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Self-employed workers may face a pensions crisis

According to new research self-employed workers in the UK may be heading towards a retirement saving crisis.

Insurers, Prudential, spoke to more than 1,200 self-employed people across the country and found that nearly half (43 per cent) have no pension at all, compared to just four per cent of employed workers who said they had no savings.

The study also found that:

  • 36 per cent of the self-employed say they cannot afford to save for retirement
  • 31 per cent say they will be relying entirely on the state pension to fund their retirement
  • 28 per cent will be reliant on their business to provide the income they need

The analysis also revealed that self-employed workers are more likely to save generally, if not for a pension, in order to create a safety net for themselves (64 per cent save in comparison to 57 per cent of those in employment).

Worryingly, only one in 10 self-employed workers see a financial adviser regularly, despite one in five (19 per cent) reporting that they are not confident with money and financial matters.

The Association of Independent Professionals and the Self-Employed (IPSE) said the recent findings mirrored its own recent research on pension savings amongst self-employed workers and is calling for more action to help workers save.

A fifth of property investors intend to stay in the market for life

According to a new study around one in five landlords intend to remain in the buy-to-let market indefinitely, while a similar number of portfolio landlords intend to do the same.

Put together by Foundation Home Loans, the new research suggests that around 37 per cent of landlords are unperturbed by the recent changes to tax, which has seen a reduction in tax relief on mortgage interest and the creation of a three per cent surcharge on the purchase of second homes.

Breaking the data down by age group, one in 10 landlords aged 18-34 intend to remain indefinitely, rising to 17 per cent of those aged 35-54 and 20 per cent of those aged 55 and over.

The area of the UK most likely to see landlords hold on to property is the East of England, where nearly a quarter of respondents said they planned to remain in the buy-to-let market.

The average investment length for a portfolio landlord, i.e. an investor with three or more properties, was 15 years.

In comparison, smaller investors, with one or two properties, only planned to hold onto their investments for roughly 10 years on average.

Retirees warned not to cash out of DB pensions

The Pensions Regulator (TPR) has warned pension schemes not to be too generous when offering lump sums to people thinking about cashing out of defined benefit (DB) retirement schemes.

TPR wrote to 14 schemes earlier this year to raise a number of concerns around increased levels of transfer activity and demanding that the risks were better explained to savers.

This is because the regulator noted a spike in people leaving DB schemes, where income is guaranteed, in return for a one-off lump sum payment. In fact, a record £21 billion flowed out of defined schemes in the year to March 2018.

Rising costs mean DB pensions have become scarce in recent years, especially in the private sector, because people are living longer. They have largely been replaced by defined contribution (DC) pensions.

According to former Pensions Minister Sir Steve Webb, in some cases DB holders are being offered up to 40 times their annual pension as a lump sum transfer value and are routinely offered 25 to 30 times their value.

This could mean that for a £10,000-per-year pension, someone could be offered anywhere between £250,000 and £400,000. Sir Steve argued that such generous payments might pose a risk if the pension scheme was in deficit or if the employer faced financial difficulties.

A TPR spokesman said that transfers from DB schemes to DC schemes are unlikely to be in the best interests of most members, although there are certain circumstances where they may be appropriate.

He added that the regulator’s primary concern is that DB scheme members requesting a cash equivalent transfer value have all the information they need to make an informed decision about what is in their best interests. This includes understanding the fees that are charged under any new pension arrangement, as these can make a significant difference to the value of the fund.

Are you aware of this little-known pension freedoms rule?

While most people are aware of pension freedoms, and the ability they give to drawdown on your pension pot early, very few are aware of the benefit they give to your family when a pension is inherited.

And neither do some pension providers, apparently.

Under pension freedoms rules, most people pay no tax for inheriting pension savings from someone who died before reaching the age of 75. Beneficiaries can also choose how they would like to receive the cash – either as a lump sum or as an annuity or pension drawdown.

But according to the Telegraph, pension providers have been slow to react to the rules introduced three years ago.

The report says that pension providers are still not offering beneficiaries the chance to take an inherited pension pot as an annuity or pension drawdown, leaving them wide open to income tax and capital gains tax (CGT) on future investments. This could also have an impact on their own heirs, as the lump sum would count fully towards their estate.

Taking the pension as a drawdown or annuity is often a much more tax-efficient strategy.

That is because the pot would continue to receive the protection of the pension wrapper, while it could also be left to a person’s heirs inheritance-tax free.

It is possible that many thousands of savers have been caught out by pension providers’ lack of flexibility.

If you are an heir in a similar situation, it is possible to reinvest the lump sum back into a pension scheme, but this simply isn’t feasible with large amounts of money due to deposit restrictions.

If you are reading this as a pension saver and you are unsure how your provider will offer your pension to an heir, you should make checking the fine print a priority. You could then consider transferring your pension to a different provider.

As always, always speak to a professional financial advisor before making life-changing decisions.

New study suggests UK workers have concerns about their retirement savings

A new study into the attitudes of workers has found that around 40 per cent of people across Britain are worried about their ability to retire comfortably.

The fear is not surprising as 13 per cent of the 950 people surveyed said that they had no pension savings at all, while a quarter admitted to having no idea how much they had saved and 36 per cent of pension holders saying they had not worked out how much they needed to retire.

An unexpected outcome from the survey was that more than 40 per cent of those questioned believed Brexit would have a negative impact on their pension pot.

Only 17 per cent of people end up with a pension pot of £300,000 or more to live off in retirement, according to the findings from Aegon.

According to the latest figures from the Department for Work and Pensions around 84 per cent of people are putting money into a pension pot (thanks in part to auto-enrolment) – up by 29 per cent from 2012. The annual amount saved into pensions has also increased by five per cent to £90.3 billion in 2017.

Half of millennials call on the Bank of Mum and Dad for money to fund home purchases – as well as grocery shops

With young people in the UK struggling to get on to the property market and often saddled with debt, it is not surprising that new research has revealed that more than half of all adults aged between 21 and 35 have asked their parents for financial support in the past two years.

While the more significant requests have been for big-ticket items, such as home deposits or money towards a new car, the new survey by Experian has revealed that everyday goods, such as groceries and new clothes have been funded by the Bank of Mum and Dad.

Around 55 per cent of adults in this age group have received money from their parents, while 26 per cent have sought to reduce their bills by living at home.

Of those who moved in with their parents, more than four-fifths said they were using the opportunity to put money aside, helping them to save around £205 per month on average.

Around a third hoped that they could use this money to save towards a home, while 19 per cent had made the move to help clear debts.

Of those not living at home, 18 per cent said their parents had paid for everyday essentials, such as the weekly supermarket shop, while as many as 13 per cent have been taken shopping to buy new clothes and 18 per cent were gifted money to go on holiday.

The study also found that:

  • Nine per cent had been given money towards a wedding or a honeymoon
  • Seven per cent had been given a deposit for a new house which they weren’t required to pay back
  • Seven per cent had been given money to clear a loan
  • Eight per cent were gifted money to buy a new car.

James Jones, Head of Consumer Affairs at Experian, said: “The Bank of Mum and Dad is a financial institution that is becoming increasingly important, especially when it comes to purchasing a property.

“However, our research shows that this dependence on parents by young adults goes beyond just big one-off expenses and stretches to everyday essentials. This has implications for both the youngsters’ and the parents’ financial futures, particularly if the parents’ finances become squeezed.”

Is the Bank of England moving closer to August interest rate rise?

The most recent meeting of the Bank of England’s monetary policy committee (MPC) saw a margin of six to three against a rate rise, leading to predictions that the next committee meeting in August could see the base rate increase.

In a break from tradition Andy Haldane – the Bank’s chief economist – broke ranks and joined Ian McCafferty and Michael Saunders in calling for an increase in interest rates – leading many to speculate that the next rise is just around the corner.

In response to the vote, the value of sterling rose against the dollar to $1.3220 – a gain of half a cent on the earlier figure in the day of $1.31.

Despite suggestions after last year’s initial rate rise that the base rate would increase steadily, the MPC has delayed increasing the rate amid worsening reports on the state of the UK economy.

The Bank said its meeting in May had been a blip and predicted that the economy would recover.

“This judgment appears broadly on track. A number of indicators of household spending and sentiment have bounced back strongly from what appeared to be erratic weakness,” the Bank added.

Analysts believe the latest split of three against six is an indication that the August vote will see interest rates rise – although they have warned that much will depend on how the economy performs in the coming weeks.

Tej Parikh, a Senior Economist at the Institute of Directors, said: “The MPC risks dampening confidence with a premature rate hike, particularly while political noise continues to bring uncertainty for businesses.”

Whilst Jeavon Lolay of Lloyds Bank said: “The surprising switch by Bank of England Chief Economist Haldane to support an immediate rate hike puts August firmly on the table.”

Are you aware of this little-known pension freedoms rule?

While most people are aware of pension freedoms, and the ability they give to drawdown on your pension pot early, very few are aware of the benefit they give to your family when a pension is inherited.

And neither do some pension providers, apparently.

Under pension freedoms rules, most people pay no tax for inheriting pension savings from someone who died before reaching the age of 75. Beneficiaries can also choose how they would like to receive the cash – either as a lump sum or as income in the form of an annuity or pension drawdown.

But according to the Telegraph, pension providers have been slow to react to the rules introduced three years ago, including some of the UK’s biggest providers.

Many clients still have older-style pension plans, often with ‘consolidator’ firms such as Phoenix and Aviva, which are not offering beneficiaries the chance to take an inherited pension pot as an annuity or pension drawdown, leaving them wide open to income tax and capital gains tax (CGT) on future investments. This could also have an impact on their own heirs, as the lump sum would count fully towards their estate.

Taking the pension as a drawdown or annuity is often a much more tax-efficient strategy. That’s because the pot would continue to receive the protection of the pension wrapper, while it could also be left to heirs inheritance-tax free.

It’s possible that many thousands of savers have been caught out by pension providers’ lack of flexibility.

If you are an heir in a similar situation, it’s possible to reinvest the lump sum back into a pension scheme, but this simply isn’t feasible with large amounts of money due to deposit restrictions.

If you’re reading this as a pension saver and you’re unsure how your provider will offer your pension to an heir, you should make checking the fine print a priority. You could then consider transferring your pension to a different provider.

As always, always speak to a professional financial advisor before making life-changing decisions.

100,000 defined benefit pension holders transfer out in 2017/18

A Freedom of Information (FOI) request made to The Pensions Regulator (TPR) has revealed that an estimated 100,000 members transferred out of their defined benefit (DB) pension schemes between 1 April 2017 and 31 March 2018.

In its response to the FOI, the Regulator said that DB schemes reported 72,000 transfers out, with an approximate value of £14.3 billion, but that the number could be higher as not all schemes were required to report the exact number of transfers.

Thanks to a similar request, TPR has also revealed that from 1 April 2016 to 31 March 2017, a reported 67,700 members transferred out of their DB schemes, although again the figure could be closer to 80,000.

In its response, TPR said: “Though the figures show the total number of transfers out of defined benefit schemes, it is important to emphasise that this is not a total of defined benefit to defined contribution scheme transfer, which members may have requested to access the pension freedoms for example.

“In addition, some attempt has been made to identify and correct information that is erroneous or irrelevant. This has been corrected, but we have not carried out a full audit of the information supplied.”

A similar study published by the Office for National Statistics showed an extra £21 billion worth of assets had been transferred out of UK pension schemes in 2017 compared to 2016.

Link: Number of transfers out of DB schemes in 2017/18

Base rate yet to have a significant effect on savers’ rates

The number of accounts paying returns over the base rate has dropped by 77 since the rate rose to 0.5 per cent in November 2017, according to the Moneyfacts UK Savings Trends Treasury Report.

In its release the online publication revealed that 1,297 accounts now pay above the base rate, however, this is five per cent lower than the number of accounts that were offered above base rate interest in 2016.

Figures also show that this is four per cent lower than a month after the last rate cut in August 2016.

In addition, the average return available on easy access accounts is yet to rise above its pre-cut levels and currently stands at 0.49 per cent, compared with 0.54 per cent in August 2016.

Charlotte Nelson, Finance Expert at moneyfacts.co.uk, said: “This indicates that, while the base rate has returned to 0.50 per cent, the savings market has yet to recover from the rate cut almost two years ago.

“These latest figures clearly show that some providers either didn’t pass on the rate rise in November or only increased rates by such a small amount that it had little effect. With the main banks still not requiring savers’ funds, it is unlikely that this is going to change anytime soon.”

In comparison, returns available on fixed-rate bonds have increased for the third month running to reach their highest levels in two years.

“This is predominantly fuelled by challenger banks boosting competition, yet it’ll be little consolation to those who want easy access to their cash,” adds Charlotte.

“Not only will savers have had their hopes dashed as a base rate rise this month was not meant to be, but the news that the last rise failed to result in better rates for most will be an added thorn in their side.”

She anticipates that most active savers, put off by these poor rates will dispose of their accounts and find new sources of investment to increase their returns.

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