Monthly Archives: January 2011

A new EU ruling could equalise the pension pots of men and women and the ruling could be enforced as early as March 2011. The advocate general is arguing that there is more to annuity rates than just gender.

Tom McPhail, head of pensions research at Hargreaves Lansdown, says if rates are equalised men could see their annuity rates slashed by between 5% and 10%. The ruling may even apply retrospectively to pensioners already drawing an income.

This ruling if enforced would be a big shock to the already poor annuity rates that are on offer. Current rates are the lowest they have been for decades and many retirees already see annuities as poor value for their accumulated pension funds.

Here at retirementsolutions.co.uk we asked Jennie Gray, independent financial adviser to comment on the likely outcome of the ruling, Jennie said, “If this ruling is enforced as we expect it will be then it will be very disappointing from an adviser point of view. We are already in a period where retirees see annuities as very poor value and this ruling will see retirees even more disappointed with the income they receive”

Long Term Care in the UK is means tested and for those pensioners that suffer from dementia it is extremely hard on the families. It is so important to ensure that an Enduring Power of Attorney is put into place very early and that the family seek independent legal and financial advice.

Many dementia cases are people well into their eighties and nineties and many need a higher level of care that of course means paying higher fees, the care is also generally required for a long period.

Unlike NHS care, social care is means-tested, and those with assets of more than £23,250 – which can include the value of a home – are deemed to be “self-funders”. Chris Horlick, the managing director of long-term care at Partnership, a specialist insurer, says: “With an ageing population this is a growing problem. Those suffering dementia often need a higher level of care, which is of course more expensive, and they may need this care for years and years.

The family of those with dementia need to consider if care is to be provided in the clients home or in a care home. Assistance from a specialist care fees adviser can be of immense benefit and the adviser would consider any benefit that are being claimed or entitlements, income including from current investments, and any potential inheritance tax liability.

Simply Health the UK’s biggest cash plan provider and private health insurance provider have launced a plan aimed at pensioners, The Simply Cash Plan 70 Plus which helps pensioners manage their own healthcare.

There are something like 10 million pensioners in the UK and Simply Health are targeting those over age 70 for this particular plan. There will be no upper age limit on the plan but to qualify applicants will need to be a least age 70. Plan contributions start at £9.95 per month

Buy Simply Cash Plan 70 Plus and get one month freeSimply Cash Plan 70 Plus is a plan designed to help meet your everyday health costs. Whether you’re retired or still working, it offers you money back for visits to the dentist, optician and chiropodist, and helps with the cost of things like hearing aids.

Unlike some other health insurance, there is no upper age limit or medical required – you just need to be 70 or older to join.There are three levels of cover to choose from, starting from £9.95 per month (less than 33p per day). All of them allow you to claim money back for everyday healthcare, up to annual limits.

* Level 1 allows you to claim for dental visits (including dentures), optician’s bills and towards the cost of chiropody. You can even claim back a proportion of your costs for complementary therapies like physiotherapy, all without the need to be referred by your GP.
* Levels 2 and 3 also offer a fixed sum to help with incidental costs incurred while in hospital as an in-patient or day-patient (a 12 month qualifying period applies for pre-existing conditions).
* All levels allow 24 hour access to health advice and telephone counselling via a dedicated phone line.

The ABI has published a guide which details the best practice for the retirement process. The ABI is very keen to ensure that retirees have everything they need to shop around and compare annuities on the open market to purchase an annuity and has produced a template letter for wake-up packs and also will release a template shopping around form for customers.

Helen White, ABI acting director of life and savings, says: “Pension providers have made huge strides in improving how they communicate with their customers during the retirement process. “This guide now cements together best practice so that customers can be confident they have all the information from their pension provider to help them make an informed choice and shop around for the best annuity on the market for them.

This year and next year in particular with the baby boomers will see a huge increase in the numbers of retirees that will purchase an annuity and estimates expect nearly 500,000 to buy an annuity in 2011.

Here at retirementsolutions.co.uk we asked independent financial adviser Matt Renier how he expected the best practice guide would be received, Matt said, “It is very important that consumers shop around and compare annuities as the difference between the best and worst rate can be significant. Also, smokers and those with lifestyle habits or medical conditions then many could get even more”.

The Basic State Pension is a government-administered pension. It is based on the number of qualifying years gained through National Insurance Contributions (NICs) you’ve paid, are treated as having paid or have been credited with throughout your working life.

The full Basic State Pension is £97.65 a week (2010/11). The current state retirement age for men is age 65, and for women it is changing. The state retirement age gradually increases to age 65 for women born between 5 April 1950 and 5 April 1955. This change started on 6 April 2010 and finishes on 5 April 2020.

This also has an effect upon Pension Credit for both men and women, as it moves the Qualifying Age (QA) to 65 over the next ten years from 6 April 2010.

The state retirement age for men and women will change again from 6 April 2024, moving everyone’s retirement age gradually to 66, then in 2034 towards 67 and in 2044 towards 68. The rules for building up your Basic State Pension have also changed for those people retiring after 6 April 2010.

From 6 April 2010, men and women who reach state retirement age now need 30 qualifying years to obtain the maximum Basic State Pension. If you have less than 30 years, you receive a proportion, for example, 15 years equals 50 per cent of the maximum pension.

A qualifying year is a year when you paid enough NICs or were credited with NICs, for example, if you were receiving jobseeker’s allowance or child benefit.

From 6 April 2010 there is now no minimum number of qualifying years. Before this date you were required to have at least 25 per cent of the maximum requirement to qualify for any pension.

Gap between the cost of care and what local authorities are prepared to pay is growing.

Many families with elderly relatives in care could find themselves in a situation of falling house prices, low interest rates and rising care home fees. For those families, the situation may be further exacerbated by local authority cost cutting.

The gap between the cost of care and what local authorities are prepared to pay is growing, requiring some families to step in and pay the difference between the council’s set rate and the care home fees once their elderly relatives run out of money.

In the past five years, the gap between the income families have available to pay for care and the fees charged by homes has increased by 600 per cent for those in residential homes, according to figures from FirstStop show. For those in nursing homes, the affordability gap has widened by 200 per cent over the same time as fees for care homes have increased by more than 20 per cent since 2005.

Five years ago, fees for nursing homes were £29,851 a year on average; now they are £36,036, an increase of 20.7 per cent, according to healthcare analyst Laing & Buisson. Costs for residential care have risen from £21,546 a year to £25,896 on average, a 20.2 per cent increase.

Figures from the Department for Works and Pensions show that the income a 75-year-old can expect to receive has been reduced by 27 per cent. Their average income is now just £15,574 against an average £19,843 in 2005.

The cost of care
Full-time residential care costs from £30,000 a year, depending on location, the quality of home and the medical care needed. Anyone in England or Northern Ireland with assets worth £23,250 or more pays for their own care.

Those with assets between £14,250 and £23,250 receive help on a sliding scale. In Scotland the limits are £14,000 and £22,750. In Wales there is no sliding scale; the state pays for everything once assets are less than £22,000.

These means tests apply whether you need help to stay in your own home or require residential care. Your home is not counted as an asset if a spouse or close relative aged 60 or over lives there. If you live alone and need to move into residential care, the house will come into the equation after your first 12 weeks in care.

Local councils, who make the assessments, can also check on gifts made in the years prior to applying for care. This is to prevent older people giving away wealth to beat the means test.

In December 2010 the UK Treasury announced some quite dramatic pension reforms for pension savers. The most dramatic of all was the removal of the need to annuitise from April 2011, instead if income is not required then funds can remain invested in the accumulated pension. Previously pension savers had to annuitise by age seventy five or transfer into ASP (Alternatively Secured Pension).

Capped Drawdown introduced by the Treasury is a replacement for the USP (Unsecured Pension), which more commonly was known as income drawdown. Under Capped Drawdown investors can leave the pension fund invested and drawdown an income from the fund, the income will be capped at a maximum equivalent of a single life level annuity. This maximum income rate is a reduction on the previous income drawdown rules of one hundred and twenty percent of the single life level annuity and capped to prevent retirees exhausting pension savings and having to revert to state benefits.

Longevity in the UK is increasing and these radical reforms by the UK Treasury have been introduced to ensure that pension savings can last a lifetime and also to reduce the burden on the state in retirement.

At the same time the pension reform announced some changes to the death benefits of those that do not purchase an annuity. When an annuity is purchased the accumulated pension fund is exchanged for the annuity and if no additional death benefit options are selected then the pension fund is lost on death. The options available to prevent loss of the whole fund are: Spouses or partners continuing pension or a guarantee period of maximum ten years.

There is no such thing as a free lunch as most of us know and what the Treasury have done is change the death benefit tax on returning the pension fund to the estate from thirty five percent to fifty five percent.

Here we are in a new year and an increasing number of the population about to retire. There is expected to be record numbers of people turn 65 in 2011 and purchase annuity rates. According to figures released by the Department of Work and Pensions the number will be around 658,000.

Until the point they retire those approaching retirement usually have no idea what to expect when they exchange their pension to buy an annuity. Many are most probably shocked when they see how little their pension fund will buy them as an income. Annuity rates are the lowest they have been for decades and are not expected to get any better in 2011.

Seeking the advice of an independent financial adviser (IFA) can help you increase your pension income by as much as 40% for those that have serious health issues. Some annuity providers say that as many as 60% of those approaching retirement could qualify for enhanced annuities. Here at retirementsolutions.co.uk we asked IFA Adam Benson, what sort of conditions can get higher annuity rates? Adam said, “The bulk of retirees that we speak to have some form of high blood pressure or high cholesterol which when combined can get good enhancements to retirement income. Also, things like diabetes can good enhancements, perhaps shockimgly smokers can often get a 15-20% enhancement to thier annuity rates”.

Equity release schemes help many retired people to release funds from their biggest asset, their home. The funds that are released can be used for any purpose. Some may choose to spend money on home improvements, others may prefer a once-in-a-lifetime holiday. It is also possible to use the money freed up to provide a long-term boost to retirement income. Equity release schemes are not ideal for all people. They will reduce the estate left to any beneficiaries, and they can also reduce eligibility to state benefits. All providers offer free and no obligation advice to help people understand the advantages and disadvantages of these schemes. There is an industry body, the Safe Home Income Plan, whose members provide three guarantees to all their customers. These include a no-negative-equity guarantee, ensuring that no customer will ever end up owing more money than the value of their home.

Equity release schemes are a way in which many retired people can free up funds from the most valuable asset which they have, their home. People choosing to do this are able to remain in that home for as long as they wish to do so.

The money that is made available through equity release can be used for any purpose. It is often used for the payment of debts, for instance credit cards/store cards, but it could also be used for many other things, such as holidays, home improvements, or helping out other family members.

The typical person who is eligible for equity release, will be aged 60 years or over, and will own their home with no outstanding mortgage. Most homes, with the exception of those of much lower than average value, should be eligible.

Most providers will offer a number of ways in which the funds can be paid out. It is possible to choose a lifetime income option, providing a guaranteed long-term boost to retirement income, or it is possible to choose a lump sum, or a draw-down option.

These schemes are not ideally suited to everyone, and providers will explain the disadvantages as well as the advantages to any applicants. The funds released will reduce the amount of the estate which can be left after death, and they may also change a person’s tax situation, and may change their eligibility for certain state benefits.

Also, as is true for any form of mortgage, some fees will be charged. Typically these arrangement fees will include solicitors’ and surveyors’ fees.

There is an industry body, the Safe Home Income Plan, which works to regulate the scheme providers. Members of this body provide a three-part guarantee to their customers. Firstly there is a guarantee of no negative equity. No one will end up owing more money than the value of their home. Secondly, people in these schemes will always have the right to remain in their home for however long they wish to do so, and finally they will have the ability to move to a different home, while keeping their equity release scheme, without having to pay any penalties or additional charges.

Reports recently in the Mail newspaper suggest that there are over one million pensioners still burdened with a mortgage and their average debt is £70k and that this is mainly as a result of home-owners being sold endowment policies with their mortgage. Lifetime mortgages could help these pensioners remove monthly mortgage payments.

Between 1984 and 1994, nearly 7.8million homeowners were sold endowments as a way of paying off their mortgage. Endowments were sold as investments that for a modest monthly payment would build enough cash, usually over 25 years, to repay the mortgage.
Ambitious predictions from insurers suggested that by saving just £50 a month they could reap a return of more than £100,000. In fact, they were stock market gambles that failed miserably. Borrowers repaid only the interest on their mortgage and when the endowment failed to deliver, faced bridging shortfalls running into thousands of pounds.
Since the start of the century, payouts on a typical 25-year policy have nosedived to a pitiful £30,000. A 2008 report quoted the average shortfall as £7,200. As many as 100,000 homeowners could have shortfalls of more than £20,000. Source: www.dailymail.co.uk

Lifetime Mortgages could help those with outstanding mortgage balances in retirement

Those over age 55 that find themselves unable to maintain repayments on their outstanding mortgage balance could turn to lifetime mortgages. Lifetime mortgages do not require monthly repayments although the interest rolls up and therefore the outstanding loan increases. At current interest rates these loans will double around every 12 years or so. If house prices increase then this does counter the rolled up interest but the danger is that all the equity could be exhausted in the event of longevity.

As with all equity release products it is important to seek independent financial and legal advice before committing a deal.