George Osborne’s Emergency Budget will have repercussions for all in one way or another, but for those in retirement at the bottom of the income scale, the pinch may be harder felt. Here is a round up of the key announcements affecting pensioners.
Pensions linked to earnings: restored
For the first time since 1980 basic state pensions will be linked with earnings, meaning a more generous increase for those being paid a state pension: in the long run. In essence this means pensions will rise with earnings, inflation or 2.5%, whichever is higher. But in the short term pensioners are unlikely to see any substantial change and some pensioners’ groups see this rise as a smokescreen.
Dot Gibson of the National Pensioners’ Convention feels that there are no short term gains to be had here: ‘Restoring the link with earnings on its own, without also raising substantially the basic state pension, will take decades before it has any real impact on tackling pensioner poverty,’ she said.
According to figures released in the budget, inflation will rise and will continue to do so in the foreseeable future. Naturally those on fixed incomes will suffer most and the fact that the retired population spends most of its income in areas where inflation is highest, such as travel for example, casts a worrying shadow.
Compulsory Retirement and Annuitisation Consultations
The Chancellor announced a consultation on ending compulsory retirement which is perhaps good news for those who wish to continue working, and indeed need to continue working. There will also be a consultation on abolishing the need to buy an annuity with a pension, which avoids being forced to make a purchase even if the product is clearly poor value.
Raising Retirement Age
Accelerating the policy of raising the retirement age to 66 will leave anyone expecting to claim their pension in the near future no doubt reeling.
Day to day living is set to become more expensive from January 2011 as all but the most basic items and food stuffs face VAT rises from 17.5% to 20%. Any major purchases, such as a new car for example, should therefore be made before the rise takes effect.
Geoff Charles, Managing Director of Bower, has a suggestion on the back of the budget for those in retirement. ‘If compulsory retirement is abolished, this doesn’t necessarily mean you have to go on working if you don’t want to: for homeowners, there is a solution in many cases. And this same solution can be applied to those finding themselves waiting an unexpected extra year for their pension; that solution? Equity release; releasing value tied up in a property to boost income in retirement.’
Geoff Charles feels that people needn’t be forced to work if what they really want to do is stop, get off the treadmill and take a well earned, restful retirement. ‘Having spent your working life investing your earnings in your property, why not put that investment to good use by releasing some of the cash from your home via a lifetime mortgage or home reversion plan so that you can stop work and enjoy a well earned rest?’ he says.
Equity release may involve a lifetime mortgage or home reversion plan. To understand the features and risks, please ask for a personalised illustration.
Bower is an FCA regulated independent financial advice company that offers specialist advice on equity release throughout the UK. For more information email [email protected] or call 0800 4118668. Bower offers a no obligation initial consultation to homeowners considering equity release.