Monthly Archives: October 2011

According to the latest monthly Asda Income Tracker, the average UK family is now £15 a week worse off than they were a year ago.

Escalating energy bills, high food costs, insurance and petrol rises are all contributing towards a lighter purse.  

The Bank of England governor, Sir Mervyn King, yesterday admitted that workers in Britain were suffering from the largest fall in living standards in ‘living memory’.

Asda says that the £15 drop in spending power per week is the largest in the four year history of their Income Tracker, and the current cost of living stranglehold is claimed to be the deepest and longest for over 60 years.

The Income Tracker has the average weekly income for UK households after tax at £597, but essential outgoings including food, heating, petrol etc. eats up £434 per week, which leaves £163 a week to cover all other needs, a drop of 8.3% in 2010.

Sir Mervyn King warned the Treasury Select Committee of a ‘very large squeeze on household incomes’ and said that the current CPI inflation rate of 5.2% was ‘very uncomfortable’.

He added: “Real take home pay has fallen by more in the past two years than in any time in living memory.”

He did, however, say that inflation is close to peaking and it should fall sharply in 2012, giving UK families some financial relief.

The monthly Asda Income Tracker is compiled with the Centre for Economics and Business Research (CEBR) and they predict that the economy will contract for the July to September months, risking further job losses.

Chief Executive of Asda, Andy Clarke said: “While disposable income was down everywhere in September, there is clearly a growing divide between the North and the South.

“Spiralling petrol costs are piling on extra pressure on households across the north of England and Northern Ireland where families are much more reliant on the car to get about.

“As we head into winter and the nights draw in we know that the cost of food, transport and utilities go up.”

In other news, the British Bankers Association (BBA) found that families have been following the Prime Minister’s controversial advice to pay off their credit card debts.

In September, repayment outpaced spending on credit cards, loans and overdrafts by £40 million. Whilst this is good news for families trying to reduce their debts, the decrease in spending and borrowing will undoubtedly have a negative effect on retailers and the economy at large.

Trapped renters are described as those who would like to be able to buy a property but cannot afford to, trapped renters currently account for 55% of the rental market.

4,430 people were surveyed by the estate agents and 27% of those questioned were over 40 years old and felt trapped in the system.  If and when they did get on the property ladder they faced either a higher mortgage to be paid off over a shorter length of time than the standard 25 years, or becoming ‘OAP mortgagees’.

Martin Shipside, a director at Rightmove, said: “Over half of those in rented accommodation would like to buy but can’t make the sums add up, and as a result are trapped. The global economic woes that have left first-time buyer numbers at record lows will shatter the goals and aspirations of many as they face the reality of renting for far longer than they originally planned.

“Trapped renters over the age of 40 could face the prospect of being an OAP mortgagee, or face difficulty getting a 25-year mortgage term if it takes them beyond lenders’ retirement age criteria.”

Over half the tenants questioned said that they expected their rents to go up over the next year.  39% of those who felt trapped in the rental market admitted that they expected to still be in rented accommodation in three years’ time, whereas only 32% of people surveyed last year felt this.

A report released last week showed that that rents in England and Wales had reached a record average high of £718 per month in September.   There had also been an increase of buy-to-let mortgages issued as landlords cashed in on the boom of rental prices.

The number of properties rented privately has also increased by over a million in less than ten years, from 2.1 million in 2001 to 3.4 million in 2010.

A report published by the insurance giants Aviva in 2010, showed that 10% of homeowners over the age 75 are still paying off their mortgages, with the average outstanding balance being £72,500.

Over 55s tempted to supplement their retirement incomes with quick profits from speculative land banking schemes have lost around £200 million to scammers.

Fraudsters typically prey on the over 55s because they know they often have ready cash available in savings to fund their crooked schemes.

Now, the government’s Insolvency Service is warning potential investors to watch out for fraudulent landbanking schemes as the latest figures show the number of bogus firms offering the investments are on the increase.

In four years, the Insolvency Service has closed down 49 landbanking companies that have conned investors out of at least £30 million, while 39 companies have been wound up with losses of £13.4 million.

Investigators reckon that landbanking schemes have cost investors £200 million in total.

Landbanking is the term for a small plot of undeveloped land – often in the planning protected Green Belt – that is offered for sale at an inflated price by falsely claiming the area is earmarked for future development that will increase the price.

The salesman is tapping in to the greed of the buyer who expects the land to soar in value to provide a quick profit in the short term, when the truth is the land will never gain planning permission and is effectively worthless to builders.

The Insolvency Service has seen landbanking complaints soar by 33 per cent in just two years and the number of complaints under investigation has doubled.

Landbanking fraudsters have operated in the UK for many years, but the numbers have picked up since the credit crisis.

In 2009, nine cases were accepted for investigation by the Insolvency Service. This number jumped to 11 in 2010 and 16 so far in 2011.
The typical victim profile built by the Insolvency Service is:
• 67 per cent over 50 years old, with 44 per cent over 60. The oldest was 85-years-old

• 60 per cent of victims are men

• The average loss adds up to £23,000 – ranging from £5,000 to £300,000

Victims rarely get their money back as the schemes are not protected investments under the Financial Services Compensation Scheme.

Jonathan Phelan, the Financial Service Authority’s head of unauthorised business, said: “We’ve seen plots sold on a site of special scientific interest, one on a 45-degree slope, and another without any access to it. None of them stood a chance of getting planning permission and therefore none of them stood a chance of realising the ‘hope value’ that was promised by the company that sold the land. “Most of the money placed with these companies disappears and to make matters worse, as the firms are not authorised by the FSA. As land banks often snare new investors by cold calling them, the lesson remains: if you are called out of the blue with the offer of land that is ‘guaranteed to rocket in price’ – be very suspicious indeed. “This problem calls for a coordinated response and together we are tackling the threat posed by land banks. Working alongside the FSA, Land Registry and the Police, the Insolvency Service has been an active partner in combating land banks by closing them down and preventing more people from becoming victims.”

From investigating landbanking cases, the Insolvency Service also has a good idea of how the scammers work.

First contact is generally by a ‘cold call’ by email or telephone, followed by a hard sell from a salesman the opportunity to make a quick profit is only available for a short time.

The sales patter is always around the potential profit that the deal offers.

The Insolvency Service urges anyone receiving the calls should contact them with the details and should not sign any contracts or part with cash.

Robert Burns, head of investigations at The Insolvency Service, said: “It’s clear that landbanking scams are designed to target the more vulnerable investor, many of them trusting pensioners who are eager to see a greater return on their savings or pension lump sum than they could ever expect from traditional savings and investments. Tragically this often leads them to rashly invest in what seems to be, on the face of it, safe ‘get-rich-quick’ schemes.”

“We need to alert people to the warning signs and the fact that if a scheme seems ‘too good to be true’, that’s usually because it is.

“The public needs to be aware that land sold in these schemes is nearly always sold without planning permission and promises that planning is likely or in place, is a tell-tale warning signal. A check with the council planning office should provide a quick answer on the prospects of planning permission. Many potential buyers, including those now being targeted from overseas, might not be aware of this.”

Landbanking scams are often sophisticated frauds with no other aim than grossing the most cash from victims as quickly as possible.

Crooks often forge official papers to dupe investors in to giving up their hard-earned cash.
Mike Westcott-Rudd, of the Land Registry, said: “We know that landbanking companies have sometimes used forged letters or documents carrying a Land Registry stamp as an ‘official guarantee’ that either their plot of land already has, or will, gain planning permission.

“Land Registry is so far unaware of any landbanking schemes where planning permission has subsequently been granted. It is typical for plots of land sold in landbanking schemes never to be eligible for planning permission. Those looking to invest should remember that Land Registry is not involved in the planning process at all.

“Land Registry is working with The Insolvency Service, the FSA and the Police in a joint effort to raise public awareness and combat landbanking scams.”

State pensions are set to increase by at least the current rate of inflation of 5.2% next year.  By next April the basic state pension is likely to rise from £102.15 to £107.50 per week, after September’s sharp rise in the Consumer Price Index (CPI) inflation rate.

Most benefits are set against the September reading of the CPI, which the Office for National Statistics announced yesterday was 5.2%.

The increase will add £5.20 to benefits such as the job seeker’s allowances, disability and maternity payments.  The news will also please taxpayers as the thresholds on taxes such as income tax, national insurance and inheritance tax will also rise by 5.2%.

The CPI tracks the prices of a basket of goods that is bought by the average UK household.  The basket of goods has risen dramatically in price over the past 12 months hence the high inflation rate.

Linking benefit payments to the CPI ensures that those on benefits do not suffer unduly because of high cost of living increases.

The coalition promised when it came into power in 2010, that it would increase the state pension yearly by whichever of the triple lock markers was higher: 2%, average earnings or the CPI.

The link to earnings was previously cut in the 1980’s under Margaret Thatcher’s leadership.  A move which the National Pensioners Convention say cost pensioners £50 in pension increases since.

It is unlikely that the earnings link will come into play this year as pay-rises are rare and many employees have faced pay freezes and even wage drops, making the actual wage growth in the UK nearer 2%.

This means that the CPI figure is the front runner of the triple lock measures for increases in pensions and benefits next April.

The inflation figure of 5.2% is the joint highest for the CPI since they first began calculating their basket of goods in 2000.  The last time inflation was at this rate was in September 2008.

The Bank of England faces a mammoth task of trying to get inflation down to its own target of 2%, although the Bank Governor, Mervyn King has confidently said that the inflation rate will start to fall back in 2012.

Research conducted by Standard Life, suggests that the new auto-enrolment pension scheme, being introduced by the Government in 2012, could create another 6 million savers in the UK and generate £12.5 billion per year to the retirement savings by 2017.

The Keep on Nudging report, which was developed with academics from the University of Edinburgh, surveyed more than 600 workers who were paid between £18,000 and £45,000 a year.  

48% of those questioned said that they would easily be able to save £50 a month towards their pension and 70% said that they would be able to find the money if they had to.

However, the report also highlighted that communication would be key to the auto-enrolment scheme’s success, as 82% of employees who took the survey said that they would not opt out of the scheme if information was presented ‘clearly and effectively’ to them.

The study also discovered that just over a quarter of workers who didn’t have any form of pension would most likely opt-out of the scheme, compared to the 12% who would opt-out who already had some current form of pension fund, or had held one previously.  This confirmed the need for more education with regards to pensions and retirement saving.

60% of those who said they would opt-out, cited not being able to afford it as their reason, 33% said they didn’t trust the Government and 28% said that didn’t trust any pension schemes.

Professor Ed Hopkins of the School of Economics at the University of Edinburgh said in his report:

“These conclusions are taken from survey data where people were asked hypothetical questions.

“When individuals have to make crucial decisions about their own pensions, they may act differently.”

A report released in September by the Association of Consulting Actuaries (ACA), found that only 25% of employers had budgeted for the cost of staff being auto-enrolled into the new pension scheme.

Their study covered over 460 firms and discovered that larger companies expected around 17% of their employees to opt-out after the change, whilst with smaller companies the number grew to 39%.

A spokesperson for the Department for Work & Pensions was quoted as saying: “Our reforms will get millions saving into workplace pensions, many for the first time.

“It’s vital that people understand these changes, so we are working with industry and consumer organisations on ensuring people know how automatic enrolment can help them save for their retirement.”

More over 55s are taking advantage of equity release, according to the latest figures from the industry trade body.

Equity release gave borrowers and average £49,703 extra cash to spend in their retirement.

Borrowing was 12 per cent up in the three months to September 30 at £206.2 million compared to the previous quarter – and is at the highest level since the £213.4 million advanced in March 2010.

The number of borrowers also increased by 10 per cent in the quarter to 4,148.

The majority of borrowers looking for equity release consult an independent financial adviser 988 per cent) rather than go direct to a provider as this gives them a broader view of what’s available in the market.

SHIP (the Society of Home Income Providers) feels the rise in lending shows that home owners are more aware of the benefits of equity release and how this cash can ease their financial worries in retirement.

Lifetime mortgages are the most popular equity release package – accounting for 61 per cent of borrowing, followed by lump sum lifetime mortgage (36 per cent) while home reversion schemes made up the remaining 2 per cent of sales in the quarter.

SHIP director general Andrea Rozario said: “This has been an excellent quarter for the equity release market. Considering the wealth locked up in a property as part of general financial or retirement planning is essential, as it will continue to be the greatest asset most people have as they approach retirement.

“We feel that breaking the psychologically important £200 million barrier for new advances in the quarter is fantastic news for an industry that is recognised to have a huge latent demand.”

“While it is unlikely that we will see an immediate return to business levels recorded prior to the recession, we are confident that the market has started to turn a corner and we will return to more typical trading conditions. The UK population is ageing and with insufficient pension provision and the prospect of meeting significant care costs, we expect the demand for equity release products to increase significantly over the next few years.”

Thousands of women who were facing a two year increase to the state pension age will have their wait cut by six months, promises Welfare Secretary Iain Duncan Smith.

After weeks of campaigning by charities and campaign groups for the over 55s, the government reportedly modified the pension proposals because Prime Minister David Cameron felt ‘uncomfortable’ at the ferocity of protests.

The government is now amending The Pensions Bill currently going through Parliament.

The bill proposes that the state pension age for women will rise to 65-years-old by November 2018 and rise to age 66 for both men and women by April 2020.

The amendment will now schedule that the state pension age for men and women should be 66 by October 2020.

Smith said: “We have listened to the concerns of those women most affected by the proposed rise in state pension age to 66 and so we will cap the increase to a maximum of 18 months. We have always made clear that we would manage any change fairly and ensure any transition is smooth.”

Two of the groups leading the protests against the state pension age changes for women welcomed the amendment.

AgeUK charity director Michelle Mitchell said: “They have listened to our concerns and we appreciate that it is a significant financial commitment from the government at a difficult time. This will give a much needed respite to all the women who would have had to work an extra two years.”

Spokesman for Saga said: “The equalisation of the state pension age is the right thing to do, as is giving people time to prepare and plan for retirement.”

The government wants to increase the state pension age to 66 because of a dramatic rise in life expectancy and the need to ensure that no unfair financial burden is placed on the next generation.

Minister for Pensions Steve Webb said: “We want to end the uncertainty for women waiting to learn what their state pension age is and we will be communicating with those affected so that they can properly plan for their future.”

A staggering 1½ million people in the UK have been fined for filing their tax returns late, the fines are reported to have tallied up to £150 million for HM Revenue & Customs.

Of the 6.9 million people who filed their self-assessment tax returns online, more than 25% failed to do so before the deadline date of 31^st January, incurring themselves a £100 fine.  A report was released detailing the figures following a Freedom of Information request.    

The number of fines has increased by 8% since last year and a huge increase of 56% since 2006, when there were just 962,000 fines.  Whilst the HMRC hasn’t revealed the exact figures involved, it is thought that they have netted up to £150 million in fines.

People who are aiming to have their tax returns filed by the October 31^st deadline have an even more daunting fine if they file late, facing fines of up to £1500 after the HMRC increased their fining policy in April.

The Freedom of Information request was lodged by the law firm McGrigors, and tax partner Jason Collins was quoted as saying: “Not only are HMRC issuing fines at an increasingly worrying rate but they have now won powers to impose dramatically increased fines.

“This wouldn’t be such a concern if HMRC had not developed a reputation for unfairly issuing fines and stubbornly refusing to cancel them, even when the taxpayer complains.”

Under the HMRC’s own rules fines are waivered if people have a ‘reasonable excuse’ for not filing in their return by the deadline, although the legislation is unclear as to what the definition of a reasonable excuse is.

McGrigors states that the HMRC is adopting a ‘draconian’ approach.  In response a HMRC spokesperson has said: “We want tax returns back, not penalties, so nobody will receive a penalty where they file a tax return by the deadline or have a reasonable excuse for failing to do so.”

The latest targets for the HMRC are teachers who earn extra cash on the side by taking on private students.  Ebay traders and gas fitters have been recent targets for the taxman.

The Government is currently trying to retrieve £7 billion of revenue that has been lost through fraud and tax evasion by 2015.

A report by the Institute for Fiscal Studies (IFS) has revealed that the number of people in the UK who are living in poverty will rise.

The study which has been funded by the Joseph Rowntree Foundation, shows that 2 million working aged adults and 2.2 million children in 2009-2010 were living in absolute poverty ikn the UK.

The IFS predicts that in two years’ time this figure will have risen by an extra 600,000 children and 800,000 working age adults. By 2013 there will be 3.1 million children in poverty in the UK, according to the IFS projections.

The coalition has pledged that its “wide-ranging reforms will have a dynamic impact on some of the poorest families”.

In terms of percentage, in 2009-2010, 17% of the children in the UK were living in absolute poverty and the IFS think that this will be 21.8% by 2012-2013.

Those deemed to live below the poverty line have a total household income of at least 60% less than the national average.

In 2009-2010 the poverty line was set for a couple with two children at an income of £347 per week after tax and national insurance had been taken out. For single adults without any children it was set at £165 a week.

The Government will be introducing a new benefit payment called the Universal Credit from 2013, which is to be paid monthly.

The IFS states that the Universal Credit will reduce the number of children in poverty by 450,000 and adults by 600,000 by 2020-2021.

Although the IFS also warns that the Universal Credit will not prevent increasing poverty, because it will “more than offset” by other reforms, for example the changing measurement of inflation that will be used for means-testing any benefits.

To this end, the IFS predicts that absolute child poverty will still rise and that by the year 2020 it will be at its highest level since 2001-2002.  The report goes on to say that the Government will miss the targets it has set itself for reducing poverty in children as set out in the Child Poverty Act of 2010.

A spokesperson for the Government said: “The IFS acknowledge that Universal Credit will substantially reduce child poverty.

“It will make work pay for the first time, tackling in-work poverty and lift over one million people, including 450,000 children, out of poverty.”

The effect of stock market drops, low interest rates and high inflation have combined to leave pension funds around a third smaller than than three years ago.

Figures calculated by pension experts at global accountancy consultants Pricewaterhousecoopers (PwC) reveal a £300,000 pension fund converts in to an £18,500 a year pension – but only a month ago the same fund would have valued at around 5 per cent more at £19,500.

Even worse, three years ago, that fund would have paid out £22,500 a year.

The firm warns pension savers heavily relying on equities are likely to have seen returns deteriorate even more to as low as 30 per cent of the value 36 months ago.

Peter McDonald, partner in the pension practice at PwC, said: “Compared to only three years ago, a money purchase pension is now worth perhaps 30% less than it was.

“Many people retiring now will be caught between a rock and a hard place. If they defer buying an annuity until prices improve, they’re stuck with no income in the meantime, which might not be an option.

“This huge reduction is due to a double-whammy of higher annuity costs and a smaller pension pot where investments hadn’t switched out of equities before retirement. This could happen if someone finds themselves out of work unexpectedly – not an uncommon scenario in the current economic climate.”

PwC reiterates advice to retirement savers to shop around for the best annuity and savings deals rather than settling for offers made by their pension providers.

“The first generation of people on defined contribution pensions is starting to come through. Luckily many will this time have alternative pensions as they may have only been in a defined contribution scheme for perhaps a decade. The same won’t be true for future generations.,” said McDonald.

“A number of employers and trustees are recognising this and taking serious steps to advance warn members approaching retirement of the risks they face and the options they have to protect and maximise their income.”