Is retirement housing affordable? How can anyone tell?
Today JRF publish the findings of our latest report. The research aim was to find out if retirement housing was realistically affordable for older people. Our main obstacle was the sheer complexity and variation in the rules for state help in retirement housing. The first finding became obvious: regardless of affordability it would be extremely difficult for anyone to understand the financial implications before moving.
State support - an income floor
The system of state help for pensioners initially appears to be straightforward. The guarantee component of pension credit provides older people with a minimum income after paying for housing costs. It in effect creates a “floor” so any pensioner with an income below this level is entitled to benefit that tops-up their income to the floor and also covers their housing costs. As income rises above the floor the benefit is gradually withdrawn.
The value of the income floor created by guarantee credit is similar to both the poverty line and the minimum income standard. So in theory with guarantee credit available, all pensioners should be able to live in retirement housing and still be able to meet their basic needs.
However, our research found that a move to retirement housing can reveal trapdoors in the income floor. Trapdoors occur when a new housing cost is not eligible for state help which could push remaining income below the floor. In retirement housing, particularly for owner-occupiers, the trapdoors are numerous.
Most owner-occupiers live in freehold properties so once the mortgage is paid off they are free to choose how much to spend on their house in terms of upkeep etc. But most retirement housing schemes will have service charges, ground rents and sinking funds which change a financially autonomous household to one that is liable to meet on-going payments.
Alongside this the financial help available through guarantee credit is unpredictable. Some costs will be eligible for help and some costs won’t. For example sinking funds, which are in effect a forced investment are not eligible for help, but nor are they optional cost for most retirement housing residents.
The system also varies by local authority. Financial help with support costs, which are often compulsory in retirement housing, is determined at the local authority level. The help available often depends on each individual’s ability to pay, the level of support required and whether it is classified as ‘housing-related’ support. Owner-occupiers tend to get much less help with support costs but these issues apply across all tenures. Also, as local authority funding for support services is no longer ring-fenced, within each local authority, systems are prone to change.
This complexity can also create bizarre incentives. Under the current system people with savings over £23,250 are not eligible for any help with the cost of care – regardless of income or care costs. But this creates a disincentive for owner-occupiers to downsize or move to retirement housing as in doing so they could release enough equity that any help they previously received with care costs would be withdrawn. Although supporting under-occupying households to downsize is often claimed to be one way to meet the demand for larger homes, this policy encourages the opposite.
It’s not unusual for financial planning to be complex, but what makes matters worse for moving to retirement housing is the degree of uncertainty and inconsistency. It is almost impossible for those considering retirement housing to know if, and at what stage, they would receive any help.
The research was jointly funded by Age UK and JRF.