Hi, I'm Ros Altmann. My blog covers finance, pension, economics, investment and retirement issues. I'm an independent expert, advising Government, pension providers and finance companies and also helping consumers. I'm the UK Government's Older Workers Champion.

Is cutting pensions tax relief the right way to tackle student debt?

27th February 2015

Proposals to cut annual pension contributions limits make some sense but cutting lifetime limit makes it difficult to plan pensions properly 

Still leaves public sector better off than typical private sector pension savers

There are better ways to use pensions to help students with debt

Damage pension confidence as rules keep changing: The proposals today to cut pensions tax relief in order to fund cuts in university tuition fees are likely to cause damage to pension confidence. I am not trying to make a political point here, and I agree that university tuition fees cause problems for young people who leave higher education saddled with huge debts. However raiding pensions to pay for this may not be optimal.

Higher earners and overseas students will benefit from lower tuition fees: Those who will benefit most from lower tuition fees will be students who have higher earnings or who come from overseas and are not traced once they return to their own country.

Let’s look at these issues in more detail.

Cutting annual contribution limit is a valid means of saving public money on pensions tax relief: Those who can afford to put £40,000 a year into a pension are clearly likely to be highest earners and limiting their annual contributions is unlikely to leave most of them in poverty in later life. (There could be a few exceptions to this, for example people who suddenly want to save large sums in later life due to receiving promotion or an inheritance, but these will be a tiny number).

Lifetime limit should be rethought as it is makes it too difficult to plan: Cutting the lifetime limit, however, makes it almost impossible to plan pensions properly, particularly close to pension age when it is most important. Many people will feel this is a retrospective removal of pension relief. The lifetime limit has never made sense to me as a policy tool. Yes, it can raise revenue when people inadvertently exceed the figure, but I cannot understand why policy should penalise good investment performance. Limiting the contributions is rational, but stopping people from being able to plan how much to contribute as they approach the upper limit undermines the aims of pension saving. IF you are in your late 40s or early 50s and have a sum close to the lifetime limit, should you keep contributing to pensions or not? If you add more and the investments do well, you will face penal tax rates. If you don’t contribute more and the markets do badly, you will have less pension later.

£1m lifetime limit will allow twice as much pension income for public sector or private DB schemes: The peculiarities of the calculation methods for the lifetime limit mean that those with final-salary-type pensions (which covers almost all public sector workers but only a minority of those in the private sector) are able to achieve nearly twice as much pension as those with defined contribution pensions.

£1m lifetime limit permits a £50,000 pension for member of typical public sector pension scheme: A £1m lifetime limit for a defined benefit pension scheme would be calculated as equivalent to a £50,000 a year pension from age 65. This is because traditional defined benefit schemes do not have a specific pot of money for each member, they just promised a particular level of pension. The law then requires that amount of pension to be converted to a capital sum to see whether it exceeds the value of the lifetime limit. The required calculation is that the amount of annual pension is multiplied by 20 (the logic might have been that this assumes the average person lives for 20 years in retirement). So £50,000 multiplied by 20 gives the £1m figure.

Typical private sector pension scheme member would need a £2m lifetime limit to get £50,000 pension: However, in the private sector defined contribution schemes, there is an actual pot of money which then needs to be converted into a lifetime pension income. So one needs to look at the costs of buying an annuity. As defined contribution pensions include inflation linking and spouse cover, the cost of buying a £50,000 a year pension equivalent to the lifetime limit available to a member of a defined benefit scheme is the cost of buying an inflation-linked, joint-life annuity from age 65. At current rates, this would actually cost around £2million. So a lifetime limit of £1million is worth twice as much pension to a typical public sector worker than to a typical private sector pension saver.

Auto-enrolment could be reformed to help with student debt: Another option that could help young workers to repay their student debt might be to extend auto-enrolment so that it could cover student debt repayments. Currently if young workers put contributions into a pension, they will receive extra help with their savings from their employer and tax relief in a £1 for £1 match. However, if they put the money into repaying student debts, they lose that employer contribution and pension tax relief. A worker in average salary of £25,000 year, contributing the minimum under auto-enrolment, would be putting £1000 a year into their pension and receiving a further £1000 from their employer and tax relief (a total of 8% of their salary). However, if that £2000 a year were to go into repaying student debt first, the young worker would not have lost the extra £1,000 a year in employer contributions and tax relief. Perhaps this would be a policy worth considering in order to help students repay their debts, which could be a more important form of saving than pensions in early life.


February 27, 2015   1 Comment

Pensioner Benefits

24 February 2015

  • Protecting pensioner benefits is politically astute but also makes some sense for now
  • Tinkering with the current package of benefits is not a solution – they could be taxed or paid from a later age, but the whole system should be rationalised
  • A proper assessment of all later life support is needed – including social care

If the Government just stops paying pensioner benefits such as Winter Fuel Payments or free TV licences, this would be the equivalent of cutting the state pension by over £10 a week. I do not believe that is right or fair. Suggestions that £4bn could be ‘saved’ by sweeping away these freebies are not reasonable. In fact, there are far better and fairer ways to save money if we need to and, until a more thorough assessment is made, it is right to reassure vulnerable older people that their payments are protected for the moment.

If we want to reform pensions, there are far better ways in which this can be done, which can also save money. I have suggested many times that these payments should be taxable and perhaps paid from later ages, but I would prefer to see a proper and comprehensive assessment of how we support older people in this country.

Yes, it is ridiculous to pay a tax-free Winter Fuel Payment to extremely wealthy people who may even live in warmer climes all winter, but why not make the payments taxable, rather than taking them away or means-testing them? The whole system needs an overhaul and, during the next Parliament, the Government should set up a proper review of old age support. Just taking away parts of the current system will not solve the underlying problem.

Of course it is not optimal policy to have so many add-on benefits anyway. The paternalistic notion of Government deciding how pensioners should spend money is long past its sell-by date. Government should give people a decent pension and then it is up to them to decide what they need it for.

Governments have used pensioner freebies as political vote-buyers. The Winter Fuel Payment was actually introduced by the last Government as a series of high-profile but temporary extra payments to please pensioners instead of just increasing the state pension by that amount. When they were introduced, they were not designed to be permanent but have become important to many to supplement inadequate state pensions.

Consideration should be given to rolling all the free benefits into the State Pension, making them taxable, but people could spend the money as they wished. Those pensioners who pay tax would then be taxed on the extra income, so saving costs, but the poorest pensioners would receive the full benefit. There would be savings in administration costs too.

The potential for savings to be made by rationalising and simplifying our benefit system for pensioners is enormous. At the moment, there are over twenty – yes twenty! – benefits that pensioners could be entitled to, they all have different rules and different qualification criteria, some will be payable to every pensioner, some only to older ones, some are tax free, some are taxable, some are means-tested and they need to be administered, claimed, assessed and paid.

So let’s not rush to tinker with the existing benefits system – and also take into consideration the need for social care as well as just pensions. We urgently require a proper review of the entire later life support mechanisms and design a better package of measures to support older people with the dignity they deserve.

February 24, 2015   1 Comment

Older workers are essential for economic success

22 February 2015

  • Having more over 50s in work is not a threat to younger people’s wages or employment – it is essential for economic progress
  • Studies suggest more older people in employment improves employment and wages for the young
  • In our ageing population, we should welcome higher employment levels for over 50s – if they shift to part-time that may depress average wages but is not a concern long-term
  • Concerns about rising labour force participation by older workers being a threat to younger people are misguided – it is essential for economic progress
  • Failure to encourage longer working lives will imply a larger tax burden on future generations, especially with the aging demographics and rising life expectancy
  • More older workers leads to higher national income, higher national output and more jobs for younger generations
  • We should welcome the rise in part-time workers in later life, which allows an extension of working life that can boost future individual and national income

Keeping more over 50s in employment does not mean fewer jobs for the young: There is extensive evidence showing that having more over 50s in work, is actually associated with both lower unemployment and higher wages for the young. A summary is in a Eurofound study by Rene Boheim [ ] ‘The effect of early retirement schemes on youth employment’ which concludes that increasing retirement age leads to an increase in the wages and employment of younger workers. So it is in the interests of all of us to enable more older people to stay in work.

More over 50s staying in work is a major boost to our economic prospects:  Concerns that later retirement has caused slow wage growth in the post-2008 recovery, despite sharply falling unemployment and the massive job creation of recent years, are misguided. Such simplistic analysis fails to factor in the impact of an aging population and the trend to flexible or part-time work as an alternative to traditional retirement. In fact, these trends are hugely beneficial to our economy and should be celebrated.

The demographics suggest we need to ensure older people are employed for longer: The statistics are startling. Over the next few years, there will be 3.7million more people aged between 50 and state pension age, but 0.7million fewer people aged 16 to 49. Put another way, estimates suggest there will be 13.5million more job vacancies in the UK, but only 7million school-leavers. This net shortfall of workers cannot be filled by immigration of 200,000 a year. With our aging population, business urgently needs to recognise the demographic inevitability – either more over-50s will work longer, or we face declining economic growth.

The contention that early retirement leads to more employment opportunities for young people depends on two assumptions, both of which are flawed: For example, this argument assumes older and younger workers are easily substituted for each other. In fact, the skills of older people such as life and job-specific experience, are generally different from those of younger people who have not yet experienced working life. Therefore, younger and older workers are not normally good substitutes for each other – indeed their roles are often complementary.

There is not a fixed number of jobs in the economy:  It is not true that each older worker in a job denies employment to a younger person. This is not how economies work. There is not a fixed number of jobs. The more spending power in the economy, the more jobs can be created. If companies and individuals earn more, economic activity and employment can increase. In an individual company there may be a fixed number of positions, but only over the short-term. If business is good, the company can create more jobs – but if demand for the company’s goods or services declines, it will reduce the number of jobs. This also applies to the economy as a whole. So keeping more older people in work, means increasing national output, higher lifetime incomes and more money to spend in our aging population. Conversely, if more older people stop work, they will have lower spending power and ultimately there will be fewer jobs for younger people.

Having older people active and productive benefits people of all ages and ensures that more jobs are created:  Younger people’s wages rise as employment rates of older people increase [see Kalwij, Kepteyn and deVos, 'Retirement of Older workers and employment of the young'] and as the number of workers age 55 and over increases, overall employment and wage levels rise and unemployment falls [see, Munnel and Wu 'Will delayed retirement by baby boomers lead to higher unemployment among younger workers'].

Historical analysis both in the UK and elsewhere supports this conclusion: For example, after World War II, the dramatic increase in labour force participation by women did not mean fewer jobs for men. Instead, it boosted economic growth as there were more two-earner families with higher disposable income, which created more new jobs as spending power in the economy increased.

UK 1970s’ ‘Job Release Scheme’ failed:  In the 1970s, the UK Government tried to use ‘early retirement’ as a means of addressing youth employment. Its ‘Job Release Scheme’ aimed to encourage older people to leave work and ‘release’ jobs for the young, but the policy failed. Rising early retirement was accompanied by higher unemployment for younger people. Economists subsequently concluded that encouraging more older people to retire is not a way to increase employment prospects for young people over time.  It can actually have the opposite effect.

France has historically tried reducing retirement ages as a policy tool to reduce youth unemployment: From 1971 to 1993 the Government encouraged early retirement, but this led to a fall in employment of both older and younger workers. In contrast, from 1993 to 2005 more older people stayed in work and youth employment rates increased.

There are other examples too: In Germany in the early 1970s, employment of older workers fell by 7 percentage points, but employment for younger workers decreased by 2 percentage points. However, in 1992 the German Government introduced new incentives for older workers to stay in work, leading to a fall in youth unemployment.

February 22, 2015   Leave a comment

Care ISAs and incentives for care saving

2 February 2015

  • Government considering savings incentives for social care
  • Possible ways to incentivise care saving schemes:  1. Care ISA   2. Tax free pension withdrawal   3. Care saving in auto-enrolment
  • Could help millions of middle income families not just the well-off

Government must tackle lack of care funding: Are Ministers finally waking up to the need to help people save to pay for social care? I do hope so. It seems they may be considering savings incentives, to help people prepare for potential care bills for themselves or their loved ones. Estimates suggest that around half the population over age 65 will need to spend at least £20,000 on later life care, and one in ten will spend over £100,000.

Insurance unlikely, need to encourage savings: Insurance companies cannot offer an insurance solution to cover care costs, so private savings must form part of the solution. With an aging population and rising longevity, it has long been clear that increasing numbers of older people will need care. Yet there is no money set aside by the state or in private savings to cover care costs. Obviously, using a family home is a possibility, but many would prefer other means.

Care ISAs and tax free pension withdrawal could help kick-start care savings culture: How can we help families start to plan care savings? Tax-free ISAs are a simple and popular form, but most people do not have specific spending plans for their ISAs. A ‘CareISA’ in the Chancellor’s final Budget would not involve upfront tax relief as with pensions. Launching a CareISA specifically earmarked to pay for care would itself help people realise the need to save for care and help kick-start a care saving culture that currently does not exist. In addition, allowing people to spend their pension money on care without paying tax first would also encourage more to keep money for later life as well as signalling the need for care saving plans.

Making a CareISA work – IHT free? A separate annual allowance for a ‘Care ISA’ of perhaps £10,000 a year, maybe with a lifetime maximum of £100,000 contributions would be an excellent measure for the Chancellor’s Budget. Transferring money from other ISAs into a CareISA could also be allowed. The money could only be spent on approved care provision (but it could cover care for a loved one as well as paying for moderate or preventive needs because such early intervention might help save money for the NHS). To increase the attraction of CareISAs they could be exempt from inheritance tax. Just as with pensions, they could then be passed on to future generations as a Care Savings plan. This could finally begin the process of planning in advance for care funding. Within any one couple, there is a 50/50 chance that one will need care, in a family of four, one is likely to need care but no money is set aside. Saving among family members would make sense if they wanted to, rather than each individual.

Tax free pension withdrawal to pay for care: Alongside a new Care ISA, the new pension freedoms could also be used to encourage people to save money for later life care by allowing any money taken out of the fund for care needs to be withdrawn tax-free. Removing the annuity requirement and 55% death tax could encourage pension funds to be kept to cover family care costs. Allowing some pension fund withdrawal to be tax free if it is used to pay for care, would encourage more people to retain some funds in the tax-free pension for longer, just in case it is needed. If they don’t spend it on care, it will pass free of inheritance tax to the next generation.

Auto-enrolment to encourage workplace care saving plans: Ultimately, there is another route to help care funding, especially for those without large savings. We certainly need a range of options to solve a crisis on this scale. With auto-enrolment potentially bringing every worker into pensions for the first time, there is an opportunity to use this to start funding social care too. The Government could eventually adjust auto-enrolment to cover more than pensions, or even build a national care insurance contribution into auto-enrolment too.

Bringing Care Savings into workplace flexible benefits packages: In the meantime, there would be merit in encouraging employers to offer workplace savings plans specifically for care, such as the CareISAs. This could be part of a flexible benefits package, with an employer contribution to help workers of all ages and income levels save up for care costs.

No magic bullet – urgently need range of options so public know they need to save: The cost to society of failing to ensure money is set aside for future social care needs will put intolerable burdens on the NHS, on younger generations and on older people. There is no magic bullet to solve this crisis – we’ve left it so late. The best we can do is start to tell people that the state won’t pay, help them realise just how little the state covers and that they are likely to need their own funding as well. Whether it’s ISAs, pensions or auto-enrolment, the Government must incentivise saving for social care and this can ultimately help millions of middle-income families, not just those who are well off.

February 2, 2015   2 Comments

Great news: FCA will finally force firms to look after their pension customers

26 January 2015

  • At last the regulator has bowed to pressure for second line of defence – essential in the new era of freedom and choice
  • Providers must ask questions and give risk warnings before customers make irreversible pension decisions

Fantastic news for customers:  I am so delighted that the FCA will finally force firms to take more care of their customers, asking vital questions and warning them about the risks of irreversible pension choices.  At last, pension providers will have to do more to give their customers a fair chance of making the right decision, rather than relying on customers themselves to understand all the complexities of pension choices.  Of course, this should have happened long ago, but I welcome it now nevertheless.

More choice means more risks if people don’t understand pensions:  With the new freedoms starting in April 2015, people approaching pension age will have more choices available to them than ever before.  This adds to the risk that they may make poor decisions because most people simply don’t understand pensions.

It is now up to the pensions industry to rise to this new challenge:  Being careful about looking after customers should never have been an optional extra in the pensions landscape – but it has taken a long time to finally force regulatory action.  Is it absolutely vital to a successful future for providers and customers.

Mis-selling uncovered by FCA demands urgent action:  The FCA’s recent Retirement Income Market and Annuities reviews uncovered clear evidence of mis-selling of retirement income products.  Those findings clearly indicated the need for customer protection.  This is a huge market, with more than a thousand people reaching pension age every single day.  It is, therefore, good to see the decision to introduce more protection is being rushed through to start in April, even before consultation in order to prevent this from happening to more and more people.

Pension decisions can be irreversible:  Once a customer has made an irreversible pension decision, they cannot undo the damage later and the risk of consumer detriment is particularly high at retirement.  This could be buying the wrong type of annuity, such as failing to cover a spouse, or failing to obtain a rate that reflects their poor health.  Alternatively, customers may cash in their whole pension in April, without realising the tax implications.

Mis-buying vs. mis-selling:  Too many customers with serious illnesses have been buying annuities that assumed they were in excellent health.  Firms sold them such products without concerns because providers were not required to ask whether their customers were indeed well and just claimed it was the customer’s fault for ‘mis-buying’.  It is more than six years since the Regulator’s initial findings of such failures, but the FCA just relied on ‘disclosure’ with insurance or pension companies having an obligation to ‘clearly inform’ their customers about their options in multi-page ‘wake-up packs’ that many did not understand and included terms they had never encountered before.  ‘Disclosure’ has not worked – as confirmed by FCA investigations.  What is ‘clear information’ to a pension provider or a regulator is simply not understood by most customers.

Plain English: From April, providers will have to ask some basic questions and alert customers to the risks of any action they wish to take, including the tax implications. The Regulator rightly insists these questions and risk warnings will  need to be phrased in plain English, no complex jargon about ‘impaired life’, single life’, ‘joint life’ or ‘enhanced’ products, but clear questions and statements.

Pension Wise guidance isn’t enough:  Even though the Government will introduce the ‘Pension Wise’ guidance service in April, it is simply not safe to assume this will be sufficient.  Some may not take the Guidance, others may not understand it and a second line of defence to protect people is essential.

Restoring trust:  By asking appropriate questions and giving customers proper risk warnings, they should have a fairer chance of doing what is right for their own circumstances. With auto-enrolment proceeding apace, it is so important to ensure trust in pensions can be restored.  It is right that people are going to have the choice to make their pension savings work well for them, but the risks of poor decisions must not be ignored.  Introducing better protections is a sensible step forward for the future.

January 26, 2015   Leave a comment

Social care crisis – urgent action needed

20 January 2015

  • Action to address care crisis cannot wait any longer
  • Elderly people are suffering due to council and care company cost-cutting
  • All parts of the system are failing and Government has not yet offered solutions
  • Tax incentives to help families save for care costs are needed as £72,000 cap is too high for affordable insurance
  • Care ISAs, Family Care Plans and Workplace Savings free of Inheritance Tax
  • Use auto-enrolment and new free Guidance to kick-start care savings

There is no money set aside for care:  Even though demographic trends clearly signal a dramatic rise in the numbers of older people needing long-term care, there is almost no money set aside to pay for the care they will require.  Millions of baby boomers are currently reaching their 60s and will need care in the coming twenty years or so, yet the Government has not planned for this huge looming cost. Estimates suggest that around half the population over age 65 will need to spend at least £20,000 on later life care, and one in ten will spend over £100,000.

Long-term care funding is one of the least understood parts of the health and care system.  In fact, many people mistakenly believe that the Government will pay their care costs.  But social care is the responsibility of local authorities, not the free NHS.  The difference between social care and healthcare is not easy to define, but as an example, someone with cancer is likely to qualify for healthcare funding with care provided at taxpayers’ expense, while someone with dementia may not be considered to have a ‘health’ need and gets no help from public funds at all.

Cash-strapped councils and indebted care companies are desperate to cut costs but this cuts quality too.  Local authority budgets have been squeezed and councils have slashed their social care spending by 26% in the past four years.  This affects all aspects of the care system.  Whether it is funding for care homes, where local authorities are not paying the full costs of care and are forcing private payers to subsidise publicly funded residents, or homecare, where councils have cut the time for home visits to only 15 minutes in many cases, the system is not being funded properly.  Private care companies are often highly indebted, both care home operators and homecare providers, so there is constant cost-cutting pressure.  This affects the quality of care provided and also the conditions in which staff must operate.  Zero hours contracts and low pay are endemic, often with no pay for travel time or training, which leads to a transient workforce and lack of adequate care.

Healthcare and social care must be integrated.  Until the Government properly integrates social care with healthcare and insists on higher standards across the industry, the current crisis will only worsen.  This should be a major political issue, but it is not receiving sufficient attention.  The public is not being adequately informed of the problems and possible solutions, leaving families struggling to cope and elderly people at risk in a system that is failing on all fronts.

Families will need to prepare for some costs, but they need help.  In Scotland some social care is provided free by the government.  Elsewhere local authority care funding is subject to one of the strictest means-tests.  Most people will receive no help from the state until they have used up the bulk of their assets, causing significant distress to many families and leaving the majority of families to find huge sums at short notice.

Politicians have talked about this problem for years, but there is still no solution in sight.  Despite knowing that numbers needing care will rise inexorably, policymakers have not set aside public money, or encouraged private provision to pay for care.  The quality of care has suffered, many companies offering care are highly indebted and there is a crisis in the sector.

Products for care funding are inadequate.  There are some products already on the market to help people pay for care.  These include Immediate Needs Annuities, Equity Release and local authority deferred payment plans, but each has advantages and disadvantages and they only help at the point of need, rather than allowing people to make plans in advance.

The £72,000 cap is not a solution. The latest proposal designed to stop people losing their life savings or their home to pay for care is the £72,000 cap to be introduced from April 2016.  The state is supposed to step in once the cap is reached, to ensure nobody has to face catastrophic care costs, but most people will actually have to spend more like £140,000 on care before they receive any state help because the cap excludes.

  • £12,000 a year board and lodging costs for a care home
  • Any money spent on care before your council assesses your needs as severe
  • Money spent on a higher-fee care home or more homecare in excess of the local authority basic minimum
  • Any spending before April 2016
  • Even after state funding begins, the £12,000pa for board and lodging elements of care home accommodation will not be paid by the council.

Insurance up to the cap is not a viable solution.  Insurance companies have told the Government that they can’t develop an insurance solution to cover care costs up to the cap.  If insurance is not a realistic option, then other avenues must be urgently explored.  New products and approaches, together with new Government incentives, are urgently needed.

Encouraging saving for care and integrating health with social care could help.  In addition to a better integration of health and social care (the current distinction seems arbitrary and manifestly unfair) it is also important to help people prepare in advance for care spending if it is needed. I believe a savings solution will have to be part of the mix.

How could a savings solution work?

Extra tax breaks are needed to encourage long-term care saving.  This is justifiable because the cost to society of failing to ensure money is set aside for future social care needs will put intolerable burdens on the NHS, on younger generations and on older people.  Urgent action is needed to head off a disaster that is clearly on the horizon.

Tax free pension withdrawal if used for care:  The new pension freedoms could encourage people to set aside money for later life care.  Now that the annuity requirement has been removed, and there is no 55% death tax, pension funds could help cover care costs.  Many people reaching retirement have tens of thousands of pounds in their pension funds but if they use this to buy an annuity, they will have no money to pay for care.  Allowing people to withdraw money from their pension fund without paying income tax, if it is to pay for care, would encourage them to retain some funds in the tax free pension wrapper for longer, just in case it is needed.  If they don’t spend it on care, it will pass free of inheritance tax to the next generation as the 55% pensions death tax has been abolished.

Care ISAs – IHT free: The Government could introduce a separate annual allowance for ISAs that are specifically earmarked to pay for care.  Launching such ‘Care ISAs’ would itself help people realise the need to save for care.

Family Care Savings Plans – IHT free:  Another possibility is for families to save collectively for the care needs of their loved ones.  For example, parents, siblings or children might join together to build up a fund in case one of them needs care.  The probability is that one in four people will need care, but nobody knows in advance which one.  Tax breaks to incentivise this kind of saving, perhaps allowing them to be passed on free of inheritance tax, would help.  There is a role for insurance with such savings plans – which might also include some ‘catastrophe insurance’ to pay out if more than the expected number in any family or group actually need care.

Auto-enrolment to encouraged workplace care saving plans: Alongside auto-enrolment, it might also be helpful to ensure that employers are encouraged to offer the option for people to save in a workplace savings plan that is set aside specifically for care.  This could be part of a flexible benefits package, which receive an employer contribution.

Use Pensions Guidance to provide information and education:  It will be important to ensure that the Government’s ‘Pension wise’ guidance tells people about planning for care.

So, the message to the Government is that our care system is in crisis, there is no money set aside either publicly or privately to fund later life care adequately, and the time to address this crisis is now.  Social care in this country is failing, radical action is long overdue.

January 20, 2015   1 Comment

65+ Guaranteed Growth Bonds – Great news for pensioners from NS&I

15th January 2015


  • At last some good news for pensioners’ savings
  •  NS&I 65+ Guaranteed Growth Bonds on sale from today – guaranteed by the Government
  •  These are market-beating bonds with great interest rates and fully backed by the Treasury
  •  Don’t panic, but if you’re over 65 and have money sitting in a savings account, the sooner you apply, the sooner it can earn more for you

National Savings and Investments (NS&I) has this morning launched its long awaited new issue of National Savings bonds for people aged over 65.  The Chancellor announced these so-called ‘Pensioner Bonds’ in his Budget last March, especially to help the over 65s who have been hit by the dramatic drop in interest rates on their savings.

What are the bonds called?  They are called 65+ Guaranteed Growth Bonds

 What are the positive features of the bonds?  They are backed and guaranteed by the UK Treasury, so there’s hardly a risk of your bank or building society becoming bankrupt.  They offer interest rates that are very attractive in the current low-rate environment.

What kind of bonds are they?  There are two issues of these bonds, each paying market-beating interest rates.  The one-year bond will pay 2.8% interest and a three-year bond paying 4% per annum.  These rates are around twice as high as those offered by most bank or building society savings accounts.

How much can I apply for?  You can apply for a minimum of £500 and maximum of £10,000 in each of the bonds.  That means each person can apply for up to £20,000 of the bonds and a couple can invest up to £40,000.  The Treasury will allow NS&I to issue a maximum of £10billion of these bonds.  If every saver invested the maximum in each bond, then only 500,000 people will be able to invest, out of well over 10million over65s in the UK.

How can I apply?

Online: You can invest on line by visiting phone:You can apply by phone on a Freephone number 0500 500 000 or you can call +44 1253 832007 from outside the UK or on a mobile.  By post: You can download an application form or call 0500 500 000 for an application form to be sent to you, then send a cheque with the completed form to NS&I, Glasgow, G58 1SB.  You won’t be able to buy the bonds through the Post Office.

Will the income be tax-free? No the income from the bonds will be taxable, with basic rate tax of 20% deducted before the interest is paid to you.  If you are a higher rate taxpayer, you will need to declare the interest you receive on your tax return.  If you are a non-taxpayer you will need to claim back the tax that has been deducted.  There are no ISA or other accounts that pay more than the 4% annual interest on the three-year bonds.

Will the interest be paid monthly?  No, all the interest will be paid at the end of the term i.e. after 12 months or after three years.

Can they be cashed in early? If you want your money back before the end of the term, you will forfeit 90 days’ interest.  On £10,000 in the three year bonds, that amounts to a penalty of about £100.

Is it fair that they are only available for the over 65s?  The Government is only offering these bonds to older savers, partly because this group is most reliant on savings income, with many having built up savings to support themselves in retirement, are no longer working and have found their income decimated by low rates.  Younger savers may be able to take more investment risk, rather than relying on cash savings and, if they are still working, perhaps the Government believes they can make up for lower savings income more readily than those in later life.

So what should I do now?  If you are over 65 and have money in bank or building society accounts which you intend to keep there for at least the next one or three years, you should seriously consider applying for these new NS&I 65+ Guaranteed Growth Bonds.  Go to and read more about them and you can apply on line.  These market-beating interest rates will not last for ever, once the £10billion has been issued there will be no more – they offer really great deals for the over 65s.

Should I panic?  I wouldn’t expect these bonds to sell out too quickly because they do need you to be able to tie up £20,000 of cash savings for some time.  However the rates they offer are so attractive that if you’re over 65 and do have that kind of money sitting in a savings account, the sooner you apply, the sooner your money can start earning more for you.

January 15, 2015   8 Comments

Pension understanding shockingly low – especially for older women

14 January 2015

  • Survey reveals shocking lack of pensions knowledge especially among older women
  • High proportion of pension savers have low levels of financial capability
  • Freedom and choice won’t work if people don’t understand pensions
  • Crucial role for ‘Pension wise’ guidance – supplemented by financial advice – to help at all ages

Millions of older people – especially women – at risk of poor pensions: The shocking results of a new research report published today show that millions of people are at significant risk of not making good use of their pension savings. Despite possibly decades of pension saving, a high proportion of pension savers have astonishingly low levels of pensions knowledge. The problem is particularly severe for older women, most of whom seem pretty much in the dark about even the most basic terms that are important when considering pension options.


How well do you understand the following financial term…:

Proportion of MEN who
understand quite well/very well

Proportion of WOMEN who
understand quite well /very well

Savings account









Tax Free Lump Sum






Income drawdown



Joint-life annuity



Enhanced annuity



Marginal Tax Rate




The pensions industry has benefitted from customers who do not understand pension terms: The Survey shows that it is pensions in particular that people are ignorant of – when it comes to savings accounts or mortgages over 80% of both men and women say they understand. The complexity of pensions and the failure of providers to educate or help customers understand the important elements of pensions has prevented customers from making informed decisions. Many have saved for years in a default fund without having to make any decisions for themselves and were then forced into buying an annuity which they did not understand. This suited the pension firms, but was not necessarily in customers’ best interests as such ‘one-size-fits-all’ approaches do not fit everyone.

Half of men, only a third of women understand the term ‘Annuity’: Only just over half of men say they understand the term ‘annuity’ quite well or very well, and only a third of women think they do.

Joint-life annuity not understood by under a third of men, under a fifth of women: Even more worrying, the level of knowledge of the different types of annuity that can be so important for people to understand, is even lower. Less than a third of men and less than a fifth of women feel they know what a joint-life annuity is. This is deeply worrying because a joint-life income can be crucial for couples to ensure that the widow or widower is not left penniless.

Enhanced annuities not understood by under a fifth of men and less than a tenth of women: When it comes to enhanced annuities, only 18% of men and 9% of women knew what this meant. An enhanced annuity can be the most important aspect of annuity purchase, since buying a standard annuity assumes the purchaser is in excellent health, whereas those who are not perfectly healthy can get a much better pension if they buy an enhanced, rather than standard annuity, so that their health is properly reflected.

Don’t understand tax implications of taking money out: The Survey findings that very few people actually know what a marginal tax rate is, are also disconcerting. People may not realise they could lose 40% or 45% on their pension withdrawals, but once they have taken the money out it is too late to go back.

Role of the ‘Pension wise’ guidance is vitally important: People need to know more about pensions, to have someone help them understand the basic terms involved, so they can make informed decisions about what is best for themselves.

Ideally, they will need financial advice that is independent and given by an expert: For those who need individual hand-holding, advice is generally worth paying for to avoid making poor and irreversible decisions. People are usually unaware that they will pay commission to buy a product even if they get no advice, whereas they may be better off spending that money on advice instead.

Special help needed for women: It is important to bear in mind the exceptionally low level of financial capability of older women. Financial education, information and guidance for women must be of sufficient quality to ensure everyone has a fair chance to make good decisions.

 Pension freedoms can’t work properly if people don’t understand pensions: Improving financial education and awareness among pension savers is so important. Providing basic financial education and the ‘Pension wise’ service should be extended to all age groups as a requirement of pensions auto-enrolment. This is a tremendous opportunity to empower people to manage their retirement income, rather than just being at the mercy of pension companies, but the risks of poorly informed consumers not understanding how to make the best choices must not be ignored.

 The survey undertaken by YouGov. Total sample size was 5120 adults aged 50 to 70. The report is published by the International Longevity Centre UK.  The research was supported by a consortium of industry partners (EY, Just Retirement, Key Retirement, LV= and Partnership) and guided by Ros Altmann.  

January 14, 2015   Leave a comment

Nearly 5million over 50s intend to keep working past age 65 as later retirement becomes the norm

13 January 2015

Latest Survey for Older Workers Champion shows a retirement revolution is well underway

Nearly 5 million people intend to keep working beyond age 65 as later retirement becomes the norm

Only 17% favour traditional retirement pattern as majority want to ease into retirement via part-time work first

Employers need to increase emphasis on later life training and flexible working

Millions of older people do not know that over 65s don’t pay national insurance

Retirement is changing as nearly 5million people plan to work beyond age 65:  A nationwide Survey of over 50s has revealed some startling findings about attitudes to work and retirement.  It is clear that a major re-evaluation of retirement is underway.  When asked what their ideal working pattern would be between ages 60 and 65, only 15% of non-retired over 50s said they would want to stop working altogether.  When asked their ideal working pattern from ages 65 to 70, around half would like to still be working, although preferably on a part-time, rather than full-time, basis.  If the results are applied to the whole UK population, this suggests 4.8million people want to keep working and not be retired between ages 65 and 70.  Currently, there are around 1.2 million over 65s still in work.  Therefore, there is potential for a significant rise in later life work.

Traditional idea of retirement outdated as people want to work part-time before stopping altogether:  Around half of people have increased their planned retirement age in recent years, as later life working is becoming an ever more important issue.  Traditional ideas of a fixed, one-off, retirement date no longer seem to apply. Nearly two-thirds of over 50s do not believe that working full time and then stopping altogether is the best way to retire.  More than a third (36%) of those already retired would advise people to work part-time before retiring altogether.

Employer attitudes need to change, more later life training and flexible work:  To facilitate increased later life working for more of those who want it, employer attitudes and approaches to recruitment need to change, as well as more emphasis on later life training.  In this regard, it is encouraging that almost half (47%) of all over 50s still economically active would be interested in taking a training course to improve their skills.  If employers can help people combine training for new roles, or improving their skills, with flexible working as they get older, the Survey suggests there would be a major increase in wellbeing for our aging population, as well as better economic growth.

Nearly half of over-50s unaware that they won’t pay NI contributions if working past 65:  One fascinating finding is that nearly half of over 50s were unaware that they can work beyond age 65 without having to pay National Insurance.  This suggests scope for further education and information to help people understand the significant potential benefits of working longer if they wish to.

Support for idea of ‘gap-breaks’ in later life, then return to work refreshed:  One in four over 50s said they would be interested in taking a few months off and then returning to work, as an alternative to retirement.  Many people could benefit from a break, after years of full-time work, but after that break want to return to work again.

2.3million retirees miss work, wish they’d worked longer and miss the social interaction:  More than one in five retirees say they wish they had worked longer (equivalent to 2.3million people nationwide).  38% say they miss the social interaction of work, indeed far more than the 27% who say they miss the income.  Around one in five (18%) say they miss the feeling they are doing something useful.  Over a quarter (27%) of those now retired wish they had worked longer, including those who had to retire due to illness or disability.

One in ten felt they had to retire but didn’t want to:  Importantly, 11% of retirees say they did not really want to retire but felt they had to, or were expected to.  If people feel they have to retire even if they don’t want to, we are wasting resources for the economy as a whole and individuals affected will be poorer than they need to be for the rest of their life.  Conversely, enabling people who want to keep working in later life to do so, can mean higher lifetime income for millions of people, more output in the economy and higher spending power in the longer term, which will mean higher economic growth and better living standards for all of us.

Potential skills shortages if employers fail to act:  There is an opportunity to refine retirement so that it can fit better with people’s lives.  Employers will potentially face skills shortages in coming years, but allowing more flexibility for older workers, improving later life training and facilitating caring responsibilities if possible can all improve quality of life for older people while simultaneously benefitting business and the economy.



Results based on YouGov national Survey of over 2000 retired and non-retired over 50s conducted in December 2014.


January 13, 2015   Leave a comment

Guidance Guarantee to be called ‘Pension wise’

12 January 2015

  • At last the Guidance name is released – ‘Pension wise’ to point people in the right direction for their retirement journey
  • Will need extensive publicity campaign to establish as trusted brand – this is not Advice
  •  Could be great opportunity for IFAs, helping customers appreciate relative value of independent advice and explaining hidden commissions
  •  Still need second line of defence or pensions passport to better protect customers

 Guidance brand name unveiled – ‘Pension wise – your money your choice’: The long-awaited announcement of the Treasury’s new name for the Guaranteed Guidance service has been released. It will be called ‘Pension wise: Your Money, Your Choice’. The aim is to build it into a strong, distinctive, trusted national brand. Pensions are complex, so people need help to navigate the landscape and ‘Pension wise’ should provide a pathfinder and information to help people on their retirement journey. It is really important to invest in improving financial education for our aging population.

 Relying on providers to ‘signpost’ guidance is not enough – look how they failed with OMO: The FCA findings of providers failing to alert customers properly to their open market option to shop around for a better annuity, strongly suggests pension providers cannot be relied on to ensure people make the most of the Guidance. Even a standard piece of paper in wake-up packs is unlikely to be sufficient.

 Need extensive publicity campaign to ensure ‘Pension wise’ becomes strong recognised trusted brand: The new service must be widely marketed by Government with a broad publicity campaign to ensure people know what it is, and use it. Increasing financial awareness is long overdue and the pensions industry has taken advantage of poorly-informed customers for far too long.

 This could be the fore-runner of broader financial education for all ages via auto-enrolment: I hope this will be the fore-runner of a much broader push for financial education to be embedded into auto-enrolment. It should be a requirement of all auto-enrolment pension schemes that providers offer education to help people make sensible choices from an early stage. Leaving it only to later life is not enough.

 Still work in progress: This project is still a work-in-progress. The Pensions Advisory Service (TPAS) and Citizen’s Advice Bureau (CAB) are hurriedly trying to sort out further details and recruiting new staff. They will be running pilot schemes prior to April, to learn what works well with the public. In fact, people can register their interest and potentially take part in the pilots by visiting Today’s announcement still leaves unanswered questions. For example, we do not yet know:

  • the content covered by the Guidance
  • what those who give the guidance will be called (‘Guides’?)
  • what information will be needed before booking an appointment
  • what hours the service will operate
  • how many people are expected to take it up
  • what the written Guidance Session record will look like.

 Still no pensions passport! The FCA is still not forcing pension companies to issue standardised pension statements, so that customers will have the vital information about their pension that they’d need to get the most from their ‘Pension wise’ guidance session. Apparently, the pensions industry is working on this, but action is long overdue.

 ‘Pension wise’ can highlight the value of paid-for advice – route planners, timetables, maps or apps to reach your destination, but not a limousine service: The free guidance session will provide information and explanations of the complex array of choices open to people when reaching their pension age, but the free guidance can only take you so far. At the end of the session you will still be left to make your own decision and find the best solution for yourself. This could be likened to having route planners, bus timetables, train timetables, maps or apps to find your way. But if you want a chauffeur-driven limousine to take responsibility for getting you to the right place at the right time, you would need to pay for expert individual specialist financial advice. The Pension Wise service should tell people how to find paid-for advice.

 ‘Pension wise’ should explain the hidden commission costs and charges of buying without advice: The Pension wise Guidance needs to help people understand the relative costs of advice vs. buying direct. At the moment, most people do not realise that buying an annuity direct from their pension company still costs them money as the provider deducts commission (around 1.5% of their fund) when they sell you an annuity. On a £30,000 fund, your pension provider could take £500 without ensuring you are buying a suitable product, whereas with an adviser you will be paying for help to do the right thing. The whole issue of hidden commissions that customers pay, which can cost more than paying an upfront advice fee, needs to be explained.

 A great opportunity for financial advisers: The free guidance session should help people understand the complexity of pension decisions. In the past, the majority were just herded into their pension provider’s standard, irreversible, single life annuity. Their providers did not help them to make the right choices. Those who used a financial adviser had the best chance of buying the right product at the best rate. But too few knew how the annuity market worked. There will be even more options available to people in future and, therefore, expert professional independent advice could be even more valuable.

 ‘Pension wise’ is a good start – more work to do to protect customers properly: The announcement of the Guidance service name is an important step forward, but I believe more should be done to help people who may not actually receive the Guidance, or not understand it. I think a duty of care should be placed on providers to ensure they ask the right questions and explain issues simply and clearly for their customers. This second line of defence is vital to ensure people make the most of the new pension freedoms.

January 12, 2015   Leave a comment