Monthly Archives: June 2011

A recent survey held by the National Savings and Investments organization (NS&I) has indicated that over one third of British people do not have enough savings to cope in an emergency and over one eighth have no savings at all.

NS&I is backed by HM Treasury and is an Executive Agency of the Chancellor of the Exchequer. The survey has been conducted every quarter since 2004 and is considered to be a snapshot of how people in the UK are saving. In April this year, 2597 people responded to the survey.

The latest results showed that 13% of Britons had no savings, 36% didn’t have enough to cope should an emergency arise and 25% also indicated that they were unlikely to save in the coming months.

Experts believe that this survey indicates that the high cost of living is impacting on peoples ability to save. As wage increases are not increasing at the same rate as the cost of living, the ability to save may be diminished further. Tim Mack, a spokesperson for NS&I said, “It can be difficult to save and pressures on disposable income often prevent people from setting aside as much as they would like”.

Only 26% of people confirmed that they had set themselves savings goals. The main reason people had for saving was to prepare themselves for an upcoming holiday.

Whilst 37% of people were saving for their holiday, 35% are saving for a deposit to buy a home. Other reasons for saving include saving for an emergency (32%), saving for retirement or a car (21% each) and saving for their children’s future (19%).

The survey indicated that British people save an average of 8.31% of their monthly income. Men tend to save 8.43% of their monthly income, an average of £115.80 per month and women save 8.19%, an average of £84.84 per month.

The survey also showed that younger people were more likely to save than older people. 40% of people between the age of 16 and 24 indicated that they had savings goals and 44% indicated that they were more likely to save in the coming months. However, only 25% of people aged between 35 and 44 had savings goals and only 14% suggested that they would be more likely to save in the coming months.

Although the current economic climate is a barrier to saving, there are several steps people can take to improve their ability to save:

• Monitor your outgoings and consider any options where you can spend less. Transfer the savings into a separate account. For example, you could try taking packed lunches or leftovers to work or try cycling or walking to work during the summer months.
• Set up direct debits to regularly transfer money into a savings account.
• Shop around and consider switching your savings account to one with a better rate of interest.
• Have a savings plan and review it at least once per year to make sure you are saving effectively.

Her Majesty’s Revenue & Customs admitted last night that up to one in six people are paying the wrong amount of income tax.

These figures come just 9 months after the HMRC admitted the last tax fiasco where 5.8 million people had their tax affairs badly handled. In this latest drama, some 1.2 million workers and pensioners have discovered that they have paid too little tax and are being sent bills for an average of £600.

HMRC have been sending out tax demands to people to claw back the £720 million that they have undercharged people from April 2010 to April 2011. 164,000 pensioners were the recipients of such letters.

Not everyone has been undercharged however, as 3.5 million people who’ve paid too much income tax will be sent an average rebate of £340 from mid-July.

Last year 1.1 million people were sent demands for an average of £1027 for underpayment over two years and new computer systems were put in place to make sure a recurrence didn’t happen, with the Government promising that the errors were a one off.

The HMRC has a process called the ‘end of year reconciliation’ where they match up all of their files to see that people are paying the correct amount of income tax.  The UK previously had 12 different computer systems so discrepancies would often occur.

However, in 2009 a new computing system was put into place that cost £385 million.  This new system was supposed to smooth out all of the errors and ensure that taxpayers in the Pay As You Earn system (PAYE) would be charged the correct amount of income tax and national insurance.

In September 2010, the Government had to admit that some 5.8 million people had still had their tax calculated incorrectly between 2008 and 2010.  The Government is looking red faced again with a further 4.7 million tax payers having paid the wrong amount this year.

Most of these people are thought to be ones who have a number of different incomes, such as more than one job or pension plan.

Once the rebates have been paid back to people who overpaid last year, the HMRC will begin to recoup from those who underpaid, with the money owed being deducted from their salaries in the next tax year.

Last year the Government wrote off many people’s tax debts, with those owing less than £300 not being asked to repay anything.  However, this year tax bills as low as £50 will be recharged.

250,000 retired people saw their tax bills written off last year, but will not be so lucky this year.

An influential group of lobbyists is challenging politicians to buy their differences to work together to tackle the problem of funding long term care.

In an open letter from 10 organisations concerned with care for the elderly, including Age UK, Counsel and Care and the Joseph Roundtree Foundation, MPs are urged to act on the forthcoming recommendations from the Dilnot Commission.

The commission was tasked with offering solutions to the problems of funding and care, and is believed to be issuing a report within the next few days.

The report is widely predicted to state that everyone should contribute towards a £35,000 personal fund to cover these costs after retirement.

“We are reaching crisis point and the debate has gone on long enough,” said the letter.

“The current system is complicated, expensive and underfunded. It causes hardship and anxiety for those in need.

“The uncertainty that has resulted from years of debate and no solid settlement means that people do not know what they should be doing to save or prepare and many use all of their savings and assets to cover their care costs as a result.”

The lobbyists are calling for cross-bench support to set aside party differences with a view to finding the best consensus for resolving long term care issues.

“The government, charities, insurers and individuals all have a role to play, but we need some clarity on what that role should be.

“Too often the long term care question has been placed on the too difficult pile. We all agree that continuing to do nothing is not the answer.

“It would be catastrophic if the forthcoming report from the Dilnot Commission resulted in no action at all,” said the letter.

The letter goes on to explain that previous governments had put off making decisions about long term care because the options were too difficult to grasp – but now the time has come to stop dithering and grasp the nettle to ensure a ‘sustainable, fair, resilient and affordable system for the long term’ is required to fund care for the nation’s increasingly ageing population.

A new survey has revealed that many people in their 20s and early 30s are put off saving for their retirement because of our ‘chaotic’ pension system.

The survey by the Office for National Statistics shows that 78% of 18 to 24 year olds and 43% of 25-34 years old haven’t saved a penny towards their old age.  With many of them citing the confusing state pension as a reason. Half of the people in these age brackets said that they would save more if they understood how much they stood to receive from the state when they retired.

This report adds weight to the Government proposals to introduce an easier to understand, flat rate state pension, which would be around £140 per week.

The current system offers a £102.15 state pension, with additional mean-tested benefits.  However, it has been widely criticised because it appears to favour those who have saved nothing over those who’ve saved a modest amount towards their retirement.

Pensioners can increase their pensions to £137.35 with Pension credits but only qualify if they have virtually no savings.

The Chartered Insurance Institute has already warned that the system will leave millions of people in poverty when they draw their pensions, and that there are over 2 million pensioners currently living below the poverty line in Britain today. The government has recently stated that there is a £9 trillion savings gap on the horizon.

A staggeringly low figure of 39% of men and 28% of women who work in the private sector are currently paying into a private pension scheme.

A poll published by the National Association of Pension Funds (NAPF), found that those under 34 would save an extra £50 a week if they could be assured that their efforts wouldn’t be held against them.

The Chief Executive of the NAPF, Joanne Segar, thinks that the new pension system will encourage younger people to save towards retirement: “The current system is a dog’s breakfast and makes it impossible for people to plan their future. Even pensions experts struggle to work out what they’ll get, so what hope does Joe Public have?”

She goes on to say that the new flat-rate system will help people decide how much they need to save, and that it should be put into action permanently and be left alone without ministers altering it further down the line.

“If [under 34s] could see the state offer might not be enough, they’d be more inclined to get their own savings sorted, partly to avoid working past an increasing retirement age” she added.

Head of Pensions at Standard Life, John Lawson agrees, stressing that younger savers must realise that £140 a week will not offer them a comfortable retirement. The Joseph Rowntree Foundation estimates that the minimum amount that a person needs per week to retire with a decent standard of living is around £200.

A new report from the Office for National Statistics (ONS) has indicated that only a third of British workers are paying into a work related pension scheme. This could leave many people facing poverty during their retirement as they may be left with no extra income to supplement their state retirement pension.

The figures also reveal that workers earning under £300 per week are even less likely to save for their retirement. Only 16% of men and 27% of women on low wages are paying into a pension scheme.

The report showed that the top 10% of UK households had retirement savings that were 8 times greater than the sum total of the retirement savings of the bottom half of UK households, suggesting further inequality in pension incomes.

The report has confirmed that, in the private sector, 39% of men and 27% of women are paying into a private pension scheme. This is a reduction compared to figures in 2002 when 52% of men and 41% of women had private pension schemes.

Experts believe that the reduction may be due to several factors. Many firms are scrapping their final salary pension schemes. Stock market falls are devaluing pension funds and low interest rates are impacting on the value of pension funds. It also suggests that many people are relying on the state to support them during in their retirement years.

The report has indicated that people in the private sector are much less likely to have a work related pension scheme than those who are working in the public sector. Approximately 85% of people who work in the public sector have a work related pension, where at present, only 14% of private sector workers have one. The amount of private sector pension schemes has now the lowest level since the 1950’s.
However, there is a large gap in the typical pension payouts between public and private sector workers. The average public sector pension pays about £7841 per year, approximately £150 per week, where the figures for the average private sector work related pension are £1300 per year, approximately £25 per week. This suggests that people choose not to pay into private sector work related pensions as they yield much less income in the long term.

The government is taking steps to try to ease the pension burden for the future. Proposals to increase the retirement age to 66 by 2020 is hoped to address some of the issues they face, but some experts believe that the age may have to rise further in the future, possibly up to the age of 70. The launch of the National Employment Savings Trust (NEST) is expecting to increase participation in private sector pension schemes.

The government is also is hoping to change the law on pensions to require employers to provide either their own contributory pension scheme or offer the NEST scheme for their employees.

The changes will also require them to automatically enroll any new employee on to the scheme, although, the employee will still have the option to drop out if they choose to do so.

At a time when every penny counts for those approaching retirement, new figures show that £400 million is sitting unclaimed in mislaid pensions and investments.

A unclaimed assets register run by credit management firm Experian reveals hundreds of millions is languishing in public and private funds in the UK.

Retirement savers who traced their share of these missing millions and consolidated them in to a single investment to save fees and charges could top up their current pension projected earnings.

To start a search for missing money that may be yours, go to the Experian web site at https://www.uar.co.uk/Customer/Home

The Department of Work and Pensions (DWP) has aslo run a ‘pensions reunited’ scheme since 2005.

The pensions tracing service has helped 350,000 retirement savers unlock forgotten savings.

Around 70,000 people have found extra cash, while around 25,000 of them have gained £20,000 or more.

Tracing a pension through the DWP is free and can find the details of company and pension schemes even with incomplete details. The DWP database holds information about 200,000 pension schemes.

The information needed to track down a missing fund varies between schemes -

Company pension schemes

Try and work out the trading name of the employer, the type of business and the head office address and dates you contributed to the scheme.

Personal pension schemes

If you have some paperwork about the scheme, or can remember the details, start with the scheme name, the company running the scheme and the town or city where the scheme was based.

Contacting the pension tracing service is easy -

• Go online : https://secureonline.dwp.gov.uk/tps-directgov/en/contact-tps/pension-tracing-form.asp and complete and submit the form.

• Call 0845 6002 537 (lines are open 8.00 am to 6.00 pm)

• Drop a line in the post to:

Pension Tracing Service

The Pension service
Tyneview Park
Whitley Road,
Newcastle Upon Tyne
NE98 1BA

The battle to win the hearts and minds of new retirees is hotting between some of the big name pension providers.

Aviva and LV= are going head-to-head to ready new investment and equity release products in the run up to the long-awaited Dilnot Report on the funding of care and support in England due next month.

The report is expected to promote equity release as vital funding for the retired.

Last week, Partnership, an equity release specialist, released an enhanced lifetime mortgage aimed at elderly homeowners with suffering from ill-health. The aim is to give better borrowing terms to those suffering from cancer, diabetes or smoking-related illnesses.

Now LV= and Aviva have flagged that they are considering the release of similar products in the wake of the Dilnot Report.

The announcement is causing a stir for equity release candidates and advisers because they do not know whether to take the offer from Partnership or hang on for a few weeks to see what other deals the big providers may table.

LV= is playing with cards close to the chest by indicating a ‘wait and see’ approach to Dilnot, while Aviva has recently rejigged equity release products by upping available cash for immediate drawdown to 100% of the sum available.

Aviva is also launching a new fixed-term annuity with the choice of investing in a guaranteed maturity value and a guaranteed fund.

The minimum investment is £30,000 and so long as £5,000 is put in each fund, investors can sink the balance in to both funds in any proportion they wish.

Depending on how the cash is invested, the funds are locked for five to 10 years. The annuity comes with built-in death benefits.

Aviva says the new annuity is aimed at the over 50s approaching retirement earning more than £50,000 a year with a pension fund of £50,000 to £100,000.

Workers on low wages are facing a future of dire poverty because they are not building up savings or taking out private pension plans.

A report conducted by the Office for National Statistics (ONS) has warned that full time workers earning less than £300 a week are risking their financial futures, as less and less were putting money by for their retirement.

Just 16 per cent of men and 27 per cent of women, who earn less than £300 per week working full-time, paid into a private pension scheme.  With many people unable to afford to put money aside due to the current high cost of living.

The ONS reported that numbers of employees taking out private sector pension schemes were dwindling overall.  Figures published in 1997 showed that 52 per cent of employed men and 37 per cent of employed women had private pension schemes.

These numbers had decreased to just 39 per cent of men and 37 per cent of women employed full time who had private sector pension schemes by 2010.

Widening Savings Gap

Along with these findings the ONS also saw that fewer self-employed men, who worked full-time, were likely to have a private pension plan.  64% of men in this category had private pensions in 1989 compared to just 38% in 2010.

The only growth shown in pensions market has been in the public sector.  The percentage of male public sector employees having a private pension scheme was unchanged from 1997 to 2010 at 87 per cent.  The proportion of female public sector workers grew in the same time period from 75 per cent to 82 per cent.

These figures clearly show a widening gap in savings between the public and private sectors.

The ONS report backs up other published surveys, that there is real concern for the future for many Brits. The failure of workers to save adequately for their retirement is worrying, especially amongst younger employees.

Pension giants, Scottish Widows, published their report earlier this month stating that only 47 per cent of people aged 30 to 50 were actively preparing for their financial retirement.  The figure for those over 50 rose to 59%.

However, the survey showed that almost half of employees were not making adequate savings towards their retirement.  It has been estimated that employees should be saving at least 12% of their earnings per year in a pension fund or other investment.

A room in a care home costs around £26,000 a year while the average pensioner’s income is £14,000 a year, according to a leading long term care provider.

This funding gap is forcing families and pensioners to raid savings and to sell homes and cherished possessions built up over a lifetime to finance their care.

The costs are even more in London and the south east, where the annual bill for living in a single room in a care home is around £30,000.

Cheapest care costs are in Wales where fees average £17,680 a year.

The findings were published in a report by care agency Prestige Nursing + Care as industry experts warn of a care funding crisis.

Another provider, Southern Cross, is already gripped in a financial struggle that has seen thousands of jobs lost and emergency plans to close up to 190 care homes across the UK. The firm blames rising costs and government cuts in care funding for a fall in profits.

The Prestige Nursing + Care research confirmed most people prefer care and support that could let them stay in their own homes in old age. Sheltered housing was the next most preferred option.

Managing director Jonathan Bruce claims few plan for long term care and do not have financial resources readily available when faced with care bills.

“Families find this distressing,” he said. “An elderly relative breaks their hip and goes into hospital, they need rehabilitation when they come out, and often families haven’t thought it through.

“With 87% of people approaching old age without having made any financial provision for the cost of care, the UK faces a significant crisis.”

Many industry insiders allege care homes are increasing charges to private residents who do not qualify for state support because councils are paying less for publicly-funded residents in the light of government spending cuts.

The survey involved 1,000 people, interviews with 400 elderly people receiving care at home and a poll of 55 residential homes.

Despite much opposition from back benchers, the government is determined to continue with its plans to raise the state pension age for women to 66 by 2020.

Coalition ministers have said that they will look at alternative ‘transitional’ arrangements so that less women are financially affected by the changes. Some 330,000 women are facing an extra two years of working life before they will be able to retire with the new reforms.

The current plans are for the pension age for women to rise from 60 to 65 years by 2018, and then to 66 in 2020 to come in line with men’s state pension age.

A vote was held in the Commons and the coalition won by a majority of 70.

Iain Duncan Smith, the Work and Pension Secretary, said during the Commons debate that the Government would not be budged from its position to raise the state pension age.

“Responsible government is not always easy government. It involves commitment, tough decisions and a willingness to stay the course.” he said but added that he was “willing to work to get this transition right” amid concerns over the “relatively small number of women” set to be disadvantaged.

To those who suggested delaying the rise until 2022, he said that the the taxpayer would have to pay an extra £10billion and that would be an “unfair financial burden borne disproportionately by the next generation.”

Chancellor George Osborne announced last year to speed up the rate at which the pension age for women would become equal to men’s.

The last government had planned to achieve pension age equalisation to 65 by April 2020, however the coalition’s reforms will see it happen sooner, by November 2018. Using the extra two years to raise the state pension age to 66 for both men and women.

Opponents to the new pension plans argue that many women will be made to wait between 18 months and 2 years before they can draw their state pensions.  They add that the new reforms are unfair as a lot of women will only have been given a five year notice of the new plans.

A Commons motion calling for a rethink of the reforms had been signed by over 170 MPs, including Lib Dem and Conservative backbenchers.

Shadow Work and Pensions Secretary, Liam Byrne said that thousands of women’s retirement plans have been disrupted, with little notice.

“Women in their late 50s will have earned less over their lifetime, they have lower state pensions and private savings than men, many of them are unable to join a workplace pension and have interrupted careers to look after their family, many will have stood down from jobs on the understanding they would get that state pension early.

“What on earth are these women supposed to do with the measures set out in this Bill?”