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Social care faces annual deficit

An increasing amount of individuals are underestimating the growing costs of social care by £7 billion per year, research claims.

Independent think tank the Centre for the Modern Family polled more than 2,000 adults on behalf of Scottish Widows and found, on average, people estimate residential care would cost £549 a week.  

However, in real terms it would cost on average £866 for a place in a nursing home – leaving a shortfall of £317 per week.

In addition, 25% have no idea on how to cover social care costs for themselves or a relative, while just 15% were saving on a monthly basis to pay for their own social care.

Around half (49%) of adults would have to rely on a relative to help cover care costs, with 42% having £2,000 or less in savings – enough to fund less than 3 weeks of care.

Jane Curtis, chairwoman of the Centre for the Modern Family, said: 

“The number of people in care in the UK will almost double by 2035. Our research shows an over-reliance on relatives and the state could put families in serious financial difficulty. 

“It can seem difficult to know how to prepare for the future, but to avoid a financial care crisis we all need to have an honest discussion on later life care as early as possible so no one is left footing a bill they can’t afford.”

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Savers likely to increase pension contributions

75% of 25 to 34-year-olds with a workplace pension said they would increase their pension contributions in line with a pay rise.

Insurance company Royal London polled 1,500 ‘millennials’ and found 40% plan to increase their monthly contributions next year.

Employers are required to make a minimum contribution into a workplace pension, which is currently 1%. This will increase to 2% in 2018/19 and 3% from 2019/20. 

A further 74% of respondents would continue to save into their workplace pension if total contributions increased automatically to 5%, with 3% from their employer and 2% from them. 

However, if total contributions increased to 8% (employee paying 5% and employer paying 3%) only 62% of people would continue to save into their workplace pension.

If contributions were matched (employer and employee paying 4% each), 76% would be willing to continue saving into their pension.

Jamie Clark, pensions business development manager at Royal London, said:

“It’s great to see that automatic gradual increase in contributions, perhaps in line with pay rises, is potentially viewed by millennials as a way to help lessen the financial impact.

“However, although saying they are saving, there is the risk some may still sleepwalk into poverty in their retirement by not regularly reviewing their savings and not taking advantage of opportunities to increase their pension savings when possible.”

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Government cracks down on pension scams

Cold-callers who attempt to scam people out of their retirement savings face fines of up to £500,000 under new legislation.

The crackdown will prevent fraudsters making unauthorised contact with savers over the phone, email and text as the government bids to end millions of cold calls made each year.

Ministers announced the move after revealing retirement savers lost almost £5 million through pension-related bogus calls in the first five months of 2017.

Actions include:

  • banning all cold calls (including emails and texts) in relation to pensions
  • tightening rules stopping scammers from opening fraudulent pension schemes
  • tougher action to prevent the transfer of cash from pension schemes to fake accounts.

The cold-calling ban will not form part of a second Finance Bill 2017, due for release in the coming months, so it is unclear when the ban will come into force.

Guy Opperman, minister for pensions and financial inclusion, said:

“People’s savings are being targeted and stolen through elaborate hoaxes – leaving them with little opportunity to build up their savings again.

“If people have saved for a private pension, we want to protect them. This is the biggest lifesaving that individuals normally make over many years of hard work.

“By tackling these scammers, people should know that cold calling, apart from exceptional circumstances, is banned.”

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Workplace savings to fund ‘32% of retirement income’

People in the UK are expecting almost a third (32%) of their retirement income to come from workplace savings, according to a study.

Aegon polled 14,400 workers and found a further 42% expected their income to come from the government, with the remaining 26% coming from their own savings and investments.

Those aged 18 to 24 expect a lower portion of their retirement income (35%) to come from government benefits, such as the state pension, compared to those who’ve already retired (50%).

Being optimistic or possibly naive, people in this age group still expect to retire at the age of 65. 

The UK government is gradually increasing the state pension age to 68 by 2039, meaning those born between 6 April 1970 and 5 April 1978 will have to remain in employment for an extra year before receiving their retirement income. 

Steven Cameron, pensions director at Aegon, said:

“The UK’s solution to focus on workplace savings makes it world leading, whereas its decision to increase state pension age is likely to mean expectations from the state pillar remain below the international average.

“While UK employees benefit from the workplace pension focus, the ever increasing numbers of self-employed don’t. This highlights the need to focus on how to improve pension provision for this significant element of the working population.”

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Private pensions boost retirees’ income

Private pensions helped retirees’ income nearly triple in real terms in the last 40 years, according to official statistics.   

Figures from the Office for National Statistics (ONS) show the annual disposable income for a pensioner household reached £29,000 in 2016.

This was a significant jump from 1977, where only 21% had disposable income over £10,500.

Furthermore, 80% of retired households received income from a private pension last year, compared to only 45% who received income from a private pension in 1977.

The ONS said disposable income of pensioners grew on average by 2.8% a year in real terms since 1977, compared to 2.1% in non-retired households.

Those with a private pension in 2016 received average income that was 14 times higher (£19,000) than those who did not receive income from a private pension (£1,300).

Including cash benefits, such as the state pension, disposable income of individuals with a private pension last year was on average 1.6 times higher than those without a private pension – at £27,800 and £17,200, respectively.

Steve Cameron, pensions director at Aegon, said: 

“Pensioners in the UK have never been better off financially than they are today. 

“In the last 40 years, the average pensioner has catapulted out of the lowest income bands, and has even begun to close the gap on average incomes received by the working population.”

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