Equity release could lift more than a million of Britain’s poorer pensioner households from living in poverty for a year between 2012 and 2040, research commissioned by Just Retirement and conducted by Oxford Economics has found.

According to the analysis, equity release would have raised 7,872 pensioner households’ income out of relative poverty in 2012. The impact occurs through lump sum equity release and the impact of drawdown customers’ initial payment and year one drawdown. In the second year this grows to 10,729 households, as 8,800 new customers’ incomes are boosted plus 1,929 of the previous year’s customers’ drawdown sufficient income to get above the threshold. Between 2012 and 2040, 1,090,000 pensioner households could be lifted out of poverty for at least a year. In 2040, 63,725 pensioner households are estimated to be raised above the threshold.

Around one in every seven pensioners is living in relative poverty, defined by the Department of Work and Pensions (DWP) as having a disposable income of less than 60 per cent of median household income. Out of the 1.7 million pensioners in ‘relative poverty’, 60 per cent own their own homes outright.

Of the very worst off pensioners – about 0.8 million classified by the DWP as suffering ‘material deprivation’ – 38 per cent own their properties outright.

According to Just Retirement, equity release is a relatively new product, and in recent years there has been an increasing shift towards allowing homeowners to set up a cash reserve and draw down money at regular intervals, rather than having to take a lump sum up front.

The research also looked at the effect of a notional plan aimed specifically at giving a longer-term boost by allowing pensioners to take £5,000 a year for 12 years. The research found this could lift between 3.8 million and 22.8 million pensioner households out of poverty for at least a year between 2012 and 2040.

Just Retirement group external affairs and customer insight director Stephen Lowe warned that the situation could get worse as defined benefit schemes are replaced with “less generous pensions” but that many of those approaching or in retirement and who own their properties “have significant wealth locked up in bricks and mortar”.

Lowe said: “Many of those approaching and in retirement with inadequate pensions and few other sources of income do own their own properties and have significant wealth locked up in bricks and mortar. This research uses economic modelling to try to quantify the benefits that tapping into some of that wealth might bring.”

The research found that the economic benefits of equity release would provide an ‘optimistic’ gain of 0.2 per cent in GDP by 2040 and around 22,000 new jobs.

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