New research by MetLife Europe has revealed that 32%  of over-50s surveyed* have no pension plans in place, and will rely on the basic state pension as the cornerstone of their retirement planning.

Only a quarter of those surveyed said they felt financially prepared for retirement, but 64% said they either did not believe they would have enough to live on in retirement, or they did not know how much their pension income would be.

The research also focused on those respondants who do have a personal or company pensions plan, but confirmed other similar findings in the past, which indicated that in general women have saved far less than men towards their retirement. The average older woman has £34,500 set aside in a pension, while the same figure for an older man was £68,800.

The news has been called a ‘national scandal’ by leading pensions campaigner and former government adviser Dr. Ros Altman, who said: “The whole system is imploding. It’s a real national scandal. We’ve got millions of people coming up to pension age. What are they going to live on?

“In the long run, it’s in all our interests to have an ageing population with savings – otherwise there will be too many people in poverty,” she said.

The government is currently discussing raising the basic state pension to £140 per week. Under the government’s National Employment Savings Trust (NEST) scheme, to be introduced from 2012, all workers not already saving for a company pension will be auto-enrolled into saving for a NEST company pension.

*MetLife survey of 1,150 over-50s who have not yet retired

MetLife Europe is to expand its range of investments products following its acquisition of American Life Insurance Company (Alico) on 1st November. MetLife will begin the expansion with the launch of a maximum investment plan (MIP), as the first of a suite of new investment and retirement products to appear in the coming year.

MetLife was the pioneer of guaranteed investment based on unit-linked guarantees in the UK market, and MetLife guaranteed investments such as the MetLife Guaranteed Investment Bond and the MetLife Income for Life Bond offer peace of mind to defensive investors, with a ‘no risk to capital’ guarantee.

MetLife Europe is part of MetLife Inc., a global insurance and financial services giant which is already the largest provider of life insurance cover in the US. The Alico acquisition will make MetLife a leading competitor in Japan, and significantly boost its European and UK presence as well.

The second product MetLife will launch is a Protected Growth Bond, due to come online in 2011.

Alico’s range of life insurance policies and the entire Alico brand will now be marketed under the MetLife name. The new MIP will be the first example of the synergies of the merger, as it will be issued by Alico but marketed under the MetLife brand.

The deal creates what MetLife terms ‘a global insurance and benefits powerhouse’ with operations in 60 countries, and serving 90 million customers.

MetLife UK’s managing director, Dominic Grinstead, said the acquisition would enable MetLife to ‘fully embrace the IFA and advisory marketplace’ in the UK, and that its guaranteed investment products ‘will provide greater certainty to investors’.

With the average wage, as of March 2010, pegged at £24,000, this means a pension income that constitutes a drastic reduction in ‘buying power’ for the average worker.

UK pensions specialist Partnership’s estimates showed that 9 out of 10 retirees over the last 5 years had pension savings of £50,000 or less, and 8 in 10 (77%) had pension savings of £30,000 or less.

The latter group, based on currently low annuity rates of 6-7%, could expect an annual income from that of around £2,000 per year. Those entitled to the full Basic State Pension can add to that £6,000 including earnings-related top-ups, giving an annual pension income for 80% of retirees of £8,000 (although this may be supplemented by some pension credits, according to circumstances).

Pension income also lost by those in imperfect health

The situation is worsened by the fact that 4 in 10 retirees have less than perfect health** or lifestyle, but are unaware, in their pensions planning, that they can boost their pension income by up to 40%, by purchasing an enhanced annuity.

Insurers pay more to those who are expected to die sooner, due to health or lifestyle issues, by providing an enhanced pensions annuity. Despite this, those who are overweight, smoke, have high blood pressure or another ailment are often not informed of the enhanced option, when purchasing their pensions annuity. While people in the ‘unhealthy’ bracket represent 40% of those retiring, only 1 in 4 of them actually purchased an enhanced annuity in 2009. The other 3 in 4 lost out on thousands of pounds of pensions income.

For example, based on a man of 65 with pensions savings of £100,000, a standard annuity would give him annual pension income of £6,669 per year. However, if he declared he was a smoker, an enhanced annuity would raise this to £8,028 per year**.

*Source: Association of British Insurers ABI    **Source: Hargreaves Lansdown

Pension income for a typical couple in their 60s dipped under 6% recently, bringing pension annuity rates to their lowest level in 20 years. As a result, a 60+ couple retiring in June 2010 with pension savings of £100,000 would stand to receive just £5,860 today, down 3.6% in two months from the pension income of £6,080 they would have received if they had purchased their pensions annuity in April.

The underlying cause for the wholesale reduction of pensions annuity rates lies in the gilts market. As insurers derive their returns for annuity payments primarily from gilts, the recent slump in gilt yields  has had a disastrous knock-on effect on pensions annuity rates.

Using the Open Market Option (OMO)

The problem is exacerbated by a lack of awareness among retirees that they do not have to stick with their pension provider, when converting their pension pot into a pension income by purchasing their pensions annuity.

In 2009, 63% of people retiring (290,000 of them) stuck with their pension provider and failed to use their right to shop around, with the help of independent financial advice, for their pensions annuity. This right is known as their Open Market Option (OMO).

Those retiring with a pension pot of £5,000 or above can have their financial adviser do a competitive annuity quotation, a useful pensions planning tool which could increase pension income by up to 20%, and can add hundreds of pounds a year.

Are you retiring in the near future, and wishing to compare pensions annuities, to maximise your pension income? Make an annuity enquiry,  or freephone 0800 678 5929 now.

The number of years of National Insurance contributions needed to receive the full Basic State Pension has been reduced this year from 39 to 30, increasing the number of people entitled to the full Basic State Pension of £97.65 per week.

However, for those who may not have the 30 complete years of NI contributions to the state pension needed, the government is offering the chance to ’buy back time’ by paying up or completing additional years of NI contributions. You do not have to be working to avail of this deal – those already in retirement can also participate.

This offers workers with a broken work pattern a golden opportunity to ‘patch the holes’ in their National Insurance contributions record and maximise their income from their pension.

These late payments to the government pension are known as Class 3 Contributions, and will increase your Basic State Pension entitlements as part of your general pension planning.

People who have had broken working patterns may have missed out on some years of NI contributions in the past, and would particularly benefit from making the Class 3 Contributions needed to boost their government pensions. Others who would benefit include those who were unemployed but did not claim benefits,  those who earned less than the lower earnings limit for NI contributions, i.e. £97 per week, or those who lived abroad.

What is the cost of topping up the Basic State Pension?

Buying back years of NI contributions costs £626.60 per year, or £12.05 for each week if you are completing a year.

A special deal applies to those buying back a year from the previous two years i.e. someone in 2010 buying back government pension contributions for 2009 or 2008. These apply, not at today’s rate, but at the rate that applied in that year. Because the rates were increased in 2009, you can still buy for 2008/09 at a lower rate of £8.10 per week.

Payments to buy back lost NI years must be made within 6 years, so that in 2010 contributions can be made for years back to 2004/05. A special exemption also applies to those with 20 years of NI contributions, who will reach the state retirement age, i.e. the age at which they can draw the Basic State Pension, between April 6 2008 and April 5 2015 – this group can buy an additional 6 years of NI contributions for any years back to 1975/76.

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.

The new pensions minister Steve Webb has said that the scope of the NEST scheme, which is intended to ensure that all workers have access to pensions, will be looked at again. The NEST scheme is due for launch in 2012, and in its current form is set to raise the percentage of those holding company pensions from the current 55% of employees to around 80% by 2017. The minister said that the structure of NEST as the delivery system for the new pensions will also be looked at.

Under NEST, all workers who do not have company pensions would be ‘auto-enrolled’ into a national company pensions scheme, administered by their employer, but with their pension savings managed by government. Only those who actively opt back out of NEST will not participate.

Since the scope of the scheme would offer entry to a company pensions scheme to all workers, any review of its scope is likely to scale down that plan.

Employers who provide a company pensions scheme through NEST will pay 3% of the employee’s salary into the company pensions scheme, while workers pay 4% and government 1%, giving total contributions of 8%.

However, employees who retire in the future with a NEST pension must also consider that it may affect their entitlement to government pensions credits, which currently provide a state pension ‘top up’ of over £30 per week for those with no other income than the basic state pension. Their income from NEST could reduce their entitlement to pension credits, as these are a means-tested benefit.

Workers who are now 50 or older may also gain little from NEST, as their contributions in the coming 15 or so years are likely to result in an insignificant pension income when they retire.

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.

Nearly 70% of UK adults are reevaluating their retirement planning, and now intend to work beyond their retirement date.

Over 33m UK adults (68%) say they will not give up work on their official retirement date, according to the new Real Retirement Report by Aviva.

The typical age for giving up work envisaged by most adults in their planning for retirement was 66, but many expect to be working well beyond that – and not always by choice, Aviva said.

While the official state retirement age will soon be set at 66, over a quarter (29%) believe they will work on towards 70, one in eight adults (12%) have factored working beyond the age of 70 into their retirement plan. Furthermore, 1 in 10 don’t have to worry about retirement planning at all – because they do not ever intend stopping work.

For over-55s, self-employment in later life is part of the retirement planning for 61% of people, with 44% believing that their hope for retail work after retirement age may delay their retirement plans. A further 27% are basing their retirement planning around leisure/hospitality work, Aviva said.

The top reason for building a retirement plan around part-time work or ‘part-tirement’ is to supplement their pension or  improve financial standing (60%), with a range of social and emotional benefits, including a general desire to keep active, also shaping people’s planning for retirement, said Aviva.

Four in 10 (41%) of those questioned make their retirement planning based on a few extra years with their current employer, if possible. A quarter of those would opt for part-tirement  with their employer, and 13% would continue to work full time.

However, Aviva has highlighted health issues as a significant concern that must now also feature in UK workers’ retirement planning. By the year 2025, Aviva’s research has shown that 8m over-50s will be obese, which could significantly alter their range of options for retirement planning.

Ill-health is currently cited by around 40% of retirees as their reason for giving up work, Aviva said.

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If you would like to see what the mortgage on your chosen home would be, you can work by yourself to do preliminary calculations using our online financial planning tools.

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