There are a large number of pensioners today who find themselves in the position of owning their own home which can often be worth a considerable amount of money, but yet find it difficult to make ends meet because of inadequate pension provision.

Their estate can be worth a great deal but it doesn't help their income requirements. Unlocking some of the capital value of a property can be an attractive option for certain people but it is an area that needs to be approached with caution.

In the 1980s, thousands of pensioners were tempted into taking out "Home Income Plans". The problem with these plans was that a mortgage was raised on the property and the lump sum invested, all too often in a product linked to the stock market. For a few years some plans did well until the crash of 1987 and a period of rising interest rates. This meant that many people found the returns from their investments were insufficient to provide any extra income. Using the only asset to gamble on the stock market proved unfortunate for many.

However, the basic idea of being able to release capital locked up in property remained and in 1991 a new product was launched called the "Safe Home Income Plan" or SHIP. This works in a far more secure way in that a lump sum of capital is lent against the property at an interest rate which is fixed for life. The money released is then used to buy an annuity which pays a fixed amount every year also for life. This guarantees to pay the interest on the loan and anything over this amount provides the additional income. In general, the required ages are 70 for a single person or a combined age of 150 for a married couple. The capital sum is repaid to the lender when the property is eventually sold. Such schemes have the backing of Age Concern.

An alternative method of raising capital is known as a "Home Reversion" plan where the property is sold to a third party but you have the right to remain in it for the rest of your life. Obviously the younger you are, the longer the time the third party will have to wait until they can use the asset they have bought and hence the less you will receive for the property, 40 to 50 per cent of the market value might be a typical figure. Again, the capital sum can then be used to buy an annuity to provide an income for life.

With either of these schemes, although they are deemed "safe", it is very important to understand how they work and you must get expert independent advice before making any commitments. A free factsheet on Safe Home Income Plans (SHIPS) can be obtained by ringing 01484 860123.

Converted for the new archive on 30 June 2000. Some images and formatting may have been lost in the conversion.