Key Retirement Solutions has claimed that a government ‘no negative equity guarantee’ could cut equity release rates by as much as 1% and be more beneficial for retirement savers than a proposal to launch a state-backed Equity Bank.

Group director Dean Mirfin has pointed at the US experience where the government underwrites the “no negative equity guarantee”, removing the house price inflation and longevity risk from lenders, enabling them to reduce rates.

He made his comments at a House of Lords event for the launch of the International Longevity Centre – UK’s (ILC – UK) report “The UK Equity Bank”, which calls for the Government to provide incomes to pensioners in return for part of the equity in their home.

MP Paul Burstow, speaking at the launch, said he saw more of a role for the government in tackling longevity risk rather than launching an Equity Bank.

Mirfin said: “Equity release is very popular in the US and that is in part due to the government there taking away the house price inflation and longevity risk from lenders.

“This has a reducing effect on the interest rate paid by consumers and, if such a scheme was adopted in the UK, rates could be reduced by up to 1%.

“Key believes that efforts in this area and on how equity release is treated in relation to tax and benefits will significantly help the greater access and distribution of equity release and genuinely benefit people who need help.”

Key Retirement Solutions has welcomed the debate about an Equity Bank for highlighting the wealth pensioners have in their homes and how it can be used for improving retirement income.

However it believes that looking more at ways to incentivise pensioners to utilise their home equity through supportive initiatives will prove more beneficial to government and homeowners. It believes that by supporting the longevity risk and looking at the taxation incentives it could put in place for equity release, this could result in a major increase in the numbers releasing equity and importantly addressing many of the needs amongst the groups highlighted in the ILC report.

The ILC – UK report, produced by Professor Les Mayhew and David Smith of Cass Business School, recommends the UK Equity Bank targeting people living alone who have annual incomes of less than £15,000. It estimates around 40,000 a year could benefit.