Monthly Archives: May 2011

The over-50s who are unfortunate enough to lose their jobs will probably spend more time unemployed than their younger counterparts.

Analysis reported by the Institute for Public Policy Research (IPPR) declares that 46 per cent of people (182,000) that are currently out of work have been unemployed for over a year. This figure has risen from 31 per cent of long term unemployed in 2009 and is now at its highest level since 1997 and the Labour party came into power.

Whilst there are companies who are positively employing an older workforce such as Marks & Spencers, British Telecom, Sainsbury’s and B&Q, the data suggests that less and less over 50s are finding employment in these financially troubled times.

For employees nearing the end of their working lives this comes as worrying news, as a lot of older workers will have to continue working past their retirement age due to the raise in pensionable ages to 66 by 2020.  Also, many people are discovering that they won’t be financially secure enough to retire at the age they had originally planned.

Recent government figures revealed that there are now 850,000 people classed as long-term unemployed, THE IPPR’S director, Nick Pearce, said: : “Being out of work for more than a year can have a scarring affect, making it harder to get a job as well as having a negative impact on one’s health and wellbeing.”

Long term unemployment is rising amongst younger workers as well.  The mid 2000s saw 11% of 18-24 year olds out of work for over a year, that figure has now risen sharply to 27%, with a total of 198,000 young people searching for jobs. The age group has been dubiously dubbed as the ‘lost generation’ amongst the British workforce.

However the news isn’t all bad.  This Office for National Statistics has released figures that show overall unemployment falling by 36,000 in the first quarter of the year to a total of 2.46 million, this is the second consecutive quarterly fall.

 

The Organisation for Economic Co-operation and Development (OECD) has indicated that providing care to elderly people in industrialised nations is rising dramatically. By the year 2050,the cost of providing care could increase by up to three times compared to what it is today.

The OECD report indicated that longer life expectancies for people in industrialised nations mean that the proportion of the population who are over the age of 80 could increase from 4%in 2010 to 10% in 2050. Currently, an average of 1.5% of GDP is spent to care for the elderly inthese nations.

If trends continue, this may need to rise to as much as 4.5%.The OECD report suggests that member countries need a long term vision to meet thechallenges they face in caring for an ageing population. It also suggests that relying heavily onfamily care will not be the best option.

At the present time, many countries are struggling to meet their care demands. Low pay and difficult working conditions result in a high turnover of care staff. Initiatives in Germany, the Netherlands and Sweden have improved staff pay and conditions, and as a result have shown an increase in staff retention.The report has also indicated that more migrant workers will be needed to provide the care needed.

The OECD Secretary General, Andrea Gurria, added: “With costs rising fast, countries must get better value for money from their spending on long-term care.”

Most workers approaching retirement have a cosy expectation of easing up in their 50s before stopping work in their early 60s, but have no idea about how they will fund their dreams.

These unrealistic expectations of semi-retirement unsupported by sensible financial planning are dashing the hopes of millions and the time has come from everyone to take more responsibility for their old age, says a study by HSBC Bank.

The generation approaching retirement knows they will outlive previous generations and realise their pensions are less likely to be as generous as those paid in the past.

Despite this understanding, 68% of people approaching retirement worry about money and 48% have concerns they do not have enough cash for their retirement.

Nevertheless, only 39% have a financial plan for their old age.

Emotional investment

The bank found retirement savers can give up work knowing they have four times as much money set aside as their peers and can look forward to a fuller and happier life after work.

Savers with financial plans put by an average £123,000 for retirement, while non-planners have around £28,000.

Retirement planning proved to be an emotional investment as well.

Around half (48%) of non-savers expect financial hardship in retirement, while just a quarter of savers (23%) have similar worries.

Relying on state pension

The average age people give up work is 62 – but just one in four (27%) expect to be better off financially that their parents were in retirement, while half (49%) expect to be worse off.

Worringly, a fifth (17%) do not know where they will find money after they retire and 21% will rely on the state pension.

David Wells, head of investments, pensions and savings, HSBC Bank, said: “The emergence of this ostrich generation is a real concern. People know that they need to plan and save more for their retirement, yet are not turning this knowledge into action.

“People need to look around and take proper stock of what they need to do – they can no longer totally rely on the state or their employer to provide for them. It is all about taking individual responsibility.”

Many of these retirees that own their own homes outright or with small mortgages will be forced to use equity release during their retirement to keep income levels sustainable.

Equity release misconceptions stop some retirees who could benefit from raising money tied up in their home from accessing the cash.

Many believe equity release is a shady financial retirement planning choice because they confuse equity release with other financial products, says Safe Home Income Plans (SHIP), the trade body for equity release providers.

A SHIP study explodes some myths about equity release that are simply untrue:

• Equity release borrowers do not risk losing their home – 69% of homeowners planning for retirement believed this despite providers letting borrowers stay in their homes for as long as they want, providing the property stays their main home.

• Around 2 out of 3 people wrongly believed they could not leave their home as an inheritance to their family or loved ones. In most cases, the property is sold to repay any loan when the borrower moves in to long-term care or dies. Any balance is paid out as an inheritance.

• Equity release borrowers can move to another home without financial penalty, although half of homeowners (52%) believed they could not

• Many homeowners (47%) believe equity release is a wild and unregulated industry where their home was at risk if they borrowed against it, when all equity release companies are regulated by the Financial Services Authority.

• Family or loved ones could end up with a financial millstone from equity release if a property sale does not repay the borrowing is a worry for many (43%). The truth is an equity release loan can never add up to more than a home’s value and no debt is passed on to an estate.

• Many homeowners (40%) mistake equity release for sale-and-rentback, which are different products. Sale-and-rentback is often a financial deal of last resort for someone facing home repossession and has no links with equity release.

Director General of SHIP, Andrea Rozario, said: “The government’s proposed changes to retirement provision and the rising cost of living over the last year has increased the awareness of the role equity release can play in terms of retirement financing. However, it is clear there is still much work to be done to overcome misconceptions about these products.”

 

A report recently published by Key Retirement Solutions, has found that almost one third of pensioners who take out equity release plan have debts of more than £25,000.

Of the people who release equity from their properties, over 31 per cent used some, or indeed, all of the money to clear some form of debt, be it a mortgage, credit card or bank loan.  The equity release company revealed that an average of £25,418 was owed by customers.  On average £30,838 was owed on their mortgage, £11,386 on loans and £10,296 on credit cards, though most people did not owe money on all three types of debt.

Extreme cases saw pensioners who owed £90,000 on credit cards and others who had unsecured loans totalling a quarter of a million pounds and mortgages of £340,000.

The high level of credit card debt was attributed to a combination of the current economic recession and the increasing cost of living. The company said that many retirees had been forced to use their credit cards more and more to cover every day expenses as other forms of borrowing were not available to them.

The outstanding mortgage debts could be down to the mis-selling of endowment policies, which left many pensioners with a large deficit between the amount they owed on their mortgage and the maturity value of the investment they had taken out to repay it.

The number of pensioners looking to unlock money tied up their properties with equity release schemes has increased by 31% in the first quarter of 2011, the same period last year saw just 23%.

Key Retirement Solutions analysed 4,400 customers and discovered that on average people were forking out £385 per month on various debt repayments last year.  This figure equated to 25% of the average pensioner’s household income of below £18,000.

Dean Mirfin, group director at Key Retirement Solutions said: “Pensioners in line with the rest of the country have struggled to borrow money in the past three years and have increasingly turned to credit cards to tide them over.”

He continued: “They are also feeling the effects of the endowment mis-selling scandal as they’re coming to the end of mortgage terms and struggling to pay off mortgages as their endowments have missed payout forecasts.”

“It all adds up to a major squeeze on incomes but there is silver lining in that they are literally sitting on considerable wealth in their own home.”

 

People tempted by companies into leaving their generous final-salary pension scheme for cash lump sums could seriously be out of pocket come their retirement.  Steve Webb, the Pensions Minister, has stated that he is extremely anxious about reports of people being offered cash bribes to downgrade or move their pension schemes.

The incentivised transfers involve clients being offered a short-term cash benefit, often of a few thousand pounds, to transfer their pension rights away from their final-salary scheme into a defined-contribution scheme instead or give up their inflation protection.

The new defined-contribution schemes won’t guarantee how much a pension will be at retirement, instead they promise to make set contributions which leave the investor to take all the financial risks that come with a volatile market.

“This can look like a good deal when you are offered a cash lump sum, but people forget they will be retired for 20 or 30 years – compound interest means their pension could fall by a quarter or more if they give up inflation protection,” Mr Webb said.

Workers will also have to use the sums they build up in their defined-contribution schemes to buy annuities when they retire.  At the minute annuity rates are at record lows so people will need to save a lot more to buy their annuities than they would do if they were still in a final-salary pension scheme.

The Minister warns that people are expected to be retired for 24 years, and that one in six people will live until they are 100.  Transferring to an inferior pension scheme now for a few thousand pounds could cost them dearly if they have a long retirement.

Mr Webb said: “We urgently need to make sure that we root bad practice out of the market. The industry can’t go on offering superficially attractive deals to people that ultimately leave them badly out of pocket.

A round-table event is being held today, and is to be attended by members of the pensions industry along with the Pensions Regulator in an attempt to stamp out the practice.

 

Around 7 out of 10 family breadwinners do not contribute to a workplace pension, claiming they do not have enough cash left over at the end of the month.

But roughly the same number would put cash aside for their retirement if their employer matched their savings, according to the second quarterly family finances study by pensions firm Aviva.

Only 15% said they would duck out of saving for a pension when auto-enrolment rules kick in.

Research disclosed most breadwinners (72%) do not belong to a workplace pension scheme through choice (20%), because they do not qualify (4%), they do not know enough about the scheme (11%) or because one is unavailable in their workplace (43%).

For the one in five who choose not to belong to a workplace pension, 40% say they simply can’t afford to.

Paul Goodwin, head of pensions marketing, Aviva, said: “The UK is facing one of the largest pensions crises in Europe, so it is vital that we consider what can be done now to help customers plan their retirements for the future. As the government has recognised by its planned auto-enrolment programme, workplace pensions have a significant role to play in meeting this challenge.

“There is much work to be done though as only 28% of UK family heads are currently paying into a scheme. While many people cite affordability as a reason for not joining, our research suggests that for many funds are available, but are often prioritised elsewhere.”

Of the 74% of breadwinners willing to save through a workplace pension if their employer matched their cash, the most popular contribution was 5% of annual salary (23%).

A 5% contribution of the average salary of £25,879 could add up to a pension pot of around £250,000 over a 44 year working life. The current average annuity pot is less than £30,000.

“A lack of understanding around pensions is also seriously hampering take-up rates, so for the long-term interests of families in the UK, all parties concerned – the government, product providers, employers and employees themselves – need to work hard to ensure that auto-enrolment is a success,” said Goodwin.

Retirement savers want the government to put confusion over the costs of long term care to bed so they can make firm plans to finance their futures.

They want a clear statement showing what the government is likely to pay towards their care so they set aside funds to ease their later retirement.

The message comes from a study by the Commission on Funding of Care and Support as part of a review commissioned by the government.

Care concerns

The main worry for savers was successive governments ‘shifting goalposts’ by changing policies, and that any final decision should be financially sustainable.

Andrew Dilnot, chairing the commission, said: “This research demonstrates exactly why reform of funding for care and support is needed. Too many people are not able to plan for the kind of care and support they would want because of confusion over how the current system works. Certainly, the system we have at the moment isn’t one to be proud of and it won’t be able to cope with future demands

“But people weren’t downcast about the future, they were enthusiastic about finding a workable solution to the funding challenge. Most people are happy to contribute towards the cost of their long-term care, but they want a simpler system which gives them greater certainty over what the state will provide and what their responsibilities will be.

“We’re hearing that people accept that there are no easy answers: what’s most important is that we come up with a lasting settlement.”

Other concerns raised in the study include:

• A lack of understanding of what long term care provides and how the system is funded

• A move away from the assumption that families will provide long term care for relatives

• Worries about a government-funded safety net for the poorest pensioners and those needing more care

• The savings threshold for free long term care is too low at £23,250

• Retirement savers would like funding options covering insurance and pensions

The research will underpin a report from the commission to the government in July 2011.
Looking at long term care

Long term care aims to give independence to people with a wide range of age and health related problems by offering support with day-to-day domestic tasks.

This care is not state-funded, although means-tested benefits are available for specific support provided by local councils.
Many with assets worth more than £23,250 are excluded from cash help from benefits and must fund their own care.

Government urged to improve care

Another study in to long-term care funding by international financial policy makers the Organisation of Economic Co-operation and Development (OECD) is urging governments to redouble efforts to make long term care policies affordable and to provide more robust support to individuals.

The UK is a key member of the OECD.

A new report Help Wanted? Providing and paying for long-term care says around half of everyone benefitting from long term care is aged at least 80, and the proportion of the population in this age band is likely to increase from one in 25 of the population now to 10% by 2050.

The report predicts governments will have to double or triple spending to meet demand for services – and with average spending on long term care across OECD countries standing at 1.5% of GDP, this means a significant share of a country’s wealth will be diverted in to providing social care.

A fast ageing world – % of population over 80 years old

Source: OECD Labour Force and Demographic database

“With costs rising fast, countries must get better value for money from their spending on long-term care,” said OECD Secretary-General Angel Gurría. “The piecemeal policies in place in many countries must be overhauled in order to boost productivity and support family carers who are the backbone of long-term care systems.”

Upgrading the image of care workers

The OECD has identified how care workers are held in low regard by many communities and is encouraging governments to put programs in place to upgrade care careers.

Many care workers take a job for a short time and accept low pay until a better post comes along. Better pay and conditions would boost the image of the role, while giving workers a chance to build a career rather than take a stop-gap role.

This would give a knock-on effect to long term care, as care givers would have more experience and better training that would aid them in providing a better service. In turn, this better service would benefit those receiving care.

The stigma of working in the sector plus low, mainly part-time pay tends to put off many capable would-be carers, leaving the posts open for migrants. In the UK, one in four care workers comes from overseas.

One solution is offering language and skills training to raise the profile of these migrant workers.

Long term care affordability

In line with the Commission on Funding of Care and Support study results, the OECD also wants governments to offer quality care at an affordable price.

The OECD notes that respite care and state funding can take the stress away from institutional funding to let more people in long term care at home. The OECD report reckons 70% of care receivers can remain in their own homes if support is properly configured.

The report writers also note that in the US and France, the largest long term care markets in the OECD, costs are expensive and are only affordable by those with above-average incomes.
Private insurance take up is low for the over 40s, despite established markets – with only 5% of the age group in France investing in cover.

 

Customers who were mis-sold payment protection insurance (PPI) may miss out on compensation if they fail to get their complaint in on time.  Over 1.5 million people over the past 6 years have lodged complaints about being mis-sold the controversial policies, yet 60 per cent of these cases have been rejected by banks and policy providers.  Of these 60% of unsatisfied consumers, only around a quarter went on to take their issues to the Financial Ombudsman Service (FOS).  

The industry rules now state that customers must refer to the FOS within 6 months of the provider rejecting their claims.  If they fail to do this then they lose their right to any further complaints.  This means that many consumers will lose out on any compensation as a bank or firm can reject the claim and the responsibility is on the complainant to make the referral within the time frame.

The Financial Services Authority is looking at whether or not to use new powers to force policy providers to review customers’ PPI complaints that had previously been rejected.

Another possibility for clients to pursue their compensations claims is a new rule that forces firms to proactively contact their customers to tell them they are entitled to have their policies looked at if they feel they have been mis-sold to them.  People in possession of such a letter may be able to reissue their original claim with the ombudsman even though it may have already been rejected by the provider

The industry is forecast to pay out between £7 billion and £10 billion in compensation after a legal battle on the new rules about mis-selling was abandoned.

The Financial Ombudsman Service has complained on numerous occasions that banks and other providers were not handling the Payment Protection Insurance complaints fairly, and would often reject them without a full investigation knowing that most consumers would not take the matter any further. The ombudsman has found that in two thirds of cases of mis-selling policies, the consumer had a right to compensation, and for some financial firms the figure rises to 100% of claimants.

However, it’s likely that these compensation payments will hit customers in other ways as the banks and financial firms look to recover the cost.  Mortgages and other loan fees could rise, savings rates cut or account charges be levied for free current account holders.

 

 

The Government have announced that investors who lost money with the assurance society will start to receive compensation as early as next month.

Priority will be given to those receiving ‘with-profits’ annuities, older policy holders and relatives of policyholders who have since died (whose numbers are around 50,000).  Out of these groups of investors however, only the annuity holders will be given full compensation.

Victims of the near collapse of Equitable Life in 2000, saw their investments decrease by up to a half and were unhappy at the Government’s announcement that they would only get back less than a quarter of the total they lost.  Anyone who is eligible for a payment of less than £10 will receive nothing.  In total Equitable Life victims will receive around £1.5 billion.

The Equitable Life compensation will be tax free and not means-tested.  It won’t affect anyone’s eligibility for tax credit, although the money could be taken into consideration when other state benefits are applied for.

The compensation scheme is aiming to contact all eligible policyholders by June 2012. They will be sent a statement explaining the value of their compensation and details of when they will receive it, should they qualify.  The Treasury has declared that payments may be able to be brought forward if grounds of hardship can be proven, regardless of circumstances.

Financial secretary to the Treasury, Mark Hoban said the compensation scheme had been designed to reflect “the principles of fairness, transparency and simplicity”, adding “Having spent a great deal of time in dialogue with interested parties, the Government is now approaching the final stages of preparation before the [compensation] scheme begins to make payments to policyholders.  The Government’s ambition is for these payments to begin before the end of June.”

The compensation scheme is being administered by the National Savings and Investments (NS&I), and the Treasury has advised that policyholders do not need to take any action at this stage.