The Liberal Democrats have called on the government to consider the creation of stakeholder products for equity release though NS&I, in an attempt to help the ‘asset rich, income poor' sections of society.
Commenting ahead of Wednesday’s Budget, Dr Vince Cable, Liberal Democrat Shadow Chancellor of the Exchequer, outlined possible solutions to both this issue and the current ‘housing bubble’, but stopped short of explaining exactly how they would work.
Cable points out around 6-10% of Band E - H council tax payers are estimated to fall into this ‘asset rich and income poor’ sector, yet only 2% of housing wealth has currently been advanced through equity release products.
He suggests although many people are not aware of equity release, those who do think about it probably worry about trusting companies with their property, and he warns this lack of trust means there has been a “massive market failure” in this sector.
“We would like to see government do something to help pensioners release equity from their home, not from companies people don’t trust but through something like stakeholder products through National Saving,” says Cable.
Cable says he has really serious worries about the dangers of the ‘housing bubble’, as figures suggest 18% of disposable income is spent on debt service, roughly the same level as it was when the market collapsed in the early 1990s, a fact which he warns no-one is really facing up to just yet.
Although the effect of a housing market collapse would be dramatic, Cable suggests it will be "neither good nor bad", as it will provide easier access for first-time buyers while at the same time impact wealth and spending.
He warns, however, there is very little the government can do to prevent such a collapse except trust the Bank of England to make appropriate interest rate moves.
That said, he suggests the government could attempt to strengthen the payment protection insurance (PPI) market.
Cable says the government should actively intervene in the PPI market and, as with equity release, the Liberal Democrats suggest the “government could promote [PPI] stakeholder products through National Savings”.
He adds it is unlikely the Budget will throw up anything unexpected on Wednesday, although he suggests as Gordon Brown may want more fiscal drag, income tax allowances may only rise with inflation.
The Party also confirms earlier speculation suggesting the Lyons review, which is scheduled for release on the same day as the Budget, may also result in a couple of new bands being added to the current regime, while more action on IHT avoidance is expected.
Meanwhile, Cable says an independent audit needs to be established to examine the result of the Gershon Savings – the government’s cost-cutting and efficiency drive – which he says is unclear and “phoney”.
As he points out, the efficiency exercises - which he labels as "very dodgy” - do not take into account the costs of introducing these new regimes, as for example he says HM Revenue & Customs (HMRC) new system of online filing to achieve annual savings of £6m, has actually cost £750m in incentive payments, which he estimates would take 125 years to pay off.
Have your say: Dean Mirfin, from Key Retirement Solutions, says:
"The government could take more effective steps before even considering the mechanics of such a scheme. When MIRAS was available, equity release plans - where annuities were purchased - attracted tax relief which encouraged the taking out of such plans.
"Surely reintroducing tax relief would be a great encouragement. Also many of those who could benefit greatly from equity release are in receipt of means-tested benefits, which are affected by equity release.
"The government would be better serving these pensioners by not hitting their benefits, such as council tax benefit and pension credit, when they release equity. These are some of the first and most effective options available to any government."
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7034 2681 or email [email protected]IFAonline
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