Monthly Archives: January 2012

A report published today has found that local town halls have been drastically under-funding care services for the elderly.

The Care in Crisis report, commissioned by the charity Age UK, has found that at least £500 million a year is being diverted from essentials services for vulnerable pensioners.  In addition to this, the elderly are also faced with rising charges for the services they need.

Director General of Saga, Dr Ros Altmann, said: ‘This report shows us that current policy does not seem to value older people.

She added: ‘Public spending and policy efforts too often prioritise the young, and discriminate against older people. This is not the mark of a decent society.

‘Middle England is losing out twice: they are increasingly being denied funding for free care, and at the same time the costs they are ending up having to pay are rising to subsidise those who are being funded by the council.’

The Care in Crisis report reveals that spending on services for the elderly decreased dramatically between 2005/2006 and 2011/2012, despite the number of over-85s requiring care services increasing by a quarter of a million.

The report also showed that local councils need to be spending £500 million more each year on ‘social care’ for older people, to maintain the levels of provision when the new Government came into power.

Cuts in spending have left thousands of pensioners struggling with everyday tasks such as washing, dressing and going to the bathroom.  The past year alone has seen spending on social care decrease by 4.5% or £341 million.

With the recent rise in the population of the elderly, Age UK estimates that councils should be spending £7.8 billion to maintain the levels of standard, but they have only budgeted for £7.3 billion.   In addition to this, the charity has worked out that local authorities would have to spend £9.4 billion by 2014-2015.

The report said: ‘In terms of public spending on care, older people have been unfairly disadvantaged in comparison with adults under 65. We do not question the importance of providing high quality care for adults aged under 65 who are in need of it, such as those with disabilities and other complex needs, but we are concerned that these trends demonstrate the continuation of historic age discrimination in spending on social care.’

Older people who don’t qualify for free care are finding the financial pressure growing.  In 2010/2011 the average cost for elderly care was £1,996 a year, an increase of £150 on the previous year and £360 more than in 2008/2009.  However, as the figures include those who are entitled to free social care, those who are not are paying a lot more.

The future is set to look even bleaker as the report states: ‘With many councils raising fees and charges and abolishing caps, these costs are likely to climb much further in 2011/12.

‘This means an increasing number of older people will be unable to afford their current care and support, leading them either to cut back on their services or go without.’

Age UK’s director, Michelle Mitchell, said: ‘We need urgent Government action now, otherwise the gap will simply get worse.

‘Behind these figures are real older people struggling to cope without the support they need, compromising their dignity and safety on a daily basis.

‘Social care is not a nice-to-have extra – it is the support that helps older people get out of bed, feed themselves, have a wash, live a life that is more than just an existence.

‘We urge all parties to engage openly and constructively in the cross-party talks on care to reach a settlement that guarantees both reform of the legal structure and most importantly the funding to make it work. The Government must not shirk its responsibility to lead the essential reform of the social care system.’

 

Over the past year, many pensioners have seen their travel insurance double in price, with some policies going from £163 to £361.

Industry experts worry that the huge increase in premiums will lead to many over-65s travelling with any insurance, leaving them open to risks of no medical cover overseas or protection against theft.   

Director of the charity Age UK, Michelle Mitchell, said: ‘These figures confirm our worst fears that older people will be forced to risk travelling without protection or forgo holidays abroad altogether because they can’t afford insurance.’

In addition to the price hikes, many companies are refusing to insure elderly customers as they are more likely to have health issues when on holiday.

James Daley, editor of Which? Money said: ‘Insurers cannot say it is because of older people’s deteriorating health, as many people are much healthier than they were before, so these increases are hard to justify.’

Critics have accused insurance companies of trying to claw back money from retirees to cover payments of recent catastrophes like earthquakes, flooding, political issues in North Africa and the Icelandic ash cloud.

Younger travellers have also seen their insurance premiums go up, but by an average of around 9%.

The insurance company Direct Travel, was generally regarded as one of the better value insurers, but it has changed its policies so that its prices vary depending on age.  They have discontinued their Senior Cover policy.

This has meant that a couple aged 66 would pay a premium of £365 for a two week cruise compared to £202 last year on its Premier Plus policy, an increase of 80%. Their annual cover has also increased vastly, from £163 to £361, a rise of 121%.

In addition, the company has changed its small print. Older holidaymakers will not be able to get a refund if they cancel their trip due to illness of non-immediate family members, such as in-laws or aunties and uncles.   Their policies have also stopped the cover of prescription glasses and sunglass if lost, stolen or damaged.

Many other UK travel firms have followed suit, Esure have upped their annual travel insurance costs for the over-65s by 66% from £157 to £261.

The UK’s largest insurer, Aviva, has put the cost of cover for a couple of over-65s going on a cruise by 26%, and Direct Line’s has risen by 19%.

Virgin Money is one of the few insurance companies who have not increased their premiums to the elderly however, it has increased the minimum time of claiming due to being delayed from 12 to 24 hours. It has also written into its small print that it will no longer pay out for claims due to natural disaster or civil unrest.

 

Falling gilt yields need not trigger a lower pension income for the over 55s approaching retirement if they understand how to manipulate income drawdown rules.

The latest 15 year gilt yield has tumbled to a record low of 2.25% that typically means less income from anyone relying on an annuity or income drawdown.

The two are tied to gilt yields as annuities are typically anchored to gilts while income drawdown is calculated on the rate of return from the bonds and income drawdown rate set by government actuaries.

However, there is third variable that can be leveraged to increase pension returns.

Pension fund values are related to stock market values, and as these fluctuate, they can be harnessed to the advantage of the over 55s.

The tactics involve some brinkmanship, but with a steady strategy and good financial advice, it is possible to earn more from your pension, says investment fund provider Skandia.

Phasing income drawdown

The trick is to hold back some funds from income drawdown, while waiting for markets to improve or gilt yields to rise.

Phasing the flow of pension funds in to drawdown can realistically result in a significantly higher retirement income, argues the company.

The key is looking at the factors that determine the income generated from a pension:

• 15 year gilt yields

• Pension fund size

• Age and related factors like the drawdown percentage set by the government

All have been in decline over recent years – and the decline has the biggest impact on over 55s looking at retirement income from annuities or income drawdown.

These variables also impact anyone in income drawdown if their current maximum income is above the new 100% drawdown percentage ruling and they are approaching a statutory review.

Higher pension income

Achieving a potential higher pension income drawdown involves keeping some of the fund back – and this can be as little as a few hundred pounds.

Steady nerves are needed to wait for stock markets or gilt yields to move upwards to shift the cash reserve in to drawdown – which could be months or just a few days in today’s fast-moving markets.

The trick comes when new money is moved in to drawdown. Maximum income is recalculated based on the total cash in drawdown, provided this is allowed by the pension provider -so check this out in advance.

This could help raise income levels significantly for the remainder of the review period before the maximum income calculation is worked out again.

“When a person reaches retirement, all too often they take their maximum tax-free cash lump sum, which means the entire fund goes into drawdown,” said Skandia pension expert Adrian Walker.

“They may or may not then take an income with the remaining fund. People need to be aware of the advantages keeping a small lump sum in their pension can have when they come to drawing an income from their pension.

“Holding a small amount back, and drip feeding it, possibly on a regular basis, into drawdown could increase a persons chances of raising their overall income level if stock markets or gilt yields improve. Importantly, the entire pension can benefit from any improvement in maximum income calculations if the pension arrangement is structured in this way.

“This can give hope to those who cannot wait for gilt yields to improve before they start to take an income from their pension. Not all pension contracts offer this flexibility, so people need to check with their provider what options they have, and seek professional advice from their financial adviser.”

As an example, Skandia looks at keeping £1,000 from a £100,000 pension fund.

The figures assume taking a 25% tax-free lump sum and shifting the rest of the fund to capped drawdown.
How phasing works

In the first scenario, all the remaining pension cash is transferred in to drawdown on day 1.

In the second. £1,000 is retained and moved in to drawdown at the end of October, the end of November or the end of December 2011. No income was taken in the intervening period and the initial drawdown fund growth mirrored the FTSE 100 index.

If the £1,000 was put in to drawdown later, £250 would be paid as an additional tax free cash sum, and the maximum available income rises.

At the end of October, the increase in overall income is £350 a year, but if it was paid in at the end of November, income rises by £483 a year.

Based on last week’s changes in gilt yields, if the £1,000 was paid in to drawdown in February, maximum annual income would increase by £169 to £3,994, compared to the start of October, even though gilt yields dropped to 2.25%.

This is assuming growth in the underlying fund since October based on a FTSE 100 level as at close of markets on January 13 of 5637.

Take care when contemplating this type of retirement income manipulation. Keeping cash back and phasing drawdown can reduce pension income if gilt yields and markets fall rather than rise.

A recent report has found that the average low to middle income family will not see their finances return to where they were pre-recession until at least 2020.

The findings come from the independent think-tank the Resolution Foundation.  Its ‘Squeezed Britain’ study shows that low to middle income households, who take home on average £20,000 a year, would also have to save for 22 years to buy their first home.

The report looked at the ‘daily struggle’ of such families.  It is estimated that nearly one third of working age homes in Britain—5.8 million households—are in the low to middle income (LMI) bracket.

The findings include details such as; 45% of people were unable to afford a holiday, 40% were not able to replace worn or broken furniture, and nearly a quarter of people could not afford one night out a month with family or friends.  8% struggled to find money to buy decent shoes.

The research suggests that incomes for these household will continue to decline before levelling out in 2016-2017. If this is then followed by strong economic growth this income bracket should start to see the same levels of disposable income they enjoyed before the recession by 2020.

However, if the growth doesn’t occur, real incomes could end up being 8% lower than they were in 2007.  Both scenarios will lead to an even bigger gap between low and middle income earners and high income earners.

The Squeezing Britain study also highlighted the difficulty of getting onto the property ladder for LMI earners. Basing their figures of saving of 5% of yearly salary for a first-time buyers deposit, in 1991 the average LMI household took 4 years to save for a deposit for a house, this figure rose to 8 years in 2001 and by 2011 it had more than doubled to 22 years.

Due to the rapid increase of house prices coupled with the larger deposits required from mortgage lenders and recent pay freezes, the study warns that many under 35s will never be able to buy their own property and will live in rented property their entire lives.

Most of the people who fall into the LMI bracket work in retail, manufacturing, construction or the Health Service. They have typically found themselves with stagnated wages since 2003 and have become more reliant on tax credits over the years.  They will be heavily affected by proposed cuts to tax credits, and the rising cost of living will hit them the hardest.

41% of their monthly income pays for household bills such as rent, energy bills, food and transport.

The study says: ‘Job insecurity and low pay are the pervasive feature of Squeezed Britain. Theirs is a daily struggle to keep up with the rising costs of essentials and to meet goals such as saving or buying a home.’

It estimates that the average yearly food bill has risen by £427 over the past ten years.

 

More than 400,000 higher rate tax payers could miss out on a boost to their retirement savings by failing to claim relief on pension contributions at the end of the month.

Every employee contributing to a personal pension automatically receives 20% tax relief on their contributions – but many top rate tax payers are unaware that they have to submit a self-assessment tax return to claim their extra relief.

By filing a tax return online by January 31, 40% tax payers double their relief on contributions, while 50% tax payers gain an extra 30% relief.

Pension providers are warning that many stakeholder or group pension scheme members realise they have to claim the extra relief – and most employees do not have to submit self-assessment tax returns, so do not see the claim forms.

Standard Life head of pensions policy John Lawson said: “The problem is that very few higher rate taxpayers do tax returns now which means they’re not automatically claiming the higher rate relief on their pension contributions any more.”

All employees in group pension schemes automatically receive basic tax relief of 20%, but those earning more than the threshold of just over £42,000 have to apply to get the higher tax relief.

The problem is compounded by a change in tax thresholds for the last tax year that introduced several thousand new higher rate tax payers by reducing the earnings limit.

As a rule of thumb, anyone earning more than £42,000 when they add their tax free allowance to gross pay qualifies for the extra pension contribution relief.

“Employers need to communicate with these employees to say they deducted contributions out of your net wages and you’re a higher rate tax payer so you have to claim the additional relief yourself,” he added.

For an employee earning £60,000, a year, contributing 5% of earnings in to a pension, this would mean losing n £600 in tax-relieved contributions.

Pension drawdown income has dropped by around a third in a year, according to the latest figures from a leading pension provider.

Anyone approaching retirement this year can expect reduced returns from their savings due to a combination of falling gilt yields and last April’s cut in drawdown limits from 120% to 100%.

Gilt yields are now 2.25%, compared with 4% paid 12 months ago, while annuity rates have dropped around 20% in recent years.

For a 65 year old man retiring in February, these figures mean a £250,000 pension fund will have a maximum drawdown value £13,750, says SiPP provider AJ Bell.

Last year, the drawdown was £20,400 – a decrease of 32%.

The firm’s marketing director Billy Mackay said: “The government wants to protect those who opt for drawdown instead of annuities from exhausting their pension pots but we’ve seen little evidence to suggest this is happening.

“The fall in gilt rates has had a drastic effect on drawdown rates and threatens to pose real and unnecessary hardship to many people who may feel justifiably aggrieved that they can’t access the money they worked so hard to save.

“The government needs to fundamentally question the logic of linking drawdown income rates to gilts and instead look at fixed income factors linked to the clients age. While it consults on a more appropriate measure it should also consider restoring the 120% factor in the maximum income calculation.”

The figures prompted Labour Shadow Treasury financial secretary Chris Leslie to call for a commission to review options to maximise income for those approaching retirement.

The Treasury commented no review or commission is needed.

Meanwhile, financial provider Skandia suggests that investors can increase their pension returns by holding back and phasing their funds in to drawdown while waiting for markets and gilt yields to improve.

The fundamental problem with the over 55s paying for their own long term care in their later years is the unfairness attached to the principle.

Undoubtedly, it’s right that those can afford to pay for their care should contribute all or part of the cost.

But why should one individual scrimp and save over their working life to fund a comfortable retirement have to find thousands of pounds in fees while someone else gets the same benefits for free?

It’s not fair, it’s not right and clever lawyers will just find a work round that bypasses the process and ends in costing the taxpayer more money.

Expect to see a flood of madcap schemes floating good, bad and the distinctly ugly solutions to the problem over the next few weeks as politicians, vested interest groups and financial firms jockey position to influence the wording of the forthcoming white paper on funding the cost of long term care.

Ministers are making their play already. The Treasury has leaked a cap on long term care costs of between £50,000 and £60,000 for each individual, with the money coming from savings, selling their home or a dedicated insurance scheme.

Paul Burstow, minister of state at the health department, has suggested to a Commons committee that the over 55s will have to allocate part of their pensions or release equity in their homes to fund their care.

The idea is to split pension income in to day-to-day living income and another pot for care costs, effectively reducing the amount the retired have to live on.

Housing minister Grant Shapps is doling out praises to a scheme piloted by the council in Redbridge, East London, to help the elderly downsize their homes.

The council finds sheltered housing or care space in return for taking on the responsibility for maintaining and letting their homes to families in need.

The problem is that while the downsizing pensioner saves living costs, the rental on a four-bedroomed family house is £300 less than the average commercial rent of £1,700 on a comparable property.

“Older people who should be enjoying their homes have watched helplessly as their properties have become prisons, and many have been forced to sell their homes and move into residential care,” said Shapps.

“Urgent change is needed to ensure the nation’s housing needs are met. Moving to more suitable accommodation can make a life-changing difference for some older people.”

Communities Minister Andrew Stunell has also spoken out in favour of the scheme.

“Giving older people more choice where they live is the right thing to do, but it also makes economic sense. Up to £26,000 can be saved each year for each person by offering an alternative to residential care,” he said.

Pensioner groups have been outraged by Housing Minister, Grant Shapps’ proposal to get older people to downsize their properties to make way for younger families.

He proposes that local authorities take over the responsibility for maintaining and renting out the properties to younger families, passing on any profit made from the affordable rents back to the elderly owners.

The National Pensioners’ Convention demanded to know why older people were being targeted to solve the housing crisis, when the responsibility for increasing housing lay with the Government.

Neil Duncan-Jordan, of the National Pensioners’ Convention, said: “The shortage of affordable housing for younger families is not the fault of Britain’s pensioner population.”

He went on to say that although many elderly people were keen to downsize, there was a big shortage of suitable accommodation for them to move into.  ”If you’re in a three-bedroom house and you actually want to downsize, the market isn’t exactly brimming with retirement accommodation.”

Mr Shapps said that currently there were about 25 million bedrooms unoccupied in England due to older couples staying in their homes long after their children have left home.  He said that this was one way to solve the national housing shortage, claiming that the idea would help many elderly people who wanted to downsize but found it difficult to do so.

He talked of a scheme in Redbridge, East London which has encouraged pensioners to downsize, and suggested that it could become a nationwide scheme.

He said: ‘For too long the housing needs of the elderly have been neglected.

“Older people who should be enjoying their homes have watched helplessly as their properties have become prisons, and many have been forced to sell their homes and move into residential care.”

“Urgent change is needed to ensure the nation’s housing needs are met. Moving to more suitable accommodation can make a life-changing difference for some older people.”

Saga, the over-50s group blasted the proposal as “outrageous social engineering”, Ros Altman said “It is an insult to older people to suggest councils should take over their houses while they get shoved into housing,’ she said.

‘A family home is about more than bricks and mortar: our surveys show people don’t want to downsize. Older people will be horrified that the home they have put so much love and care into could be deemed by an official to be not suitable for them, but let out to younger families they don’t even know.’

She added: ‘Pensioners should not feel pressured into making way for younger families. Older people are right to feel aggrieved at being made to feel guilty when throughout their lives they have cut back on spending to build up their own home.’

 

 

Research conducted by the Department for Work and Pensions (DWP) has found that there is still discrimination for both young and old people in the work place.

The findings were based on figures from the Office for National Statistic’s (ONS) which looked into age discrimination and prejudice for people in their twenties and also for those in their 70s.

On the whole, people 70 and over fared better than their younger counterparts, with people regarding them as friendlier, having higher moral standards and being more competent than those in their 20s.

However, the survey also revealed that more respondents would not be comfortable working for a 70 year old boss and would prefer a person in their 30s to work under.

Most people questioned were accepting of either age, but 15% said that they felt it was ‘unacceptable’ to have a 70 year old boss, compared to just 5% who felt they couldn’t work for a 30 year old.

The respondents of the survey generally thought that ‘youth’ ended at 41 years old and that ‘old age’ began at 59.  This did vary however, by up to 20 years depending on the age of the respondent.

The Chief Executive of the Employers Network for Equality and Inclusion, Diane Keating, said that the research highlighted the fact that more needs to be done to stop age discrimination in the workplace.

“We have seen a very high instance of age-related unfairness, particularly when people are selected for a new job or promotion only if their ‘face fits’, which unfortunately means some people feel that talent isn’t enough to overcome such prejudices,” Keating said.

“While many companies have solid diversity policies, this may not run throughout the company, which is an issue that needs to be addressed. It is important that employers do all they can to ensure this does not lead to discrimination or favouritism of any kind, which could cause the exclusion of talented individuals from the workplace.”

More than a third of those questioned admitted that they witnessed age-related discrimination during the last twelve months.   Age discrimination was more common for the under-25s, who were more than twice as likely to have suffered prejudice based on their age than any other age group.

Workers in their 40s were the most highly regarded, and on average those over 70 were thought more highly of than those in their 20s.

Ms Keating urged company bosses to work harder to stamp out age discrimination, saying: “We work with many companies who removed the mandatory retirement age a long time ago and have all reaped the benefits of employing a multi-age workforce,”

“They know that variation in the workforce brings fresh ideas and perspectives from which companies will always benefit. Ultimately, forward-looking employers know that age diverse workforces are effective, productive and motivated.”

 

Unions intend to carry on fighting the government’s decision to switch the inflation measure for index-linking pensions.

A legal challenge has been lodged against a recent High Court decision that backed the government move to link public sector pensions to the consumer price index (CPI) rather than the retail price index (RPI).

State pension cost of living increases are also linked to CPI.

The CPI returns a lower inflation rate than RPI as the calculation excludes housing costs.

CPI is currently 4.8% while RPI is 5.2% – an 8% difference in returns on indexation which leads to cuts in pension payments, say the unions.

Four trade unions and a pensioner group have combined for the appeal.

Paul Noon, general secretary of civil service union Prospect, said: “The CPI switch is just one of the measures the Government is seeking to introduce as part of its pensions reforms. It must be challenged as it would cut the income of our members in retirement, in both the public and private sectors, by up to a quarter.

Meanwhile the boss of a leading pension finance firm has explained that the latest fall in CPI – and predicted further drops in the year will affect retirement income for millions of over 55s.

Aston Goodey, sales and marketing director of MGM Advantage, said: “The latest fall in the consumer price index rate will still have a significant impact on the finances of retired people.”

The firm reckons the cost of maintaining living standards at the same level as 12 months ago amounts to everyone in the country finding an extra £700 per head to spend – and that calculation includes the recent drop in CPI inflation.

A report from the firm in December, Our Retirement Nation, disclosed the over 55s feel they need almost £100 extra a week for financially security and 40% claimed a lack of money was their biggest retirement worry.

“We are seeing more interest in alternative retirement income solutions that can provide some protection against inflation and the rising cost of living,” he said.