Monthly Archives: January 2012

Equity release provider Aviva is ditching home reversion plans in favour of lifetime mortgages.

The finance giant claims most customers opt for lifetime mortgages and intends to stop offering reversion plans by February 10.

New applications from homeowners will be considered until that date.

Aviva offers home reversion plans funded by Grainger plc, owner of home reversion specialist Bridgewater Equity Release.

Aviva will continue to offer lifetime mortgages, which are funded and underwritten in-house. The firm has introduced two loan packages over recent months and includes an inheritance guarantee.

Clive Bolton, retirement director at Aviva, said: “We remain totally committed to the equity release market – it is a cornerstone for retirement planning, as housing equity is often the largest asset that people have.

“As retirement incomes get tighter and people are living longer, we believe it will become an increasingly important option for retirees.”

A lifetime mortgage is a long term loan secured against a home that allows a borrower to release money straight away or up to an agreed limit over a period of time.

A home reversion plan involved sell all or part of a property to a lender with an agreement that the householder can stay in the property.

Meanwhile, SHIP – short for Safe Home Income Plans, the equity release provider trade body – is urging the government to streamline administration of equity release by nominating either the Treasury or Department of Work and Pensions as responsible for the sector.

Currently, responsibility is spread across several departments.

“What we have to do now is up the pressure to really make it clear that one department does need to take ownership and that’s one of the strongest things we’ll be lobbying for this year,” said a spokesman.

“The reason why we would be looking towards the Treasury is because any release of monies into the economy is going to have a benefit on the economy as a whole. So it would seem the Treasury is probably the most ideal department, but without knowing what the government feels it’s difficult to determine.”

Over 55s about to retire can expect their pensions to generate £3,000 a year less income than if they had retired four years ago after shrink annuity rates and plunging stock markets have battered their financial plans.

The vagaries of the financial markets have docked have off annuity incomes since the credit crunch started in 2008, according to pensions firm Prudential.

Around 20% of over 55s will pick up a retirement income of less than £10,000 in 2012.

Someone retiring in 2008 could expect an average annual income from an annuity of £18,600 a year – in 2012 and that amount is expected to average 6.2% less at £15,500.

Best annuity rates unlikely to improve

The bad news is pension finances are unlikely to improve as the economy is shrouded in gloom and uncertainty emanating from the eurozone debt crisis.

Vince Smith-Hughes, Prudential’s retirement income expert, said: “The current economic climate has created the perfect storm for people in the run-up to retirement.

“The impact of the credit crunch, banking crisis, recession, and concerns over the eurozone has been reflected in the fact that expected retirement income levels have hit a five-year-low.”

Pensions campaigners are also concerned that the over 55s are bearing the brunt of government action to try to right the wrongs of the economy with quantative easing.

The Bank of England has released another £75 billion in to the economy to ease the pressure on banks and businesses – but this has also led insurance companies to cut annuity rates to record lows.

Pension payments are a postcode lottery

The quantitive easing cycle has a continuing downward pull on annuity rates because the interest paid is based on underlying investment in gilts – government bonds with a guaranteed pay out.

The bank buys gilts with quantative easing cash, which increases the price without increasing the interest rate, making their value less and correspondingly reduces their return to investors.

The Pru findings reveal that how much an annuity pays is a postcode lottery.

Around 20% of over 55s will pick up a retirement income of less than £10,000 in 2012.

Someone retiring this year in Yorkshire or Humberside can expect an average pension of £12,800 per year – less than 50% of the current annual salary according to figures published by the Office of National Statistics.

If that retiree moved home, they could earn a pension of £17,900 in London, £17,200 in the South-East or £17,100 in Wales.

Falling inflation offers glimmer of hope

Just over a third (37%) of over 55s feel they have a cash buffer to give them a comfortable retirement, with men having slightly less concerns than women.

“It is concerning that expected retirement incomes are going down, while pensioner expenditure is going up. However, there are some practical steps that workers and imminent retirees can take to ensure a more comfortable retirement,” said Smith-Hughes.

“For those who are still working, it has never been a more important time to save into a pension. The longer that savings are invested in a retirement pot, the greater the opportunity they will have to grow.

“However, even those due to retire this year could make their retirement funds generate better incomes. Consulting a professional financial adviser can help savers to make more informed pension saving and retirement income decisions.”

The outlook for the economy in 2012 is grim, with growth expected to remain low, although a predicted fall in inflation gives a glimmer of hope on easing the erosion of savings and pension income.

Shop around for highest paying annuities

Retirement savers can also expect finding the best annuity rate less vexing as the pensions industry and government enforce new guidelines for pension providers to give more information to the over 55s about the market.

Many over 55s lose out on the best annuity rates by simply rolling over their pension in to a contract with their existing provider when they could earn considerably more with an enhanced annuity if they suffer from a life-threatening illness.

The message from consumer groups and pensions advisors is shop around for the best rates, because buying an annuity locks your pension income for the rest of your life – and once the decision is made, you cannot change your mind.

Table: Average expected retirement income 2012 by region

Region	Expected annual pension income
London	£17,900
South-East	£17,200
Wales	£17,100
East	£17,000
North East	£16,700
South West	£15,100
North West	£14,500
East Midlands	£14,400
Scotland	£14,200
West Midlands	£12,900
Yorkshire and Humberside	£12,800
UK average	£15,500

Source: Prudential

 

Source: Prudential

Table: Expected retirement annual income by year

Year	Expected annual pension income	Annual change
2012	£15,500	-6.2%
2011	£16,600	0.03%
2010	£16,500	-7.1%
2009	£17,800	-4,5%
2008	£18,600	No figures

Source: Prudential

People retiring in 2012 expect their retirement income to be much lower than others who retired in the past four years.

Insurance giants, the Prudential, commissioned a survey which found that people due to retire this year expected their annual pension to have fallen by £3,100 since 2008, to an average of £15,500.   

The survey includes figures from state pensions, and both company and private pensions.

20% of people questioned expected to receive less than £10,000 a year through their pensions.  The highest expected incomes were for those living in London.

Vince Smith-Hughes of the Prudential said: “The impact of the credit crunch, banking crisis, recession, and concerns over the eurozone, has been reflected in the fact that expected retirement income levels have hit a five-year-low.”

One of the key factors in the decline of retirement income has been the fall in the value of annual pensions that can be purchased in a lump sum saved in a private pension fund.   These annuity rates fell 8% in 2011.

The financial information service Moneyfacts charted that annuity rates had fallen for four consecutive years.  People living longer and reductions in returns available from purchasing company or government bonds have contributed to the decrease in annuity rates.

Richard Eagling of Moneyfacts, said: “Unfortunately, by increasing the demand for fixed income instruments such as UK government bonds, the ongoing eurozone crisis and the Bank of England’s quantitative easing programme have driven gilt and corporate bond yields down over the last twelve months, both of which underpin annuities.”

The Prudential survey, which was conducted with 1,003 people who were due to retire this year, also shows how much the incomes vary around the UK.   Retirees in Yorkshire and Humberside can expect an average pension of £12,800 a year, which equates to less than half the average yearly wage for workers in the UK.   Retirees in London can expect an average of £17,900, those in Wales £17,100 and £17,200 for those living in the South East.

The report also revealed that men were generally more optimistic about their retirement funds than women.  45% of men were confident that they would be financially comfortable in retirement compared to just 31% of women surveyed.

 

One in four retirement savers could be wasting money on a high charging SiPP when other cheaper pension options could serve their needs.

The majority of savers (90%) investing in SiPPs (self administered pension plans) tend to hold their cash in a unit trust or OIEC (open-ended investment company) instead of the wider investment options offered with a SiPP.

According to financial firm Skandia, the charging structure of a SiPP is more expensive than a platform pension that offers the same investments at a cheaper cost.

The firm suggests the real benefit of a SiPP is access to more complex investments, but believes mosts savers do not want the extra features. During the survey, around 70% of savers told researchers they do not want to invest in these options, like investment trusts and equities.

Skandia argues a SiPP is not necessarily in the best interest of these retirement savers for a limited additional benefit, as the SiPP is a more expensive wrapper than a platform pension.

Other research by the company suggests 46% of independent financial advisers believe less than 10% of their clients would be better off with a SiPP than a personal pension.

Skandia’s Nick Dixon said: “Since the introduction of SIPPs their popularity has grown significantly and are sometimes positioned as the only pension worth having. This is not in the best interests of the majority of people and there is a danger that many SIPP customers are in the wrong product.

“While a SIPP can offer a wide investment choice and flexibility, our research suggests that many investors aren’t fully utilising the investment flexibility that SIPPs offer and would instead be better off with a platform pension.

“As platform pensions continue to evolve – with the range of assets available and income flexibility increasing – we would expect platform pensions to increasingly replace the need for SIPPs.”

Employees of the consumer goods firm Unilever are to stage industrial action over new pension deals.

Leaders of the unions Unite, Usdaw and GMB are planning to call to strikes at eight different sites around the UK.  The strikes will last for up to 12 days and commence on the 17^th January.   

The industrial action will hit the production of goods at the sites which include household favourites such as Marmite and PG Tips tea bags.

A spokesperson from Unilever said that the company was “deeply concerned by the disproportionate action” the unions were taking.  However, the unions say that the proposal to stop the company’s final-salary pension scheme will mean that staff could lose up to 40% of their retirement income.

The employees striking will mainly be factory floor staff, who work at sites in Purfleet, Port Sunlight, Warrington, Leeds, Crumlin, Gloucester, Manchester, Burton-on-Trent and Ewloe in Wales.

The unions added that the action would halt production of Unilever’s leading brands, including Marmite, Dove soap, PG Tips, Pot Noodle and Helman’s Mayonnaise.

 

Unilever employs 7000 people nationwide and 2500 workers took part in the first of the national walk-outs in December.

National Officer for Unite, Jennie Formby, said: “It would seem that Unilever believed the workers would give up after one day’s strike but they are badly mistaken.

“The workforce is angry that the company has refused to meet us or to attend talks at the conciliation service Acas.”

National officer, Allan Black for the GMB added: “Unilever need to get the message that profitable companies will not be allowed to walk away from their savings commitments to their loyal workforce.”

Unilever responded by saying that the decision to close the final-salary pension scheme “was a tough but necessary choice which reflects the realities of rising life expectancy and increased market volatility.

“We believe the provision of final salary pensions is a broken model which is no longer appropriate for Unilever.

“It is our responsibility to protect the long-term sustainability and competitiveness of our business, and to do so is in the best interests of our people.”

They added that the new pension schemes were “exceptionally competitive” and that after receiving feedback from its workers had been enhanced further still.

 

 

Picking the wrong pension investment with the same provider can cost retirement savers more than £30,000 in administration charges, according to a new study.

Over 55s can lose thousands of pounds in fees and charges on some pension plans, while others keep the money in their fund, according to new research by Money Management magazine.

The findings reveal the true effect of pension fund charges – and reveals a wide margin between the cheapest and most expensive providers.

Providers are already under fire from consumer groups and trade bodies, like the National Association of Pension Funds, for masking high charges on paperwork and statements.

The study found that contributing £200 a month for 25 years on commission-free terms with Aviva’s balanced managed fund resulted in a £146,863 pension pot – while Axa’s Elevate plan returned £31,705 less on the same terms, with a fund of £115,158.

The difference in fund values is pocketed by Axa as fund management and administration charges.

The research also looked at some alternative contribution options and the impact provider’s fees had on final pension amounts.

Aegon was the top rated company for investing £500 a month over 25 years, with a £370,599 fund – while Axa’s Elevate again came last with £290,082.

A single contribution of £50,000 over 25 years growing in a balanced managed fund at 7% per year would generate £211,354, says Money Management.

Axa Retirement Wealth retuned £36,646 more, while the negative impact of charges by Axa Elevate, skimmed £46,096 in charges – amounting to 21.8% of the fund – leaving a retirement saver with just £165,258 from the same provider.

A recent report to the Treasury accused pension providers of siphoning an average 3.2% from each pension fund in charges – adding up to more than £62 billion each year, regardless of investment performance.

More over 55s are scared of outliving their retirement savings than they are of dying, according to a recent survey.

Financial firm Allianz asked which outcome they feared the most – and 61% have more concerns about running out of cash before they die.

Pensions and retirement have sprung to prominence as a right for every worker rather than a luxury for the rich over the past 50 years or so.

Before the start of the Welfare State after the Second World War, few ordinary workers lived long in to retirement as life expectancy was much lower.

Retirement goal

Retirement at 65 years old became the goal, but most died a few years after reaching their target and pensions were affordable for the state, employers and individuals because longevity was low.

In the first decade of the 20th century, life expectancy was 45 years for a man and 49 years for a woman, according to a House of Commons research paper. Today, the latest Office of National Statistics figures say it’s more like 78 years for a man and 82 years for a woman.

The main problem with pensions now is everyone expects to push back the boundaries to take early retirement from 55 years old and to have an inflation-linked cash cow to milk until they die.

Unfortunately, this is a false expectation for the majority of over 55s who are finding that retirement is likely to come later rather than earlier and that saving enough money to pay for those later years is another moveable feast.

Golden generation

The golden generation who are just about to give up work may be the last to ever accomplish this aspiration of a comfortably funded retirement.

The country is still floundering in near recession with low interest rates, a cost of living running at more than double the predicted rate and a huge debt.

Those that relied on a property pension to see them through have seen house prices tumble and the flow of buyers dry up as banks and building societies have turned the screw on mortgage availability.

The current state of play for many retirement savers is a financial mess -

• Savings are eroded by inflation and tax, so much so that most accounts give a negative return and shrink cash in the bank

• Around a third of workers have no pension, according to figures from financial firms, and even if they did, many would not have enough disposable income to put more than a minimal monthly amount aside

The answer, according to the government, is to make everyone work longer. So, the default retirement age of 65 has gone and over the next decade, the state pension age is likely to ratchet up to around 70 years old.

Retirement bubble bursts

Suddenly, that dream of retiring at 55 has burst like a bubble.

The fear is even scrapping the retirement age and stretching the state pension age is only a makeshift solution as the current generation’s financial planning is already focussed on giving up work at 65.

Mortgages, pensions and savings plans are set to mature around that age, leaving another five years of working to add to savings – but the fear is nothing will change and all the while everyone will continue to live longer.

The Office of National Statistics figures show that longevity increases by three months for every year lived after 65 years old. A huge proportion of those born now can expect to survive to their 100th birthday.

The problem is if today’s workers cannot save enough to support them through a retirement of 15 years during the 45 years or so that they work, what hope do the next generation have when they will have a retirement almost as long as their working life?

The cost of long term care

The government is due to publish a white paper based on 2011’s Dilnot Commission recommendations on funding long term care before Easter.

The report reflects that the longer people live, the more likely they will need long term care but few have the resources to pay for service they need.

The answer, Dilnot suggests, is long term care insurance capped at a maximum of £35,000 per person. The figure is based on an average two years in long term care costing £17,500 a year.

The report exposes a huge savings gap.

The average pension pot is £35,000 – assuming this is all invested at an average interest rate, the return is around £110 a month or £1,320 a year.

The state pension is expected to be just over £107 per week from April 2012 – around £5,564 a year

That’s £6,884 a year or £132 a week and more than £10,000 less than average annual care home fees.

Cash poor and asset rich

The solution to the nation’s pension problems is not simple.

Everyone needs to save more for longer, which is fine if you have a job, are not funding a young family and can work until you are at least 70 years old.

The issue for many over 55s is they will end up asset rich and cash poor – with a home that’s difficult to sell while they need to unlock the money tied up in the asset to make their lives more comfortable.

Millions of Britons could be paying massive gas and electricity bills this winter, despite the recent mild weather. The tariff increases of 17.4% for gas and 10.8% for electricity will mean that the winter energy bill could be as much as £500 for many people.  

Even though there has been little reason to have the heating on high due to the unseasonal warm weather we’ve been enjoying, the nation will still be subjected to extra high bills.  A worry for those who are already finding it difficult to make ends meet in the current economic climate.

MoneySupermarket.com has found that the average family uses around 40% of their annual energy consumption over the colder winter months. It estimates that those on standard energy tariffs could be hit with a staggering bill of £514 in February covering the winter quarter, despite using much less gas.

All of the UK’s ‘big six’ energy companies; British Gas, Eon, nPower, EDF, Scottish & Southern Energy and Scottish power have increased their prices despite a wholesale decrease in the price of gas and electricity.

So, while customers have not been using as much energy as in previous winters, they will still reap a healthy profit due to the increases.

There has been a lot of cheap wholesale gas available in Europe recently due to the mild weather and industrial production has been affected by the economic slowdown. However, this decrease in wholesale price has not been passed onto customers in Britain who are struggling with the biggest cost of living rises for over 60 years.

There is one British supplier who has decided not to increase their tariff plans.  Ovo Energy is a small energy company who supply 95,000 homes in Britain.  The firm had originally planned to increase its prices by 3.5% this month, increasing an average annual bill by £40 to £1,158, but has now decided against it.

Scott Byrom, the Utilities Manager at MoneySupermarket.com, said: ‘The start of a New Year is an expensive time as consumers deal with a festive financial hangover – a huge energy bill will come as an additional nasty shock.

‘Many will struggle to cope with the crippling costs of energy this winter.’

The company suggests that people shop around for a better deal, as they could save up £200 a year on a standard tariff by switching to different supplier.

 

Following the revelations that cuts in local government have led to a crisis in social care, ministers have decided to allocate an extra £150 million to vulnerable people who require home help.

The Health Secretary, Andrew Lansley said the extra money had been found by efficiency savings within his budget.

Along with this, a further £20 million will be given to the disabled facilities grant to enable people to continue living at home with more independence.

The announcement follows concerns from age charities such as Age UK, who stressed that cuts to home care services could leave the elderly with “absolutely no support at all”.

The Health Minister said: “Older people often need particular support after a spell in hospital to settle back into their homes, recover their strength and regain their independence.

“This money will enable the NHS and social care to work better together for the benefit of patients.”

Elsewhere, the King’s Fund think-tank advised that the elderly were threatening NHS efficiency savings targets by remaining in hospital longer than necessary and taking up beds.

It warned that the NHS needed to reduce the number of patients who were admitted as emergency cases but remained in hospital for over two weeks.  Many of whom had fully recovered but care arrangements were not in place for them to be discharged.

The Government had already budgeted £648 million for primary care trusts to help social care services in 2011-2012.  The Local Government Association’s community wellbeing board has welcomed the extra finance, saying that it was pleased that the need for extra funding had been recognised.

Chairman of the board, David Rogers, said: “For those entitled to taxpayer-funded care and support, councils are having to balance the long-term triple pressures of insufficient funding, growing demand and escalating costs.

“Alongside that are the ever-growing numbers of people who must pay the costs themselves, but still need information and advice to help them make the most appropriate choices.”

Last week Liz Kendall the shadow health minister, called for a review of the home care charges, accusing some local councils of applying a ‘stealth tax’ upon the elderly and disabled.