Pension freedom reality checkPosted on: 06 May 2015 by Steve Wanless
Steve Wanless examines what impact pension freedom could have on you based on your gender and location.
Pleas for Scottish Independence have taken a new turn with regard to the planned increases in the state pension age. Currently, it will rise to 66 between November 2018 and October 2020 – and to 67 between 2034 and 2036.
The Scottish National party leader Nicola Sturgeon, who was Scottish health secretary for five years, claims this would be unfair to the Scots as they have a lower life expectancy than the English!
Men in Scotland life to 76.8, 2.1 years below the national average; women to 80.9, 1.8 years lower than the national average. Why stop at countries, why not cities; the average lifespan for men in Glasgow is only 73 – 5.9 years below the national average.
There is clearly a North-South age divide in England; and East-West? Where would it all end? It is likely that Londoners living in Mayfair have a better life expectancy than those in Brixton!
There used to be a discrepancy in the pension world – based on gender. Women, despite living longer, retired at 60, and men at 65.
Money and life expectancy
Men received a better return from their pension pot because that shorter life expectancy, but this was declared unlawful by the European parliament and now men and women are treated equally. Women, on average, though still live longer than men.
A recent study by Public Health England shows the gap is narrowing. What was even more interesting in the report was the fact that older women’s life expectancy has fallen for the first time in 20 years.
Life expectancy for English women is already among the worst in Western Europe; increased alcohol consumption and a poor diet are blamed, along with poor standards in care homes.
Professor John Ashton, president of the UK Faculty of Public Health, admitted it was too early to say whether the trend was a long-term change. “One of the issues we have seen is women living lifestyle’s becoming more like those of men over recent decades, with more smoking and drinking.
“We are letting down a generation which came back from the war and built the welfare state.
“There has been a failure of successive governments in that we should have seen trends were changing, that more people would be living longer and we needed to put services in place to look after them.
Public Health said that the impact of the recession could be one reason why life expectancy fell in several European countries – and flu outbreaks and cold winters could be other factors.
The predicted life span of women aged 65, 75, 85 and 95 all fell in 2012 – the first time that had happened in all four groups since 1995.
The falls were only a matter of weeks, though. Women of 65 are still expected to live another 21 years – that’s four years longer than in 1985.
Such trends are crucial in the new world of pension freedom, which arrived with a fanfare of media hype on Easter Monday, along with warnings about the dangers of spending too much, too soon.
Pension pot pitfalls
Many of those with pension pots have already taken the advice of their Independent Financial Adviser (IFA) about how to treat this new freedom, and deal with the potential pitfalls.
Sadly, after the government had taken so long to launch Pension Wise, the official helpline offering guidance, the TV adverts promoting the service were taken off our screens after less than two weeks and before Pension Freedom Day (April 6th). That was because in the official lead-up to a general election there can be no adverts promoting the policy of a political party. That seemed folly as these pension changes were the policy of the Coalition, not any one party – and future pensioners need guidance.
It is clear that some pension savers really need help. One major firm reported savers as young as 23 attempting to cash in their pensions. Only those 55 and above can enjoy the new pension freedoms.
They added that some also thought they could help themselves to chunks of their pension pots without incurring a tax bill. Some savers need a bit more than guidance!
Just as remarkable as someone aged 23 trying to enjoy their pension is the availability of buy-to-let mortgages with an upper age-limit of 105.
Loans on your own home often have an age limit of 75, 70 or even lower – and these will only be repayment mortgages, that is if you can get passed the lender’s “affordability” test.
Buy-to let mortgages, which experts believe will boom with the new pension freedom, are lightly regulated in comparison to home loans.
Rental income is crucial in the buy-to-let market, and loans are provided interest-only, generally with a 35%-20% deposit. Lenders probably feel there is less hassle in repossessing a buy-to-let and removing a tenant than reclaiming a family home.
It seems bizarre that at the age of 100 you can get a 75% interest-only loan, 25 years after you can no longer obtain even a small 10% loan on your own home with all the security that provides.
Small wonder that savvy investors make straight for an IFA when investing in property, as they do when reviewing their pension options.
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