice Network, opened the discussion. Professor Les Mayhew of Cass Business School and co-author of the paper 'The UK Equity Bank - Towards income security in old age' then presented the concept, after which Paul Burstow MP responded. There was then time for questions and a general discussion.

1. The UK Equity Bank:
A new way to unlock home equity
and provide income security in
retirement
Thursday 12th June 2014
This event is kindly supported by Cass Business School
#UKequitybank

2. Welcome
Baroness Sally Greengross
Chief Executive
ILC-UK
This event is kindly supported by Cass Business School
#UKequitybank

3. Nick Kirwan
Director, Care Funding Advice Network
ILC-UK
This event is kindly supported by Cass Business School
#UKequitybank

4. Professor Les Mayhew
Professor of Statistics
Cass Business School
This event is kindly supported by Cass Business School
#UKequitybank

5. The UK Equity Bank
Towards income security in old age
Les Mayhew
David Smith
Cass Business School,
Faculty of Actuarial Science and Insurance
June 2014
lesmayhew@googlemail.com
5

6. What is the ‘Equity Bank’
• The Equity Bank is a facility for creating extra
income for life linked to inflation for life
• A person trades in a proportion of equity
which the state redeems on death
• It’s purpose is to provide for greater income
security in old age from a trustworthy source
• There would be no constraints on how money
is spent but would meet needs not currently
catered for by the welfare system

7. The problem addressed
•Many people reach retirement without having planned how much income
they will need face increasing problems as they grow older
•For example, a partner dies and health starts gradually to fail and life
becomes more difficult and harder to cope alone
•Income is significantly reduced, homes fall into poor decorative order; bills,
and domestic chores mount up because they can’t afford to pay for help
•They do not qualify for home help or other financial support because they
don’t’ pass the asset test
•If they get extra benefits it is with strings attached and amounts are
insufficient to cover their financial needs; Isolation and neglect creep in
•The Equity Bank helps by enabling then to generate extra income from
their home from a trustworthy source
7

8. What is the economic rationale?
• The ONS estimates the population aged 75+ will double
from 5m to 10m by 2040
• Although pensions are being reformed these reforms do
not apply to existing pensioners
• Many older property owners have seen large, tax-free
capital gains due to the rising value of property
• Not to use the value in the home increases the cost of
welfare to the rest of society
• Higher levels of equity release would generate modest
macroeconomic benefits and create new jobs with local
benefits

9. House prices and inflation
House prices have increased faster than the RPI. Since 1980, the House Price Index
has grown 2.6 times higher than inflation since 1980. The amount gained depends
house purchase timing and sale. Most people approaching, or already in retirement,
bought their homes in the 1970s and 1980s. Hence their financial gains have been
greatest.

10. Equity release trends in practice
Sales of plans reach a peak in 2007 at 28,000 before falling back to
16,000 in 2011. Current sales are running at 19,000 p.a. We estimate a
probable market of ~40,000 a year for the Equity Bank in addition to the
existing market
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Year
Numberofnewplans

11. Why the state should be involved
“Anxieties include
poor value for money
and provider
reputation,
complexity and lack
of advice, and could
affect benefits”
“It is absurd really that
even if you have got
the money to pay for
your own care, it is
actually quite hard to
do it.”
“People with
housing equity
should be enabled
to release it simply,
without excessive
charges or risk.”
“Older people
lack confidence
in the products
and take-up is
poor.”
“Ignorance about
mean-testing with its
different tapers, cliff
edges and capital
rules lead to inertia.”
“The equity release
market suffers from
quite considerable
market failures.”“SOLVENCY II
could cause the UK
market to contract
and restrict its
develop in other
countries.”
Sources:
Ready for ageing? Houses of Parliament (2013)
Unlocking the potential, DEMOS (2014)
Assessment of Equity Release Pilot Schemes, Joseph Rowntree (2013)
Accessing housing wealth in retirement, Towers Watson (2013)

12. £250k
£225k
£200k
£175k
£150k
£125k
£100k
£75k
£50k
£25k
£0k
Assets(£s‘000s)
£0 £5,000 £10,000 £15,000 £20,000 £25,000 £30,000
Income (£s)
A~
2.4m
B ~
2.3m
C~
2.1m
D~
4.3m
Who is it aimed at?
Asset-Income map for the 65+ population
A asset rich income
poor
B asset rich income
moderate/good
C asset poor income
moderate/good
D asset poor income
poor

13. £250k
£225k
£200k
£175k
£150k
£125k
£100k
£75k
£50k
£25k
£0k
Assets(£s‘000s)
£0 £5,000 £10,000 £15,000 £20,000 £25,000 £30,000
Income (£s)
A~
2.4m
Who is it aimed at?
Asset-Income map for the 65+ population
A asset rich income
poor
B asset rich income
moderate/good
C asset poor income
moderate/good
D asset poor income
poor

14. Segmenting the 65+ population for
targeting purposes
Risk factors help to identify
and segment the target
population:
•Assets more than £100k
•Living alone
•Age 75+
•Income les than £15,000
p.a.
There are an estimated
400,000 in our principal risk
group
risk
category
assets
>£100k live alone age 75+
income
<£15000
% of total
65+
1 Y 14.1
2 Y 12.9
3 Y Y 11.9
4 Y Y 9.2
5 Y Y 9.0
6 Y Y Y 9.0
7 Y Y Y 5.6
8 5.5
9 Y Y 4.8
10 Y 4.5
11 Y Y Y Y 3.6
12 Y Y Y 3.3
13 Y Y 2.7
14 Y Y Y 1.9
15 Y 1.4
16 Y Y 0.7
% of all
65+ 58.0 24.0 41.1 60.1 100.0

15. The Equity Bank in practice
• Eligible persons would have their homes valued and be
advised by a qualified financial advisor on best options
• They would receive an income for life that would rise with
inflation
• The cost is met on the policyholder’s death and is recovered
from a person’s estate based on percentage of equity ceded
• Any growth in the value of the home on the balance of equity
would remain theirs
• There would be arrangements for those that died in the early
years after taking out a loan to give extra protection

16. Administration of the Equity Bank
Three main options
1. A service run by local authorities and integrated with
social services and DPS
2. A national scheme, like student loans service which
benefits from economies of scale administered from
with DWP
3. A mixed model in which the bank is and agency of
the state and the service is out-sourced to existing
equity release providers

17. Equity released for different levels of
annuity and interest rates
Note: Capital requirement figures in £’000s
age 1% 2% 3% 4% 5%
60 56.9 63.2 70.0 77.4 85.3
65 46.4 50.4 54.6 59.1 63.7
70 36.7 39.1 41.6 44.1 46.7
75 28.2 29.5 30.8 32.1 33.4
(a) £2,000
age 1% 2% 3% 4% 5%
60 85.4 94.9 105.1 116.1 127.9
65 69.6 75.6 82.0 88.6 95.6
70 55.1 58.7 62.4 66.1 70.0
75 42.3 44.2 46.1 48.1 50.0
(b) £3,000
Table shows value of
equity to be released
in £’000s for given
levels of annuity and
interest rates with
annuity rising with
inflation:
(a) £2,000 p.a.
(b) £3,000 p.a.
Equity released

18. Cash flows and break even point
Chart showing cash flows for 1,000 women aged 75 in
2015 based on £2,000 annuity at 2% p.a.
Age loan ('000s £s)
break-even
year
60 63.2 2033
65 50.4 2030
70 39.1 2027
75 29.5 2024
Break even
year

19. Interactions with taxes and benefits
Benefits -£sIncome tax +£s
Housing
equity
State
£A
Estate
£B=£E-£A
-ve
-ve
+ve
+ve
Annuity£s
Equity£s
Chart showing money
flows in the system (Key:
£E is value of home, £A
is the equity released; £B
is the residual value of
the estate). Actual flows
will depend on tax
benefits rules.
A person releasing
equity may lose out
financially if their
benefits are reduced and
they must pay income
tax

20. Tax and benefit issues arising
• Details are complex but a in general a single lump sum counts
as capital and regular payments as income
• Most benefits for older people are not taxable benefits and so
are not a problem
• Capital draw down from main home is free of tax but may
breach capital allowances for means tested benefits
• However, an income needs to be on equal footing with capital
draw down tax purposes
• The new flat rate pension will remove possible interactions
with pension credit
• Access Council Tax Benefit is likely to be most affected but it is
fixable

21. Summary
• Evidence that Equity Release would meet financial needs not being
met elsewhere - neither pensions, the benefits system, commercial
equity release, nor social services
• Is designed not to replace the commercial equity release market but
to complement and improve it among a specific demographic group
• Simple and relatively uncomplicated compared with commercial
equity release schemes which are not taken up by the target group
• Advantages are low cost and trustworthy and with the policy and
administration under ‘one roof’ so easier to dovetail with tax and
benefit issues
• Does not have to be expensive and demand will vary by individual
circumstances and area of the country . It is also self-financing after
a relatively short period

22. Stakeholder impact
Stakeholder groups
• Older people
• Heirs and family
• The Government
• Commercial equity release providers
For further information on impacts read research report

23. Rt. Hon Paul Burstow MP
Member of Parliament for Sutton & Cheam
This event is kindly supported by Cass Business School
#UKequitybank

24. The UK Equity Bank:
A new way to unlock home equity
and provide income security in
retirement
Thursday 12th June 2014
This event is kindly supported by Cass Business School
#UKequitybank