By ending means-testing for pension top-ups, ministers also hope to encourage people to save for their retirement, safe in the knowledge they will not lose out through their prudence.

The complicated patchwork of pension payments and means-tested top-ups – which experts say is the most complex in the world and the bureaucracy for which costs millions of pounds a year – would be replaced with a single, uniform state pension of about £7,280 a year.

It is not clear when the new pension would be introduced, though ministers want it in place before the next election in 2015. Coalition sources say it is vital that the reform is in place before the pension age for women is increased.

Under Labour the state pension age for women was due to rise from 60 to 65 between 2010 and 2020. But under the new legislation, women will retire at 65 by 2016 and then their pension age will rise to 66 over the following four years.

Some safeguards will be necessary to prevent abuse – for instance, by the long-term unemployed or immigrants who might be attracted by coming to Britain, working for a short period and then qualifying for the full pension.

It is likely that NI contributions will still be used to determine eligibility for the full state pension, though the current qualifying period, 30 years, could be reduced.

In a speech to the charity Age UK today, Mr Duncan Smith will argue the reform will stop younger workers becoming ‘increasingly cynical about saving’ for retirement, only to have it count against them when they are means-tested for top-up pension payments.

He will say: ‘The state pension system is so complex that most people have no idea what it will mean for them now and in their retirement.

‘And too many people on low incomes who do the right thing in saving for their retirement find those savings clawed back through means-testing .

Dr Ros Altmann, a former Treasury adviser who is now director general of Saga, said: ‘We absolutely have to reform the state pension… At the moment, it’s like building on quicksand.

‘Many women get much less than men. Even though there has been some reform, and women are credited under the National Insurance system for childcare years, they don’t get as much as if they were working.’

A record 15 people entered insolvency every hour in 2010, as the total number of people filing for bankruptcies, IVAs and Debt Relief Orders reached around 135,000 – up from 2009’s high of 134,132 –said in a report by a leading insolvency practitioner.

Pensioners, although they made up less than 4pc of the total, now form the age group that is seeing the highest growth rate for insolvency, with a 14pc rise that could point to a worrying trend. This is the first generation of retirees who have been used to money worries.

They are now coming towards 65, moving to a fixed income – generally their pension, and realising that when they retire they will still carry some retirement debts that they were comfortable with a few years ago. When they had more income and that income was more flexible.

Clare Stott, Director at National Money Helpline commented “the expected inevitable rise in inflation & interest rates will mean insolvency numbers will rise still further, to beyond the 2010 figures in 2011”

Statistics for 2010 also highlight an increasing North-South divide. Another study showed that the North was worst-hit with a rate of personal insolvency per head of 40 per 10,000 people, compared with 20 per 10,000 in London and the South East.

Comparing the reports data with population figures from the Office for National Statistics, Peterborough and Newcastle had the highest rates of personal insolvency per head, with more than 1.4pc and 1.2pc of their respective populations entering insolvency in 2010.

Switch provider now

Other utility providers are expected to follow, except for EDF Energy, which has announced a price freeze on all standard tariffs until March 2011. Customers who face energy price rises next month could enjoy their current lower prices for most of the winter, simply by using a little-known regulatory rule enforced by Ofgem; customers are able to reject their supplier’s price rises while switching to another energy provider.

The old prices will then apply until the switch goes through, buying customers up to several months’ grace on their current tariffs.

Under current Ofgem rules, energy companies cannot enforce their price rises if a customer rejects the rise within 20 working days of receiving a letter about it. At present, energy companies are sending letters about price increases up to 65 working days after the increase has been applied. Essentially once customers have informed the supplier that they reject the price rise, they must make arrangements to switch suppliers within 15 working days.

Depending on how long it takes suppliers to inform customers about prices changes, this entire process could last as long as 20 weeks, during which time customers could continue to enjoy their current energy prices, including British Gas’s cheapest Websaver tariffs.

British Gas said it had already begun to send letters to its customers warning them about the changes. However, it added that it had so many customers that the letters would take a while to be sent out. Scottish & Southern also said it had sent letters to customers.

Under the proposals, there will be a six-month transition period beginning on 6 April 2011. From this date, employers will not be able to issue any notification for compulsory retirement using the DRA procedure. Between 6 April and 1 October, only employees who were notified before 6 April and whose retirement date falls before 1 October can be compulsorily retired using the DRA.

From 1 October 2011, the DRA will be abolished and the consultation proposes relieving employers of the administrative burden of the associated statutory retirement procedures. From that date, individual employers will only be able to operate a mandatory retirement age if this can be objectively justified as a ‘proportionate means of achieving a legitimate aim’. As the consultation points out, ‘It is not easy to demonstrate that a retirement age is objectively justified, so the employer should be confident that it can be objectively justified before deciding to use a retirement age’ and an employee will still have the right to request to work beyond the employer’s mandatory retirement age where one is in operation. Where an employer chooses to have in place a mandatory retirement age and this cannot be objectively justified, it could face claims of age discrimination and/or unfair dismissal.

The consultation, Phasing out the Default Retirement Age can be found on the Department for Business, Innovation & Skills website. It closes on 21 October 2010.

The Government’s proposals will impact on many employment rights, such as pension schemes and age-related benefits, and this consultation specifically seeks views on the consequences of removing the DRA with regard to insured benefits and employee share plans.
Source: Stephensons Solicitors

Great news for business borrowers and those with mortgages, but savers, however, have never had it so bad.

The fall in rates meant that in 2009, savers were £18bn worse off from loss of interest.

So it was only a matter of time before savers as a group started to get organised. Enter the Reverend John Strain. From vicar to savings activist. As well as being the vicar for five parishes in the village of Compton, Mr Strain is also one of the founders of the group, Save Our Savers, an alliance fighting for a better deal for Britain’s savers.

Mr Strain has been inspired by the experience of people in his parish, and life-long friends such as Mike and Patricia Ellis. The Ellis’s had hoped to be living comfortably after saving for more than two decades. But since 2007, the returns on their savings have fallen dramatically. The interest rate of one typical account has fallen from 4.5% to 1.3%, which has meant that Mike has to be paid for his voluntary work with a cancer research charity, and Patricia is looking for a part-time job.

This year, savers have also had rising inflation to contend with. So the increase in the cost of living, coupled with falling income from their savings, means many have ended up as the forgotten victims of the economic downturn. Shopping around In addition to cutting interest rates to keep money pumping around the economy, hundreds of billions of pounds was made available to the banks by the Bank of England and the government. This included the bailing out of some of the biggest brands on the High Street. With that amount of taxpayer aid, some savers had hoped that returns would improve – but they have been disappointed.

“I don’t think they’re necessarily designed to provide greater returns for savers or perhaps equally to reduce borrowing costs,” said Eric Leenders, of The British Bankers Association. “It’s simply to make sure that the system as a whole maintains its integrity and that has to be for the benefit of all of us,” he added. Banks will only make more attractive deals available when the Bank of England’s Monetary Policy Committee raises its base rate, according to Mr Leenders.

With base rates so low, the deals being offered by the banks mean that savers putting money away now are in fact making a loss, because few, if any saving accounts, give a better rate than inflation.

Especially after you have paid tax on your savings! Many savers are also left with low rates on popular cash ISA (Individual Savings Accounts) savings products after their first year, when so-called “bonus rates” are removed.

These can fall dramatically, so savers who do not check their rates and transfer to a better one can lose out. Despite the lack of attractive returns, financial advisers still want savers to look for the best possible offers and move their money to take advantage of them. Until base rates go up, it is about the only option open to them.

Courtesy of BBC News

The Treasury minister Mark Hoban has confirmed that savers will be compensated for their “relative loss as a consequence of regulatory failure”.

An independent commission has been set up to advise on the best way to allocate payments, due to report by January 2011.

Mr Hoban said the total amount of compensation on offer would be revealed this coming October, at the time of its public spending review. However, he warned that the scope of the scheme might be limited by the government’s desire to cut public spending and rein in its budget deficit.

“The scheme will be a significant spending commitment for this government and cannot be considered in isolation from the other spending decisions that it will need to make over the coming months, and what is affordable in that context,” Mr Hoban said.

This announcement may prompt some to feel they are being disadvantaged as a result of the last Government’s parlous finances.

‘Fair payments’

An Equitable Life Bill has now been introduced to parliament which will pave the way for the Treasury to make the compensation payments.

Mr Hoban confirmed the scheme would follow the recommendations of the 2008 report by the Parliamentary Ombudsman, who said it should offer “fair and transparent payments to Equitable Life policyholders, through an independent payment scheme, for their relative loss as a consequence of regulatory failure”.

The former High Court Judge, Sir John Chadwick, who was asked by the previous Labour government to devise a much more limited scheme, aimed only at those who had suffered “disproportionately”, has published his report.

He was asked to work out how much money was lost due to government maladministration in the way the Equitable was regulated.

Sir John said that the investors’ absolute loss was between £2.9bn and £3.7bn but their compensation should be capped for each policyholder at between 20% and 25% of that.

That would have implied a total payout of between £400m and £500m.

But he also said the relative loss suffered by policyholders, compared to what would have happened if they had invested in comparable pension policies, was in fact between £4bn and £4.8bn.

However Mr Hoban explained that it would be unfair to use these higher figures, which were due to “the strong performance of comparable life companies”, because some investors would receive more than they had actually lost.

“Consistent with the Ombudsman’s recommendation, Sir John has advised that relative loss for an individual policyholder should be capped at the absolute loss they suffered,” Mr Hoban said.

“If the proposed cap is adopted, then the figure would be £2.3bn to £3bn,” he added.

Contentious

Mr Hoban said the coalition would take Sir John’s findings into account but they would not be decisive, not least because his findings were contentious.

“Sir John’s work is an important building block to help the government understand how maladministration led to relative losses at Equitable Life and how that loss can be quantified,” Mr Hoban said.

“However, this government has always made it clear that Sir John’s review is just one of the building blocks in resolving what is a complex matter and that there are other judgements to be made in determining the final shape of the scheme,” he added.

Courtesy of BBC News

Index-linked savings certificates were withdrawn from sale by NS&I at the start of the day because sales “far exceeded” the level anticipated. Some savers have been attracted to products with interest linked to inflation because other rates are low.

NS&I said it had also withdrawn fixed-interest certificates. The interest paid on Direct Saver and Income Bonds has also been cut by 0.25% with immediate effect by NS&I.

Building societies are likely to welcome the move as it removes a strand of competition from the market.

Returns

The move will reduce choice for savers who have had few options during recent times of low interest rates. “With savings rates at painfully low levels, it is no surprise that savers have been attracted to potentially higher returns in the form of index-linked savings certificates,” said Andrew Hagger, of financial website Moneynet. “No one knows what will happen to [inflation measure] RPI in the future, so it is not possible to say whether index-linked savings certificates will turn out to be a good investment, however at least you knew that you would always maintain the spending power of your savings. “It is another door slammed in the face of savers who now have fewer options as they desperately seek a decent return on their nest egg.”

There are currently 587,000 holders of NS&I index-linked savings certificates, and 866,000 have fixed-interest savings certificates. People could save a minimum of £100 and a maximum of £15,000. With the Retail Prices Index (RPI) being high, the level of interest in index-linked savings certificates has shot up in the first few months of the year, the group said.

Latest figures show RPI was at 5% in May. It has withdrawn both products from the market for new customers and has not set a date for when they might be offered again.

Rules

NS&I, which is backed by the government, works under rules that state that it must not dominate the savings and investments market.

The latest decision was made because sales of these products “far exceeded those either anticipated or required by NS&I”. “NS&I has a unique position at the heart of the UK savings sector and we continue to follow a policy of acting transparently and balancing the interests of our savers, the taxpayer and the stability of the wider financial services market,” said chief executive Jane Platt. “The volume of sales over the past few months is such that our forecasts show we were at risk of exceeding the top end of the range, so we needed to take action to reduce sales.” The group’s website and call centres stopped selling savings certificates from midnight, and Post Office counter sales of these products have also been suspended.

Postal applications posted before the announcement and received on Monday would be honoured, NS&I said, but all postal applications received from Tuesday would be returned to the customer. On maturity, existing savings certificate customers can continue to roll over their investment on the same terms they currently hold.

They can also reinvest into any of the savings certificate terms and issues – either the three or five-year issue of index-linked savings certificates or the two or five-year issue of fixed-interest savings certificates – regardless of which savings certificate they currently hold. But customers who have invested in other NS&I products would not be able to reinvest their money into savings certificates, the group added

Source: BBC

Older people are turning to equity release to generate money to pay off their debts, according to new research for Age UK.

The report Housing and Finance in Later Life, compiled by the University of Birmingham, found that more than a third of equity release customers used the extra cash to help clear their debts, while almost half have put it towards essential house maintenance.

The study also reveals that while a quarter of those surveyed have used equity release to make early bequests and large one-off purchases, the remaining three-quarters have used it as a way of boosting capital, either to increase financial security and enable a more comfortable retirement or as a last resort to relieve financial difficulty or debt.

However, less than half of those questioned said they were “very satisfied” with the value for money offered by their equity release plan, even though 75% said the plan was right for their needs, 79% were pleased with the information and advice they received and 66% were satisfied with the safety and security of their plan.

Louise Overton of the University of Birmingham and the report’s author, said the research showed that equity release does not play much of a role in lifting pensioners out of poverty. “This suggests a need for more consideration of how those with very low incomes and limited housing assets might benefit from equity release should they wish to use it,” she said.

For many of those using equity release, selling their home and downsizing to a cheaper property was not an option. Age UK says that although more than two-thirds of over-65s are homeowners without a mortgage, many are living on low to modest incomes and struggling to maintain their homes. One in seven (14%) of those surveyed were in receipt of pension credit, and some of the respondents felt there was no option but to use equity release to pay for housing repairs in order to continue living in their homes – a key concern for many older people.

Almost two-thirds did not want to move away from family, friends and local amenities, just over half did not want the upheaval of moving house, and over a quarter said that it would have been too expensive to move house.

Age UK said it was worried that many older people are finding it difficult to maintain a decent standard of living using their pension alone. The recession and rising inflation has further exacerbated this problem with many older people seeing their living costs rise as their savings and incomes fall.

The report argues that this could explain why equity release customers are getting younger, with the average age of purchasers falling from 74 to 72. Previous research for the charity found that about 25% of people reach state pension age with outstanding credit commitments.

Michelle Mitchell, Age UK’s charity director, said: “Equity release is clearly a useful tool to ease financial pressures in later life, but anyone considering it as an option should first seek good quality information and advice.”

Source: Guardian Newspapers

Read our recent article “Equity Release – A Good Option?” here

‘If a client has already let their 75th birthday pass then the best they can hope for is that the new rules in April allow them to take a lump sum,’ he said. ‘That’s no use if they need it in January or December this year and that’s quite possible.’

Chancellor George Osborne last week confirmed compulsory annuitisation at age 75 would be repealed in April next year (2011).

Extracts taken from : Citywire magazine

The changes come as part of the OFT’s response to a super-complaint from Consumer Focus about the cash ISA market. Consumer Focus asked the OFT to look at concerns including the time it takes to transfer a cash ISA, the transparency of interest rates and introductory bonus rates.

From January 2011, transferring an existing ISA to a new provider will happen far more quickly, giving customers a ‘fairer deal’.

In a new set of guidelines accepted by the banking industry, ISA transfers must now happen within 15 working days.

The previous ‘limit’ was 23 working days, although many banks and building societies failed to meet this requirement, leaving customers hanging in limbo often with their investment attracting little of no interest.
Banks have also agreed that interest will start to accrue no later than two days after the funds have been received from the old provider.

There are approximately 17.5 million ISA customers in Britain, holding over £158bn of funds, and many of them are forced to switch to a new provider each year because of the ‘temporary bonus’ culture, which sees many ISA returns drop off a cliff after a twelve month introductory period.

The new 15 day arrangement announced today is said to be worth £14.5bn to savers – interest which would otherwise have been lost while they waited – and will come into effect from 31 December this year.

The OFT found that introductory bonus rates were not causing substantial harm to consumers since the existence of such rates is clear to consumers and they are informed when the introductory bonus rates end. The greater transparency and quicker transfers announced today will help consumers to know their interest rate so that they can compare offers, and switch to better deals more easily and quickly if they wish to do so.

Beware however, the new rules are only voluntary. This means the ISA transfer nightmares suffered by many customers may not yet be a thing of the past.