It was interesting to read the results of a recent study by Halifax into major changes to the UK housing market over the past 50 years. The lender found that the average UK house price has increased by 273% since 1959 in real terms (after allowing for retail price inflation), at an average annual rate of 2.7%. This is faster than the 2% per annum average rise in real earnings over the period.
It found that owner-occupation in the UK has increased by 25% from 43% in 1961 to 68% in 2008. The proportion Mark Clinton explains the fundamental importance of pensions to a broker’s product portfolio of homes that are privately rented has fallen significantly from 33% in 1961 to 14% in 2008. The study also shows that the private rental sector was bigger than both the owner-occupied and social rented sectors until the mid 1950s. There has been a more recent increase in the private rented sector; from 9% in 1991 to 14% in 2008.
It is evident from these figures that homeownership is still high on the agenda for many UK residents, and it would be interesting to compare how these aspirations tally with people’s views on the importance of bricks and mortar in terms of their pension pots. What we can do though is look at how individual attitudes towards pensions and retirement have changed over the same period of time.
Looking back at the post-war boom, it was naturally assumed that people would be able to retire earlier rather than working until they dropped, as was the instance in many cases pre-war.
Statistics prove this assumption to be true as the average age of retirement fell consistently between the 1950s and the 1990s. However, this trend appears to have been turned on its head in the last few years.
Of course, life expectancy has also risen during this time period, so if the state pension age stayed the same then we would all be spending an increasing proportion of our lives in retirement. So with this in mind due to people living longer, it is inevitable that the cost of state
pensions will rise accordingly, which has in turn worked to put an even greater burden on the working population.
Attitudes towards retirement have changed dramatically, especially in the last decade. Rather than everyone talking about retiring at 50, many clients now routinely expect to work beyond 65 and it is fair to say that not much has been done in terms of increasing pension provisions
to aid one of UK’s most pressing social problems. However, it’s plain to see that the majority of UK residents are doing themselves no favours in their financial planning for the future.
The UK’s dismal track record for saving shows no sign of going away, and if anything is worsening, thus ensuring that few are currently able to rely solely on private pension pots.
This statement is further backed up by an Office for National Statistics (ONS) survey which shows that there are a record 1.4m workers of pensionable age.
The number rose by 75,000 between August and October 2009 compared to the same period the previous year. For every other age group surveyed, the number of workers fell, with a drop of 261,000 for those aged 18 to 24 and 101,000 for the 35 to 49 age group. The ONS figures show women are far more likely to be working beyond state pension age than men, with just over 950,000 female pensioners in employment compared to 455,000 men.
This is partly due to the fact that women currently collect their state pension at 60, while men have to wait till 65. Many of the jobs taken by pensioners are low-paid, with most women taking up one of the five Cs – clerical, caring, cleaning, cashiering and catering.
This increase amplifies the fact that many pensions have not proved as good an investment as people thought, or were led to believe, and people looking for a little extra in their retirement are having to work that bit longer in order to achieve their retirement goals by either supplementing their pension or delaying taking their pension.
The pensions arena continues to baffle many. The majority of government measures being implemented appear only to work to further confuse rather than assure the population. The state pension system is currently somewhere close to chaos and people are becoming increasingly confused about changes being made to the system. To highlight this, research
by the Prudential has revealed that significant numbers of middle-aged consumers are unaware the minimum retirement age is set to increase to 55 later this year.
According to the research, 47% of 45 to 49 year-olds and 39% of 50 to 54 year-olds did not know the minimum retirement age will increase from 6 April. However, Prudential said 6% of the UK’s 3.9m adults aged 50 to 54 planned to retire in 2010.
Karin Brown, director of annuities at Prudential, says: “The Government first announced the changes to minimum retirement age nearly six years ago, so there has been plenty of time for the news to sink in. It is worrying that so many are still unaware but there is time to
act before rules change.”
The new minimum retirement age will prevent people aged between 50 and 55 from
claiming private or company pension benefits and from taking the tax-free cash element of their pension fund until they are 55.
When taking time to reflect, it is quite scary just how limited the majority of the public’s knowledge of the pensions world is. Who is to blame? As with all financial matters, people must take some degree of responsibility but its also fair to say that the Government and indeed the industry must also do better in educating people.
It is vital to underline just how important it is that consumers get the necessary advice to ensure they have a happy and prosperous retirement and in order to do so their first step should be to review their existing pensions.
The simple facts are that there are thousands of people sitting on outdated and inefficient pensions pots who could genuinely benefit from good quality financial advice. Indeed, following our launch in September last year, we took the step to review the performance of all business written to date.
At the end of 2009, it was confirmed that each and every client that had undertaken a review was invested in a fund that has outperformed its sector average for 2009 – one of the most popular funds selected has achieved 37.21% year-to-date against a sector average of 16.03%.
This is not trumpet blowing, just an illustration of the abysmal performances being suffered by many of your clients who could be better off with your help.
It is increasingly evident that the time is right for mortgage brokers to really grasp the opportunity to reiterate the need for a sensibly devised retirement plan to ensure that people have a choice in their twilight years.
Fortunately, mortgage brokers remain in a prime position to instruct a trusted pension’s adviser to guide their clients to the standard of living they deserve in this period of their life. Support is out there, just talk to a pension specialist about setting up a referral scheme which will work to benefit you, the broker, as well as your new and existing client base.
