More than one in three people aged over 45 regard their house as part of their pension pot, promising a strong future for equity release, according to recent research.
The research of more than 1,000 people aged over 45 showed that, of people aged between 45 and 54-years-old, those who consider their home as part of their pension rose to 48%, compared to 24%
Of those seeking to put their housing equity to use in retirement, there was an even split between those who own their home outright and those with a mortgage.
The reliance on housing equity to help fund retirement will create a strong equity release market and which has seen increasing interest from funders, including annuity providers, life companies, building societies and banks, following recent growth.
Rising longevity means people will be retired for longer and will need income to last longer if they want a comfortable retirement.
Retirement savers are literally sitting on wealth with average house prices at £160,000 and that could be used to help supplement retirement income. It makes sense to include property equity in retirement income planning.
Interest rates will not rise until 2014 “at the earliest,” experts have suggested, after the Bank of England said it is unlikely to change its monetary policy stance soon.
The July minutes of the Bank’s Monetary Policy Committee (MPC) showed members voted seven to two to hold rates at 0.5%, with it saying that recent economic data make it unlikely it will raise rates in the near term.
The news came a day after some lenders launched their cheapest mortgage deals in 15 years, reducing rates on fixed and tracker mortgages.
The long-held view is that interest rates will remain on hold and experts are not expecting interest rates to rise now until 2014 at the earliest.
The historically low base rate, first introduced in March 2009, could be here for at least another 12 months, according to most financial experts.
Other economic analysts have said the Bank is “between a rock and a hard place” with both growth deteriorating faster than expected, and inflation pressures remaining high.
Replacing tax relief on pensions with a matched savings scheme and setting up a “no-lose lottery” could help plug Britain’s savings gap, a think tank said.
The current tax relief system only encourages saving amongst those already inclined to save, the Social Market Foundation (SMF) said in its report Savings on a shoestring: a whole new approach to savings policy.
The report said a matched savings scheme where the state puts in a capped additional amount for every pound paid into a pension would be more progressive than the current system.
It added a matched savings scheme would be cost-neutral to the taxpayer and more likely to encourage people to proactively save than offering tax relief, which was too complicated.
SMF also suggested a lottery system where people were guaranteed people a 50p return on a £1 ticket which would automatically form part of their savings.
The remaining 50p would go towards a prize fund, with a live draw to build excitement. This builds on an idea put forward by Saga director-general Ros Altmann in May to use a lottery, paid for by the industry, to incentivise saving.
Other SMF recommendations included the creation of a “save more tomorrow” scheme where employees agree to put any salary rises directly into a savings account, and giving shares in public assets like banks or roads to the public.
The Bank of England Monetary Policy Committee (MPC) chose to keep base rate on hold at 0.5%, as economic recovery remains fragile.
As widely expected, MPC members ignored calls from organisations including the Save Our Savers group to hike rates, despite soaring inflation, which is more than 2% above the official target.
With signs that the economy is still on shaky ground, the earliest that economists are now predicting a rate rise is November. However, increasing numbers of forecasters are mooting there will be no shift until at least 2012, with financial money markets now pricing in a rate rise for March 2012.
The MPC has previously said it expects inflation to fall next year when the impact of the VAT rise is stripped out.
We saw an increase in the number of sales agreed last month. However, we are not seeing any significant signs of improvement in the volume of transactions, as consumer confidence continue to suffer further setbacks with the collapse of well-known retailers.
These are positive signs for borrowers who want to remortgage whilst lenders are offering these competitive rates before rate rises become much more of a reality and lending rates begin to increase.
Some high net worth (HNW) individuals are failing to claim their 40-50% pensions tax relief because they do not know they must claim it themselves.
Several tax advisers told the Financial Times that, as high earners are switched from final salary pensions to group personal pensions, they are failing to understand the different ways tax relief is credited. In final salary schemes, employee contributions are automatically deducted from gross pay and tax is only paid on what is left. Effectively, tax relief is received automatically.
However, in group personal pensions, only the basic 20% tax relief is credited, and employees must claim higher rate relief through their PAYE codes or on their self-assessment tax returns.
There have been many cases where employees have not been made aware of the change to how tax relief is accounted for, and so have been overpaying substantial sums in tax.
New data shows that RPI would need to average four per cent over 20 years for an inflation-linked annuity to match a level annuity.
Average inflation rates over the past twenty years suggest that a man at age 65 would need to live to 96 before an RPI-linked annuity would match a level annuity, new research has shown.
The retail price index (RPI) needs to consistently run at over four per cent per annum for an RPI-linked annuity to match a level annuity by average life expectancy, the study found.
If inflation were to run at a more modest rate of three per cent each year, a 65-year old man would need to live to 96 for an RPI-linked annuity to match a level annuity.
The headline RPI figure has in fact run at above four per cent since March 2010, but it was negative for eight months in 2009. Over the last 20 years, the average headline RPI figure was 2.9 per cent.
An annuity which escalates by a fixed percentage of three per cent typically matches a level annuity by average life expectancy. However if inflation runs above three per cent the buying power of this income will be eroded.
Retiring investors need to seriously consider the effect inflation will have on their income.
A pension could be paid out over a period of 20 or 30 years, maybe more, so inflation is a significant threat. Importantly you don’t have to nail your flag to just one mast, you can mix and match level and escalating annuities to suit your needs.
Research suggests that customers are missing out on billions of pounds by failing to apply for an enhanced annuity and that advisers could be part of the problem.
Independent research commissioned by Oxford Economics, on behalf of the Pension Income Choice Association (Pica), found customers is giving away between £3 and £7bn because of inertia in relation to annuities. The research suggests that many clients are not claiming enhanced annuities - which pay a higher amount due to medical conditions or lifestyle reducing likely life expectancy – even though they would qualify for one.
The failure of customers to engage with enhanced annuities shows the current open market option (OMO) system is not fit for purpose and there is a potential gain that can be achieved if people shop around at the point of retirement.
Research by pension provider Just Retirement said that out of all annuities purchased in 2010, approximately one in five customers attained an enhanced annuity. The company said that in the occupational market this number dropped down to around one in 20.
The pension provider also claims that the additional income attained by securing an enhanced annuity could be anywhere between 10 per cent up to 50 per cent for very serious illnesses.
A trial conducted by Just Retirement involving financial advisers and medical professionals showed that seven in 10 of those approaching retirement should qualify for one of these products. They teamed up with a network of independent financial advisers to pilot a trial scheme called tele-underwriting, which involved those who wanted to purchase an annuity talking to a medical professional over the telephone before they saw an IFA.
Just Retirement claimed customers were very happy to disclose all their details but IFAs generally did not like spending lots of time collecting this information. Stephen Lowe, director of specialist annuity firm Just Retirement, said customers needed to specifically ask their financial intermediary or pension company whether they provided enhanced annuities and volunteer to disclose their medical and lifestyle information. He said: “Across the market around one in five customers get the benefits of additional income by selecting an enhanced annuity.
“Our research shows the number of people that could qualify is closer to three in five and in our recent tele-underwriting pilot the number of people qualifying was closer to seven in 10. “Tele-underwriting is a way to take the problem off the IFA. It is an example of not sitting around waiting for the law to change but starting something practical.”
The Bank of England (BoE) today held interest rates at a record low as concerns about slow growth outweighed worries over high inflation.
Economists had predicted rates would stay at 0.5% for the 27th month in a row. The Monetary Policy Committee (MPC) also chose to leave its quantitative easing programme at £200bn.
The weak economy has led analysts to put back the likely date for the next rate rise to November, despite inflation hitting a two-and-a-half-year high of 4.5%.
Data released since the Bank’s last MPC meeting confirmed that UK GDP grew just 0.5% in the first three months of the year after falling a similar amount at the end of 2010.
The gap between bank rate and inflation may be widening but there are precious few other indicators that provide a rationale for increasing base rate from its current rock bottom levels.
The Bank of England MPC remains central to any recovery. On the one hand needing to ensure that a sustainable economic recovery is baked in, on the other hand ensuring it does not lose its credibility as an independent rate setter that is capable of maintaining a controlled and low inflation economy. It’s a tough one, but the recovery has to come first.
A fifth of workers are failing to save anything for retirement, a survey of more than 5,000 people suggests.
This latest report also found those aged between 30 and 50 are falling behind older people in saving for retirement. Some 59% of those aged over 50 are preparing financially for their retirement compared with 47% of those aged 30 to 50.
The survey also suggests savings in the UK are at a lower level than in France, Germany and Spain. The message is that everyone should be putting aside as much as they can afford for their retirement.
Pension’s experts say it would require a large pension pot to be saved by each individual to achieve the desired level of retirement income, and this is just one of recent reports suggesting that people are falling some way short of the funding needed to achieve this.
The survey suggested that, on average, people would like £24,300 a year to live comfortably at the age of 70, and aim to retire just short of their 62nd birthdays.
The survey also showed that 49% were not making adequate provision for their retirement – defined as saving at least 12% of earnings a year.
This figure has never been below 46% or above 52% in the equivalent surveys from the past five years. However there is a call for a change to the terminology used by the government that would make people aware of how much support they would receive from the state. This could include expressing the proposed flat-rate state pension as £7,300 a year, rather than £140 a week, it suggested.
It’s never too late to start funding your pension but the earlier you can start and the less you will need to contribute. Contact you independent financial adviser today to see if your pension funding is on track.
Over half of the mortgage borrowers polled by a mutual building society said the interest outlook was too uncertain to decide whether to choose a fixed or tracker rate mortgage.
Most people clearly anticipate that a rate rise is on the cards sooner rather than later, so now maybe the right time when you could look to remortgage.
The research suggested 29% would fix their mortgage if they were taking out a new mortgage today, with 11% opting to fix but 53% couldn’t make up their minds.
The research also showed the extent of the confusion from mortgage borrowers in the UK, with 45% of borrowers unclear how much the average application fee costs, with the average guess at £532.
According to the latest data by data provider Moneyfacts the average application fee is actually £957 – with some fees rising to up to £2000 in total.
With 400,000 people expected to remortgage in 2011, 8% of prospective borrowers said they would have to use credit, or borrow from family members to fund application fees, with 28% rolling costs into the loan.
It is becoming increasingly important to shop around when remortgaging to compare deals as there are fee-free remortgages available, with no arrangement, application, valuation or legal fees, but these offers are hard to find on the high street.
You could be in for a shock when it comes to your mortgage application fees, which is why it is important to speak with independent mortgage broker to explain what your options are and see if a fee free remortgaging offer is available to you.
