After receiving financial advice they should be able to sell a portion of their home to the state in return for a guaranteed lifetime income.
Upon death the property could be sold, while the debt to the state paid and any remaining value could pass to the person’s estate.
The report, The UK Equity Bank, published by the International Longevity Centre – UK, was produced by Professor Les Mayhew and David Smith of Cass Business School, City University, London.
Professor Les Mayhew said: “The proposed recent pension reforms, whilst welcome, do not address the needs of existing pensioners whose incomes are fixed and therefore unaffected.
“Its main purpose would be to improve living standards in retirement, as well as making more money available for everyday tasks and services such as help around the home, home maintenance, holidays, etc.
“The proposal is aimed at a sizeable group of older home owners, perhaps as many as 400,000, who have relatively small incomes of, say, £15,000 per annum or less, consisting mainly of the state pension and limited additional sources.”
Housing equity owned by the population over 65 is worth around £1.4 trillion or, £122,000 per person on average (ELSA), while in households with a deceased partner, home equity could be twice this average.
Around 40,000 new people each year could benefit from the scheme.
It is argued that the Equity Bank should be owned and maintained by central government as a trusted state-run scheme could also benefit from economies of scale with relatively low borrowing and administration costs.
The paper was launched in the House of Lords yesterday by baroness Sally Greengross, chief executive of ILC-UK, the leading international think tank on longevity and demographic change.
She said: “The value stored in people’s homes could be used to provide greater income in old age and improve living standards.
“Whilst some people will chose to downsize, there is a large group of older people on low incomes for whom moving house would be impractical but for whom a higher income could significantly help improve their day to day life.
“Traditional equity release schemes may not work for this group of the population and new ideas, like the Equity Bank, deserve serious consideration from government and the financial services industry.”
Professor Mayhew explained: “Even if only relatively small amounts were to be released each year, the Equity Bank proposal would generate macroeconomic as well as personal benefits to users.
“It would benefit local economies especially in places with disproportionate numbers of older people and income deprivation.
“Over time the Equity Bank would be self-financing but it is plausible that start-up costs could be met from within existing welfare budgets.”