Some of the ancillary benefits now included in life insurance cover and critical illness insurance can be a
considerable factor in deciding which policy is best for you.

For new parents, for example, Aviva is now offering free life cover of £10,000 to those who contact the company before their child is 6 months old. The free cover then runs until the baby’s first birthday.

Many of the larger insurers, including Aviva and Prudential, include cover for your children, when you take out a critical illness insurance policy. This provides your children with critical illness insurance free of charge until they turn 18. Around 2% of claims for critical illness relate to children, and policies generally include conditions often associated with the young, such as leukemia.

Staying with the area of criticial illness insurance, LV= offers critical illness and income protection customers
who make a claim some attractive options, once their claim is complete. Their Extra Care service offers customers oncology, cardiology or neurology care, as well as access to therapeutic, physio or counselling expertise.

Those who buy life insurance cover through Scottish Provident are also offered the Lifeline service, which offers access to experts giving life and health-related information relating to legal issues, employment, and counselling services.

Bright Grey offers its Helping Hand service, which give customers access to a personal nurse adviser. This advice is also available to your partner and children, even if you have divorced since taking out your life and critical illness insurance policy.

Aside from pure life and critical illness insurance, there is another useful option for parents contained in the income protection insurances by Royal Liver. A lump sum of four times your gross monthly income protection benefit (up to £25,000) is available to parents who want to give up work to care for a seriously ill child.

Insurance specialist LifeSearch, which highlighted these optional services, pointed out that ‘a good financial
adviser will be able to identify the most suitable policy for a client that many direct sellers just don’t have the expertise to do.’

In the June 2010 budget this week, the Chancellor George Osborne confirmed that government would press ahead with an acceleration of the phase-out of the Default Retirement Age (DRA), and look to raise the state pension age to 66.

This would mean that employees could not take the Basic State Pension until that age, requiring them to work at least one year longer, or fund that extra year from their own resources.

While Friends Provident’s Visions of Britain 2020 report indicates that 48% of workers plan or desire to work beyond the state retirement age, this should not lead employees to neglect their pension plans, as they must also consider that they may be physically unable to work, due to age or unexpected ill-health. This would therefore make pensions planning a crucial issue, if only as insurance against any obstacle to plans for a longer working life.

This issue will affect an ever-increasing social group, with the number of workers aged over 55 set to grow from 5.14m today to 7.16m in 10 years, according to Friends Provident.

“As a nation, we should start seeing retirement as a process in our lives and not a one-off event,” said Martin Palmer, head of pensions marketing at Friends Provident.

“The concern is that by abolishing the default retirement age we could be opening up a whole new can of worms. People need to be aware of the reality of working longer. We need to … encourage a bigger percentage of the working population to start making provision for later on in life.”

Today the Chancellor George Osborne has announced that ex-Labour cabinet minister John Hutton has agreed to head up the commission which will look at budget changes to public sector pensions, and to formulate a series of budget changes to be implemented in next year’s budget, in June 2011.

Public sector pensions are final salary pensions which have a guaranteed minimum pension income, as they are linked to the final salary of employees when they retire, and to their number of years of service.

The largest government pension schemes are not invested, but depend on this year’s contributions from existing members to fund the pensions of retired members. The four largest such schemes are the NHS pension scheme, the defence forces pension scheme, and the teachers’ pension scheme. Together these had payment obligations in 2008/09 of £19.3bn, while contributions totalled just £4.4bn, according to the National Audit Office.

The generosity of public sector pensions becomes clear from the figures. Private sector savers in defined contribution pensions save on average less than £50,000 during their working life. However, they would need pension savings of £189,000 to equal the average civil service pensions income of £5,928 per year. They would need a pension pot of over £221,000 to achieve the average NHS pension income of £6,931 per year. Most generous of all: to have the average teachers’ pension income of £9,358 per year, you would need a pension pot of over £298,000.

*Data from Office for Budget Responsibility, June 2o1o

While 47% of parents wish to persuade their children to save into personal or company pensions, a third (36%) would actually contribute cash as a ‘kickstart’ for their children’s pensions planning.

Hard lessons appear to have been learned from the property downturn as well, Aviva reveals. Three quarters (76%) of homeowner parents are now advising their children that property ownership alone is too risky as a pension planning strategy. Their pension advice is not to rely solely on property, but to supplement this with structured pension planning and pensions saving.

Over half of parents surveyed, again perhaps disillusioned with their fortunes as property owners, believed the UK is too obsessed with getting on to the property ladder.

Parents appear to be pushing their children towards taking pensions advice, with 88% declaring they are worried about their child’s financial futures. For 7 out of 10 parents, there is a fear that the Basic State Pension may no longer exist, by the time their children reach retirement.

Other parents worry that a lack of pension planning could mean that their children will have to work beyond retirement age (60%), be unable to afford to pay their bills when they stop working (45%), or suffer health problems as a result of working longer (29%).

Furthermore, 11% of parents stated that they are warning their children not to make the same mistakes they did, by becoming over-reliant on property values in their pensions planning.

Of those homeowners who admit to having put their pension planning on the back burner, and have not yet taken pensions advice or set up a pension, 40% claim the economic downturn has prompted them to think about pensions advice and investing into a pension.

Property expert Sofie Allsop, who worked with Aviva on analysing the research, said: “Bricks and mortar are a good investment, but the recession has served us with a painful wake-up call that property values can go down as well as up. Parents are right to urge kids to climb both the pensions ladder and the property ladder.”

The BP oil leak in the Gulf of Mexico has cut billions off the projected pensions income from UK pension funds.  The direct result is that a pension income of £15,000 per year will now be cut by £400, as a direct result of BP’s falling share value.

Following the leak the  BP share price, which had topped 650p in April, had tumbled to 417p by the beginning of June. At one point, BP’s market value was down by 17%, and the company’s value was estimated to have fallen by £42bn. Furthermore, the situation for BP, its share price and the knock-on effect on UK pension incomes may well get worse, before it gets better.

By the time the leak is sealed – which may be August this year – the cost of the repairs may have cost BP a further £15bn. BP is also expected to promise shareholders it will maintain their annual dividend – a payment which totalled £10bn last year.

In addition, the company is reported to have already received 30,000 insurance claims as a result of the spillage, and have paid 15,000 of them, at a cost of £700m.

Measures designed to control the 800,000 gallons of oil spilling into the Gulf of Mexico off Louisiana every day are unlikely to kick in for several months. The primary measure is to cut and then cap the ruptured pipeline, and that strategy is now being pursued using remote-controlled undersea robots. A less tricky strategy with a higher chance of success is to drill relief wells to draw the oil away from the damaged well, but this may take 2 months to complete.

The oilslick is now 120 miles long, and with the hurricane season approaching, BP may face the prospect that the offshore slick could be washed onshore, affecting cities from New Orleans to Gulfport, Mobile and Pensacola as it goes.

Pension savers may wish to consult their pension planner and examine their pension planning strategy, to evaluate the indirect affect of BP’s woes on their pensions income.

This makes it possible for those drawing pension income in an increasing healthy and long-lived society – the so-called ‘welderly’ - to retain ownership of pension savings, rather than hand our pension income to an insurance company in return for an annuity which will pay us a regular retirement income for life.

However, purchasing a lifetime annuity is likely to remain the most popular means of pensions planning, despite these recent changes in the law, according to a new poll of insurers and industry experts unveiled this month*.

With male life expectancy in the UK now standing at 86 and female life expectancy higher still at 89, the ‘welderly’ will be a growing force in the decades to come.

The advantage of not taking an annuity is that pensions savers can pass their pension savings on to their children and grandchildren, by making the corresponding arrangements in their will.

However, experts predict that the vast majority of people will continue to purchase an annuity with their pension income. The driving force behind this belief is that most people have a relatively small amount of pensions savings built up in their ‘pension pot’, reflecting the view of many experts that those with a pot of less than £100,000 may be better served by the reliable income from an annuity, rather than the more risky strategy of leaving their pension savings in the stock market with an ‘income drawdown’ investment.

Fears that new legislation under the EU’s Solvency II programme would increase the cost of annuities, and reduce pension income, by imposing more stringent capital adequacy requirements on insurance companies, are rejected by half of those surveyed.

*Source: Xafinity Paymaster June 2010

The LibDems in particular are adamant that higher tax relief on contributions to the higher earner’s pension plan should be cut in the 22nd June budget. If the budget measures included totally abolishing the higher rate of 40% tax relief, the government stands to save at least £5.5bn in the next tax year. This is vastly more than the £3bn that HMRC is likely to collect from planned increases in Capital Gains Tax (CGT). Given that the new pensions minister is LibDem Steve Webb, only reinforces the likelihood of deep cuts affecting pension plans.

Whose pension plan will be affected?

The current threshold for the 40% tax rate is earnings above £37,400, which means that, taking the personal allowance into account, anyone earning over £43,000 is paying tax at the 40% rate, which they could reclaim in tax relief on contributions to their pension plans.

This means that contributions to pension plans, private pensions and SIPPs pensions should, where possible, be made before 22nd June, as that tax relief may be cut on or after that date.

Boost your pension plan to save personal allowance

Higher earners on salaries of over £100,000 have a second reason to make an urgent pre-budget contribution to their pension plans, private pensions or SIPPs pensions.

Currently, if your salary is over £100,000 you gradually lose your personal allowance of £6,475. This tapers away, so that you lose £1 of your personal allowance for every £2 you earn over the £100,000 mark. In effect, your whole personal allowance is gone once your wage approaches £113,000.

However, this can be avoided with a little clever pension planning. High earners can avoid losing their personal allowance by making contributions to their pension plans, private pensions or SIPPs pensions that lower their income to the £100,000 level.

Again – given the likelihood of a government assault on the 40% higher rate tax relief on contributions to pension plans, it would be prudent to act quickly, and make any contributions before 22nd June!

The link of government pensions to wages and inflation will be enshrined in a newly-announced Pensions and Savings Bill . The announcement stated: “We will restore the earnings link for the basic state pension from April 2011, with a ‘triple guarantee’ that pensions are raised by the higher of earnings, prices or 2.5%.’ The benefits of the new link will begin in 2012 rather than 2011.

This will mean that, from April 2012, the new government pensions are likely to be at least £100 per week for a single , compared to the current level of £97.65, and £160  for a couple (currently £156.15).

The link between government pensions and average earnings had been in place in the 1970s, but was broken when Margaret Thatcher linked the basic state pension to retail prices, in the form of the retail price index, in 1980. As prices tend to trail inflation and earnings, the true value of pension income from government pensions has gradually dwindled since then. For that reason the re-link to inflation is seen by government pension experts as a ‘stop the rot’ measure.

The new link to wages and inflation is expected to be worth £600m per year in pension income to those drawing the basic state pension.

This week’s Queen’s Speech contained a hint that the government may gradually raise the state pensions age to 70, as part of its long-term strategy of government cuts to trim down the national deficit.

This means that an increasingly healthy and longer-living UK population may, in time, have to work an additional 5 years before drawing government pensions. During this time, they will be contributing National Insurance contributions for several years longer, and claiming them back, in state pensions, for several years less, achieving a ‘longer pay-in, shorter pay-out’ situation that will benefit the coffers of state.

However, there is a hidden threat to the government pensions structure which few, to date, have noted. With life expectancy now running at 86 for a man and 89 for a woman, there’s a storm brewing that may shake the entire government pension sector to its foundations.

Government statistics show that, while there were 3.3 people paying National Insurance for every person taking a state pension in 2001, that looks set to fall to just 2.4 workers for every state pension holder by 2060. At the same time, while around 16% of the UK population is over 65 today, this may rise to 22% by 2030.

Meanwhile, government pensions are set to become more generous. The government is committed to re-linking state pensions to inflation from 2012 (they are currently linked to retail prices) which will increase the value of government pensions, but will cost the taxpayer an extra £2bn per year.

More pensioners drawing more substantial state pensions, and less workers per pensioner to fund those state pensions. The future burden on government pensions cannot be predicted. The ‘pensions timebomb’ is ticking.

Workers now aged 20-40 would do well to consider the possible actions that may be taken in the future, if these separate developments begin to stretch government budgets to the limit.

The solution is pensions planning

Given such an unpredictable situation, experts are calling on UK employees to pay urgent attention to their own pensions planning with the help of a qualified pension planner. This applies in particular to the 52% of UK workers who currently have no company or private pension plan (source: Halifax).

Would you like to learn more about pensions planning?  Make a pensions enquiry online now, or call freephone 0800 678 5929

For most children of the late 1940s and 50s, the so-called ‘babyboomers’, pension income will fall short of the retirement lifestyle they desire by over £5,000 a year, according to new findings by AXA Wealth.

Having assessed both plans and expectations for retirement, and realistic pension income from their existing pension plan and other sources, AXA identified an average shortfall of £5,099 per annum for older babyboomers, rising to around £7,000 for younger ones now aged 45-49.

Despite this lack of awareness of their realistic pension income, AXA found that one in four expect to help their children financially when they retire, half are imagining regular holidays funded by their retirement pension plan, and for a fifth of people, their pension planning includes paying their mortgage until well into their retirement.

While 88% of babyboomers do not believe the basic state pension is enough to live on, more than 8 in 10 babyboomers do expect the state pension to be a factor in their pension planning. One in 3 expect to move home, half of those in order to free up equity in their home to supplement their pension income.

Fewer than 2 in 10 (13%) said they currently prioritise pension planning and saving for retirement.

“It’s alarming that around half of the babyboomers we polled have shunned private or company pension schemes, with 26% of people intending to downsize their property to contribute to their retirement income,” said Mike Morrison, head of pensions development at AXA Wealth.

Lack of careful pension planning and over-reliance on property could leave many people in for a shock, he said.