Man's best pension friendPosted on: 07 August 2014 by Steve Wanless
Finally, we have some meat on George Osborne’s pension bone, waved temptingly at this year’s Budget.
There are a few minor stings in the tail in the just-released Treasury’s Pension report and recommendations; but nothing that seriously damages the chancellor’s assertion last March that we are to be given back control of our pension savings next April.
Yet, the most significant recent news for those of a pensionable age came in a study by St Andrews University, which revealed that man’s best friend is an even more valuable companion in old age.
The study of more than 500 pensioners found that dog owners over the age of 65 have the same fitness levels as someone a decade younger. Those with dogs were 12% more active than those without.
This new study, published in Preventative Medicine, is the first to investigate levels of physical activity among pensioners with and without dogs. Previous studies have looked at the positive benefits of pet ownership on the elderly, including improving mood and reducing blood pressure and heart rate.
The St Andrews research also found that dog owners had significantly lower levels of anxiety and depression.
The researchers monitored the activity of 547 elderly people in Tayside, with an average age of 79. Around 50 (9%) owned dogs and 75% walked their pets.
“It is well-known that pet ownership may help alleviate feelings of loneliness and depression in older people,” added researcher Dr Zhiqiang Feng, “but one area that has received little attention is the effect of dog ownership on the physical activity of the elderly.
“Our results show that dog ownership is associated with an increased level of physical activity in the over-65s; it also suggested it enables older people to overcome many potential barriers, such as a lack of social support, inclement weather and concerns about personal safety.”
Dr Feng said that public health officials should consider setting up schemes to lend dogs to those without them, or to set up walking groups to encourage people to take more exercise.
Currently, annuity providers take account of personal circumstances and health when offering an annual income for your pension pot. Now the questioning may extend to pet ownership, and in particular dogs, with such clear health and social benefits.
Independent Financial Advisers (IFAs) have been eagerly awaiting the Treasury report of the chancellor’s proposed pension changes. It has been impossible to offer specialist advice to those approaching retirement without studying the small print, other than to say “wait and see”.
Even the subject of “free independent advice” as stated by the chancellor in March, has been much discussed and debated. The industry has been concerned about where this “free” advice was going to come from.
The word “advice” has now become “guidance” - and this will be delivered by organisations, such as the Pensions Advisory Service and the Money Advice Service.
Chancellor Osborne added: “We’re going to work with people like the Citizens Advice Bureau, with Age UK and others to make sure people get the best possible guidance and that this is genuinely impartial.”
The Treasury gave this reason for the change. “The government wants to ensure that guidance is trusted by consumers, and the vast majority, including most of the financial services industry who responded, said that consumers would not trust guidance given by a person or organisation with a vested interest in selling a financial product or service.”
This service will be paid for by a levy of regulated financial firms. As the industry knew all along, there is no such thing as “free” advice or guidance. Someone has to pick up the tab.
Those who have dealt with IFAs over the years with regard to investment (including pensions), savings and mortgages are familiar with the benefits of independent specialist advice and a long-term relationship with a financial adviser. This pensions’ revolution is likely to introduce a whole new group to those advantages.
It’s rather strange that the Financial Conduct Authority (FCA) through its Mortgage Market Review (MMR) has not gone this far. Mortgage providers offer advice, but only relating to its own products, so it can hardly be classified as “independent”.
The Treasury’s Pensions Report also claimed that the changes were “overwhelmingly well received” with savers backing greater freedom and choice, and the pensions and insurance industry ready to create new products better suiting individuals’ needs.
That is long overdue. Successive government allowed the scandal of poor-value annuities to exist for far too long.
As with the “free guidance”, these pension changes and freedom are going to cost somewhere down the line.
The two groups taking a hit are those who defer their state pension, and those hoping to retire at 55.
It is hard to argue that the Treasury has been unfair in choosing those targets. Currently, anyone who delays taking their state pension gets an annual bonus of 10.8% on the unclaimed payments, an unheard of rate in recent austere times when savers are struggling to get interest rates of 3%.
The Treasury has cut that benefit by nearly half to 5.8%, still a healthy return. That new rate will apply to those who reach state pension age on or after 6th April 2016. Anyone who has already deferred their pension will not be affected. They will continue to receive 10.4%, as will those who reach state pension age before 6th April in 2016.
The change will affect all those who reach the state pension age of 65 for men and 63 for women on or after that date. The age is being increased to 65 for both men and women in 2018, 66 in 2020, 67 by 2028 and 68 by 2038.
Analysts say the new proposed rate means it would take 19 years to recoup the pension and benefit from the decision to defer. At present, it only takes 10 years.
The other group that will have to wait longer are those who had been hoping to take their pensions at 55. That age will rise as the state pension age increases. The minimum age in 2028 will be 57 and will continue to be a decade lower than the state pension age.
Considering that life expectancy in the UK is currently almost 79 for men and approaching 83 for females (according to the Office for National Statistics); and men at 65 can now expect to live for another 18 years and women almost 21, the loss of one or two years to protect the pension system appears a fair price to pay for the new freedom and choice.
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