More than 600,000 people will reach retirement age in 2016 and a similar number in 2017 as baby boomers hang up their suits and overalls. But the changes to the state pension system have left them in retirement planning limbo.
We know there will be a new flat-rate pension from April 2016. But we do not know how many people will qualify for the pension nor how much it will be.
The figures for the flat-rate weekly pension that have been bandied around are estimates put out by the government – probably between £144 and £155 a week. But with less than two years to go before its launch, we still have no clue as to how many people will qualify for the full pension.
On an individual basis people are unable to get an estimate of what their state pensions will be under the new regime. This makes retirement planning for those in their late 50s or early 60s difficult to say the least.
We have been told that paying 35 years national insurance contracted in to the state second pension and Serps will be enough to qualify for the full flat rate. But we are also told there will be deductions for years spent in defined benefit schemes and contracted out of S2P. What these deductions will be or how they will be calculated we do not know.
On an individual basis people are unable to get an estimate of what their state pensions will be under the new regime.We are told those who do not qualify will be able to earn extra years after 2016. This throws up the anomaly that civil servants who have a superb taxpayer-subsidised pension will be able to earn extra years but a private sector worker who already has 35 qualifying years will still pay full national insurance but receive no benefit for the extra payments.
At some stage over the next two years everyone’s entitlement will be calculated to discover their ‘foundation pension’. This will include rights earned under S2P and Serps minus years spent contracted out.
It is the starting point for calculating their entitlement under the new regime. But until those complex calculations are completed, those retiring in the next few years must plan in the dark.
Their state pension could be anything between the current basic state pension of £113.10 a week uprated for inflation and the new flat pension, which may be £155 a week. That £2,000-a-year difference will, for some, make a considerable difference to retirement planning.
I am all in favour of a flat-rate pension. But those coming up to retirement need to have a realistic idea of how much they can expect from the state. As things stand more than a million people retiring within the next three years have no idea where they stand.
Archaic AMC needs replacing
The FCA has emphasised that fund managers must be consistent and clear when presenting their charges to investors.
Trade body the Investment Management Association has pleaded with its members to stop talking about the annual management charge and instead to use an ongoing charges figure, which it said provides a common standard for all the known costs and charges.
It said marketing literature should not refer to the AMC. So why, when I browsed the internet last week, did I still find AMC cropping up all over the place – not least at some of the major fund supermarkets?
The IMA is working hard to drag the industry forward and persuade it to communicate with investors in terms they will understand. It now aims to produce a comprehensive pounds-and-pennies measure for historic costs, for instance.
What a pity then that some who are in the front line of communicating with investors choose to stick with an archaic method of showing costs and charges.
Worrying rise in mortgage issues
Figures from the Financial Ombudsman showing record numbers of mortgage complaints are a serious cause for concern.
A third of the complaints are from people in arrears and four in 10 from people who are struggling with their payments. And this after more than five years of historically low interest rates.
The ombudsman is warning that lenders must take a more creative approach to helping people to get back on track.
This issue needs nipping in the bud. If people are struggling and lenders are being unsympathetic and unhelpful now, it can only get a lot worse when rates start to rise.
Tony Hazell writes for the Daily Mail’s Money Mail section
Contact: t.hazell@gmail.com
