According to a new report by Money Mail, thousands of women may find that their returns on private pensions may be lower due to the change to their official retirement age.

Those most likely to be affected are workers approaching the end of their careers, whose pension fund is moved into safer, but less profitable investments.

This latest blow comes after women were told that they could lose income from their state pension following the Government’s decision to increase the state pension age for women from 60 to match men at 66 in 2020 and then to 67 by 2028.

Those identified in The Mail’s report are pension holders who are experiencing so-called ‘lifestyling’, which is done towards the last 15 years of person’s working life to prevent their pension savings being invested in riskier, but potentially more profitable, investment schemes.

It is thought that many schemes have failed to appreciate the change to the retirement age, which means that many women may miss out on up to seven years of higher income unless they amend their plans.

Money Mail points out that “if an average pension pot of £50,000 is ‘lifestyled’ seven years too early, then the owner could miss out on returns of £9,357 over the course of retirement — or £327.50 a year.”

Considering Money Mail’s findings, experts are calling for a review of all policies.

Former pensions minister, Steve Webb, said: “Providers should be ensuring customers are not caught in this trap, and savers should review their policies to check the retirement plans they set out years ago reflect the new situation.

“Thousands of women will have taken out private pensions when they expected to draw their pensions at 60.

“If they and their pension provider have not revisited this plan, there is a risk that their investments will have been switched into a cautious ‘pre-retirement’ mode up to seven years too soon. This could knock thousands off a typical pension pot.”

It is recommended that women approaching retirement in the next 15 years review their scheme so that they are taking full advantage of their pension pot.

Link: New £9,000 pension hammer blow for women due to yet another blunder with the rise in state pension age

According to several recent studies, those in retirement are enjoying a multi-billion-pound boom in income as they use equity release and pension freedoms.

New figures from the Equity Release Council (ERC) indicate that last year the number of people choosing to release money from their homes rose by around a quarter helping retirees to unlock £4 billion from property.

A separate study found that those aged 55 and over also released £8 billion under pension freedom reforms, a rise of almost 20 per cent on 2017. They were among the million savers who have embraced pension freedom since they were introduced in 2015.

The evidence from these studies hints that pension freedoms and equity release are becoming a mainstream method of raising money in later life to supplement pension income.

Equity release plans allow people to unlock the capital held in a property in a tax-free manner, while retaining the right to live in the home until the end of their life.

Most people use what are known as lifetime mortgages. These account for around a third of all mortgage types taken out by homeowners from their mid-50s onwards.

Under equity release, those aged 55 are typically able to borrow a maximum 18.5 per cent of the property value, rising to 31.5 per cent at age 70 and a whopping 47.1 per cent at 90.

In its study, the ERC found that during the last year more than 80,000 homeowners aged 55 or over collectively accessed £3.94 billion of property wealth – with Q4 2018 remaining the busiest quarter on record for equity release activity.

This trend looks likely to continue, with data from the first quarter of 2019 revealing that £936 million of property wealth has already been unlocked by 20,397 people.

Link: Equity release market records busiest start to any year

A new survey has found that around six in 10 workers in the UK do not have sufficient savings to cover the cost of a large, unexpected bill.

The study of more than 10,000 employees, produced by the Yorkshire Building Society in partnership with Salary Finance, found that 60 per cent of people say they often face problems paying surprise costs.

The age group most likely to be affected by unexpected bills were those people aged 25 to 34, of which 69 per cent said they were regularly unable to meet payments.

Workers living in the South East of England and East Anglia had the best ability to withstand financial shocks, with 43 per cent of respondents from these regions saying they rarely or never struggled to pay unexpected bills.

In comparison, only 33 per cent of workers in Northern Ireland could say the same thing, making it the area with the lowest financial resilience.

Yorkshire Building Society Chief Executive, Mike Regnier, said: “Money worries can affect all aspects of peoples’ lives. As well as the personal cost, employers are affected too.”

Link: Lack of savings leaves thousands at risk from large bills

According to new research by Nationwide Building Society, future pensioners are at risk of underestimating the amount they need to save to retire comfortably by more than £68,000.

The building society’s survey found that 33 per cent of middle-aged savers, who will soon be approaching retirement, believe that they will be able to live on their state pension alone when they retire.

Despite their findings, respondents only expect their monthly shortfall (the difference between their current salary and pension income) in retirement to reach an average of £208.

However, Nationwide believes that the average shortfall could be around twice as much, with the average retiree receiving £505 a month in state pension but requiring up to £885 a month to live on.

This will mean that those without an additional private pension face a shortfall of £380 a month, or £4,560 a year. During an average 15-year retirement this shortfall would amount to around £68,400.

Incredibly, despite this significant gap in income, only 40 per cent of the 1,000 people aged 40 to 60 that Nationwide spoke to had some form of private pension.

Jason Hurwood, Nationwide’s Director of Home Propositions, said: “We are living longer and need more money to keep us going. The reality is that without adequate income, and potentially living a third of our lives in retirement, older people risk missing out at a time in life when they want to relax and enjoy themselves.”

Link: Pensioners of tomorrow risk staggering £68K shortfall as they underestimate cost of retirement.

The former pensions minister, Ros Altmann, has warned thousands of British pensioners living in the European Union that they may lose out on state pension increases as a result of Brexit.

According to Ros Altmann, the UK Government has so far only agreed to pay pension increases on a reciprocal basis with other EU member states, effectively requiring them to commit to paying British pensioners’ increases.

This is a common arrangement already present among a number of non-EU nations, however, Ms Altmann has said that this reciprocity was not guaranteed.

She believes that there is less of an incentive for EU countries to follow this convention because there are far more Brits retiring abroad than there are EU citizens retiring in the UK.

“Evidence cited by the Commons Brexit Select Committee reports there are 190,000 UK pensioners living in Spain, France and Ireland, whereas there are just 5,500 pensioners from the entire EEA living in the UK,” she said.

“Such imbalances clearly put any reciprocal arrangements at risk and leave British pensioners exposed to significant losses.”

Trying to provide some security to overseas pensioners and workers, a Department for Work and Pensions spokesperson said: “The UK leaving the EU will not affect entitlement to continue receiving the UK state pension if you live in the EU, and we are committed to uprate across the EU in 2019/20.

“We would wish to continue uprating pensions beyond that but would take decisions in light of whether, as we would hope and expect, reciprocal arrangements with the EU are in place.”

A number of experts are encouraging expats to review their savings and pension affairs in light of the UK’s departure from the bloc to ensure they enjoy financial well-being in the future.

Link: Altmann warns of Brexit risks for expat pensioners

The latest figures from HM Revenue & Customs (HMRC) have revealed that the Government has repaid around £30 million to savers who were overtaxed on pension freedom withdrawals during the final three months of 2018.

The new data adds to existing research, which shows that since the introduction of the pension freedoms in April 2015, more than £400 million has been overpaid in tax and since reclaimed.

Extrapolating the information further shows that the average amount reclaimed is around £2,312, but experts are concerned that more people may be affected without realising.

HMRC has refused to change its approach to the ‘emergency’ taxation of money withdrawn under the freedoms, which has affected thousands who have accessed their own money flexibly.

Experts believe that the fact that few pensioners accessing their money have had to directly report their affairs via a tax return in the past due to PAYE, has led to more errors and overpayments.

Former pensions minister Steve Webb has previously said that “HMRC is perfectly happy to overtax tens of thousands of people each year and make them jump through hoops – having to choose between three different forms to complete – and then wait to get their money back. This is a system run for the convenience of HMRC, not the taxpayer.”

A new Freedom of Information request has revealed that last year only 21,000 people took advantage of a tax scheme that allows a surviving partner to expand their ISA allowance to include funds from their deceased spouse’s accounts.

It is estimated that 150,000 people a year inherit an ISA from a spouse, which means that only 14 per cent are using the little-known incentive.

Introduced way back in 2015, the scheme, known as the ‘additional permitted subscription’, allows the surviving spouse to collect their partner’s savings without penalty during that tax year.

Official figures show that the use of the tax perk remains low since its launch, with only 61,000 partners claiming the allowance so far.

However, HMRC has said that of those that did use the subscription, the average amount that bereaved spouses received via the extra allowance was £55,000.

Unfortunately, not all providers are obliged to accept a transfer of the allowance, which is why current figures may remain so low.

In order to make a request for the subscription, a bereaved partner must provide:

• the full name of the deceased
• the permanent residential address of the deceased at the date of death
• the date of birth and date of death of the deceased
• the deceased’s National Insurance number (if known)
• the date the marriage or civil partnership with the deceased took place
• the identity of the account manager who managed the deceased’s ISA

These need only be provided when the first additional permitted subscription is made to the ISA provider.

Surviving spouses must also confirm that:

• they are the surviving spouse of the deceased
• they were living with the deceased at the date of the deceased’s death
• the subscription is made under the provisions of regulation 5DDA of the ISA regulations
• the subscription is being made as either:

– an ‘in specie’ transfer, within 180 days of beneficial ownership passing to the surviving spouse.

–  cash subscriptions, within three years of the date of death, or if later, 180 days of the completion of the administration of the estate.

Link: https://www.moneywise.co.uk/news/2019-01-02/thousands-bereaved-spouses-pay-unnecessary-tax-inherited-isas

The Chair of the Treasury Committee, Nicky Morgan MP, has highlighted that more than 200,000 parents may face a smaller state pension due to a simple error involving child benefit.

In order to receive the full state pension, workers need to make a minimum of 35 years of National Insurance contributions.

However, parents with children under the age of 12 are entitled to build up their National Insurance Credits in the years that they are not paid for employment because they are looking after children.

To register for the credits, parents have to apply for child benefits. However, those who do not apply because they know they are not eligible for the benefit, often due to the amount that they or their partner earns, could lose out on these contributions.

Unfortunately, where the mistake is discovered years later, most people are unable to recover credits as they can only be claimed back for up to three months. This can lead to a significant shortfall in a person’s state pension that could see the amount they can claim cut by thousands during the length of their retirement.

Nicky Morgan MP, Chair of the Treasury Committee, said the committee had “long warned” the Government about the issue.

“Now we have an idea of the scale of this problem, the Government needs to pull its finger out and make sure people are aware of the issue and know how to put it right,” she said.

Those who have missed out on credits should consider supplementing their state pension with a private pension where possible, so as to avoid missing out in later life.

The Organisation for Economic Co-operation and Development (OECD) has revealed that the lack of knowledge surrounding the current pension freedom arrangements has allowed the UK Government to collect more taxes than anticipated.

The OECD Pensions Outlook 2018 found that financial literacy, which affected pensions withdrawal behaviour, was at the heart of this increased tax take.

It states that individuals “may not understand the consequences in terms of taxes paid of withdrawing funds from their pension account.”

Introduced in 2015, the pension freedoms give savers with defined contribution pensions the option to withdraw their funds from age 55, subject to tax paid at their marginal rate, which may be considerably lower than the 55 per cent previously charged.

The Government had initially estimated revenue of around £0.3 billion in 2015/16 and £0.6 billion in 2016/17 from this new system. However, the actual figures for these years show that it raised £1.5 billion in 2015/16, while the latest estimate for 2016/17 was £1.1 billion – far more than was originally anticipated.

The Office for Budget Responsibility (OBR) has estimated that the Government will also raise £1.6 billion in 2017/18, and £1.3 billion in 2018/19 through the pension freedom system.

In light of its findings, the OECD has suggested an appropriate default post-retirement product should include a combination of programmed withdrawals, offering flexibility during the first years in retirement, with a deferred life annuity for the later years.

These would be similar to the easy access ready-made drawdown investment products that the Financial Conduct Authority (FCA) is currently considering, which would force providers to comply with a simplified system to aid financial literacy.

In response, advisers have warned against a “one size fits all” approach towards calculating drawdown rates and argues that saver should be offered bespoke solutions.

Link: OECD Pensions Outlook 2018

Millions of taxpayers will be given access to information about their pensions via an online pensions dashboard under Government plans.

The free tool will allow people to access information from most pension schemes in one place online for the first time and would:

• provide accurate, easy to understand, secure information
• show how much people have in their pension pots
• indicate what they can expect to live on in retirement
• put people in control of how they check their data and who has access to it
• help people find ‘lost’ pension pots

Due to go live this year, it will be followed by other financial dashboards to be introduced in the following years.

Guy Opperman, Minister for Pensions and Financial Inclusion, said: “Pensions dashboards are another major milestone in our radical pension reforms, harnessing innovative technology to benefit savers. Plain pensions information at the touch of a screen will ensure better-informed, more engaged savers and help many more people to plan effectively for retirement.

“Bringing pensions information into the digital age has the potential to revolutionise the way we all think about and plan for later life. People, young and old, should have all the help they need to get ready for retirement and maximise their pension incomes and, working with industry, we will ensure they do.”

The Government is due to launch a consultation about what the new services will look like and how they will work.

Development and design of the dashboards will be led by the pensions industry and facilitated by the Government.

Parliament has said that where necessary it will legislate to compel pension schemes to provide data to consumers via dashboards.

Link: Pensions dashboards consultation