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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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Generous grandparents hand out £37bn

The Bank of Gran and Grandad has lent more than £37 billion to their grandchildren, according to a study.

Insurance company Saga polled 5,529 grandparents and found that the average donation was £9,365.

Grandchildren in London and the South East received the largest deposits, while grandparents in Yorkshire were the most likely to donate.

More than half the grandparents would prefer seeing their relatives spend the money rather than leaving it as inheritance.  

40% said they were happy for the money to be spent on whatever the recipients liked, with other grandparents earmarking cash to go towards:

  • education (23%)
  • holidays (13%)
  • driving lessons (12%) 
  • house deposits (9%).

Alex Edmans, head of product at Saga Money, said:

“Most of the money grandparents are gifting is coming from their cash savings, so whatever small amount of interest they are missing out on is clearly outweighed by the joy they get by seeing their grandchildren benefitting from the money.

“Our customers are increasingly turning to gifting money through equity release in order to help grandchildren onto the property ladder.  On average they take £33,000 out of their property in order to give to family.”

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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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Pension freedoms payments hit record high

The amount of money people withdrew from their retirement savings under pension freedoms hit a record high in Q2 2017.

According to figures from HMRC, 200,000 people took out flexible payments worth £1.86 million in the 3 months to 30 June 2017.

This was the largest quarterly withdrawal on record after pension freedoms were introduced in April 2015.

Additional research from Scottish Widows, who polled 2,697 people, found 62% who accessed their funds flexibly were between 55 and 60 years old. 

When asked why they were accessing their pension, the main responses were:

  • 25% “wanted the cash”
  • 11% wanted to pay off debt
  • 9% wanted to make a large purchase, such as a holiday
  • 8% wanted the funds to pay off their mortgage.

Catherine Stewart, retirement planning expert at Scottish Widows, said:

“Whilst it’s good more people are evidently becoming engaged with their pension at a younger age, it’s essential everyone is able to access help and information to make informed choices which are right for their retirement plans.”

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