The news comes despite that fact that half of those (51%) with existing mortgage deals believe interest rates are going to change in the next 9 months.

Every 7th mortgage holder (15%) has no idea which of the various mortgage deals they have – whether their monthly mortgage repayments are on fixed, standard variable, tracker or discounted rates.

Another 7th (15%) – or possibly the same 7th – have no clue as to when their mortgage deals will expire, and when they must reassess their mortgage deal, or risk slipping by default on to their lender’s standard variable rate.

The fact is that if a homeowner has a £150,000 interest-only mortgage deal, an increase of 1 percentage point would add £125 to their monthly mortgage repayments.

For the same mortgage deal, an increase of 1.6% would add £200 to the monthly mortgages repayments.

Unbiased mortgage advice is crucial when arranging a mortgage deal, or reviewing your monthly mortgage repayments, and to keep informed about the possible future effects of interest rate shifts on your mortgage interest repayments.

Taking mortgage advice from Principle First will keep you on track with your mortgage interest repayments and all aspects of your financial plan. Independent mortgage advice will save you on average £962 per year on your monthly mortgage repayments *.

Contact us online with a mortgage enquiry or ring freephone 0800 678 5929 now.

*Source: Association of Mortgage Intermediaries AMI

A government source quoted in The Times said the plan will put a schedule in place that will avoid government having to revisit the issue of the Basic State Pension age, year after year.

The news means that, while a retiring worker can take the basic state pension this year at 65, anyone now aged 45 or younger will be unable to do so until they reach 70.

The advantage for government is that those working until they are 70 will pay an additional 5 years of National Insurance Contributions, and draw them back, via the basic state pension, for 5 years less.

For workers, this is not such good news. The gradual increase in the basic state pension age will encourage many to work longer than they may have planned. Over half the working population regard the basic state pension as the mainstay of their pension planning (52% of UK workers do not pay into a pension, says Halifax) and are not paying into company pensions or private pensions.

Furthermore, government also plans auto-enrolment into company pension schemes through the National Employment Savings Trust (NEST) after 2012. This may create a generation of workers, now aged 50 and older, who will not accumulate significant pension savings or pensions income with just 10-15 years in the NEST. What they do accumulate and receive from NEST in retirement income they may lose again by forfeiting their means-tested pensions credits, which currently top up the basic state pension from £97.65 to £132.60 for a single, and from £156.15 to £202.40 for a couple. In other words, the government has arranged for us to save for our own pensions credits, rather than receive them as an additional return on those years of National Insurance contributions.

Government pension system ‘unstable’

Experts have been pointing out for years that the national pension fund, which pays the basic state pension, is not a fund at all – as it is not invested in stock markets or gilts or bonds, but held as cash and managed on a ‘pay as you go’ basis.

This pensions model means that the NI contributions paid in by the workforce this week are not invested, but used to pay next week’s obligations to former workers, today’s pensioners. In the private sector, such a system used for company pensions would be illegal.

This pensions model is fundamentally unstable, as it depends on more cash coming in than is going out. However, with increasing longevity, men are now living to 77, and women to 81. The number of pensioners is growing faster than the number of workers – there will be 3 people in their 90s for every newborn by 2050. This will increasingly strain the national pension fund.

Public Sector Pensions Unsustainable

Public sector pension schemes, such as those for the NHS, the civil service, or teachers, are also uninvested schemes which are incredibly expensive due to their generosity in the pensions they pay. To achieve pensions income equivalent to these schemes, which range from around £5,900 for the civil service to around £9,300 for the teachers, ordinary mortals would have to save 37% of their salary into private pensions or company pension schemes.

While the average private sector employee saves £30,000 – £50,000 during their working life, a pensions pot closer to £200,000 would be needed, to achieve the same pensions income as a teacher.

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.

In order to achieve a pension income of £10,000 per year, based on buying a level pension annuity at age 65, here is how much individuals would have to save, over their lifetime to age 65, either in private pension schemes or company pension schemes.

Age 20: £125 per month

Age 30: £195 per month

Age 40: £330 per month

Age 50: £660 per month

Despite the clear danger of jeopardising your pension income and retirement planning by holding back or delaying pensions saving, employee contributions to private pension schemes and company pension schemes fell by over £1bn in 2008/09, to £5.26bn from £6.29bn the year before, according to HM Revenue & Customs (HMRC).

This radical neglect of pension planning has been attributed to savers economising as the recession took hold, but experts predict that a lapse in retirement planning of this magnitude will have repercussions for pension income further down the line, unless savers can make good their missed contributions.

Pensions adviser Hargreaves Lansdown has claimed that this apparent temporary abandonment of retirement planning might have been reduced, if Government had provided greater flexibility in how and when employees can draw cash out of private pension schemes and company pension schemes.

“Faced with uncertainty over future earnings, it is understandable that some chose not to save into a pension, in case they needed the money in a hurry,” said Laith Khalaf of Hargreaves Lansdown.

While the Conservatives are known to favour increased access to pension income, the Liberal Democrats actually made this a pledge in their election manifesto.

“Hopefully this policy will find its way into the new government’s legislative agenda,” Mr. Khalaf said.

Marks and Spencer has announced it will contribute £800m immediately towards the £1.3bn hole in its defined benefit occupational pension scheme. Meanwhile, following the demise of Waterford Wedgewood last year, the Wedgwood Museum Trust, which manages the company’s pottery museum in Staffordshire, is the last solvent part of the business and as such has had to take on the £134m occupational pensions debt of the whole company. The museum will now struggle to repay the debt but may be forced to close and sell its exhibits.

Defined benefit pension schemes or final salary company pensions provide a guaranteed payout to employees, based on their salary at retirement and their number of years with the company. However, during difficult times the stock market investments underlying defined benefit company pension schemes can fail to provide for the schemes’ obligations to retired employees. This leaves the company to pay the shortfall from its own resources.

In consequence, many companies are now closing their defined benefit pension schemes to new members, and instead opting for defined contributions company pension schemes.

With defined contributions company pension schemes there is no guaranteed payout, and the employee’s retirement fund is based only on the performance of the funds investments in the scheme. In other words, the employer or company no longer has a guarantee to meet, and the investment risks in such occupational pensions schemes is transferred from the employer  to the employee.

Dig a little deeper, and we see that the pension changes are primarily designed to save the state money – which of course is the Government’s job, and must be applauded. However, looking at the pension changes with a cynical point of view does give a unique perspective on government pensions thinking in general.

Basic State Pension and pensions credits: The Government will say that the launch of the National Employment Savings Trust (NEST) in 2012 will provide everyone with an additional pension income, a private pension in addition to the Basic State Pension which currently pays out just £97.65 taxable per week. A cynic might point out that it will also save the Government paying out means-tested pension credits as a top-up to the Basic State Pension, since now we will all have a personal pension pot of our own from our NEST pension savings. In other words, the Government has had us save our own pension credits, and will soon need to pay far less pension credits from the coffers of state.

State retirement age and NI contributions: Government will say that raising the state retirement age to 66 gives employees more flexibility to work longer, which suits a generation whose improved health and longevity has dubbed them ’the wellderly’.  A cynic might say that Government has also cleverly had us pay into the Basic State Pension for longer, with an additional year of National Insurance contributions, and also to draw the Basic State Pension for a year less, as we will retire a year later.

The 75 rule versus tax liabilities: Government will say that by abolishing compulsory purchase of a pensions annuity by age 75, we now have greater flexibility to keep our pensions savings, and to bequeath them to our children. However, a cynic might point out that after the government pension changes, the taxman at HMRC may be rubbing his hands with glee at the prospect of Inheritance Tax and other tax liabilities - these could eat up four-fifths of our pension savings, if we leave them in our will without taking pension advice and discussing retirement planning.

With many private sector companies now actively encouraging employees to move their pensions, as they attempt to reduce their commitments to their pension scheme, independent pension advice is more necessary than ever to ensure that a pensions transfer is in the best interests of the investor, and not simply a personal response to the advice of an employer. Up to a third of employers with final salary pension schemes may offer cash lump sums to employees to transfer their pensions over the next two years,  the National Association of Pension Funds (NAPF) said recently. However, these offers may not be in the employee’s best interests and, in such situations, good pension advice is essential.

Those who depend only on the pension investment advice of their employer, and who fail to take pension advice from an independent source, may lose vital benefits by opting to move their pension assets, according to the Office of Fair Trading (OFT). Some pension schemes, for example, charge high exit penalties, while on the positive side some pension providers offer a guaranteed annuity rate that could be lost by making a transfer.

Pensions transfers are often considered in situations when an employee is changing job and moving company. However, it is essential not only to take pension advice to assess the benefits of your current scheme, but also to seek advice on pensions you may switch to when you move. Switching from an occupational pension scheme to a money purchase scheme, for example, could involve forfeiting important hidden benefits in your current scheme, benefits that would be revealed by taking private pension advice.

Good quality pension investment advice, which assesses the restrictions and benefits of both pension schemes being considered, could reveal that leaving existing pension savings in your current scheme may, in fact, be the best option for you. 

If your current pension is a final salary scheme, for example, your pension income would be related to your salary and as such would be fixed at a relatively generous level, compared with other options such as defined contribution pensions based on stock market funds, which carry a higher risk.

The various considerations to be taken into account when considering switching a pension will, therefore, become fully apparent only by seeking quality pension advice.

Pension planning is on the minds of savers again, with 1 in 3 people thinking of setting up private pension schemes this year, compared with just 1 in 5 a year ago, according to Legal and General.

Increasing interest in a pension plan has been most marked among men, where 40% are now considering pension plans compared with 21% in 2009.

Interest in private pensions among women, however, has not changed significantly, although the trend is also upward. This year, 25% of women are actively considering private pensions, compared with 20% last year.

Not surprisingly, the bulk of interest in pensions planning comes from the 25 to 64 age group, while those younger or older than that show a decline in interest in pension plans, year on year.

To show the wisdom of making an early start on pension planning, Legal and General point out that aiming for a pension income of £20,000 per year at age 65 would mean monthly contributions of £234 for a 30 year old starting his pension plan today.

If the same person delayed starting their pensions planning by just 5 years, until they were 35, that figure would rise to £328 per month, to achieve the same target sum of £20,000.

For a man ten years older, in other words a 40 year old starting his private pension today, he would have to save £470 a month into his private pension to attain the same retirement income.

These projected pension plans do not factor in inflation, which would reduce what can be bought with £20,000 in the future.

Source: Legal & General MoneyMood Survey 2010

The new guidelines also indicate that mortgage deals classified as sub-prime lending by building societies could possibly be upgraded to prime status, once loans have been performing for 5 years.

The changes come into effect on 1 April, and must be implemented by 30 September.

Citing the Building Societies Act as its authority, the FSA has said that building societies unable to show ‘appropriate risk managment and skills’  in mortgage lending would be ‘steered’ to tighten up their controls, or switch to simpler business models that were easier to monitor.

The guidelines may encourage building societies to restrict already-tight definitions of ‘affordability’, which analyse the financial situations of borrowers and make a decision on how much debt they can comfortably sustain, before offering them a mortgage deal. The guidelines may put downward pressure on the size of mortgage deals made available to customers, on a case by case basis.

Two years ago the FSA coined the term ’toxic lending’ to describe the provision of loans that were high in relation to the paying power of borrowers, and which contributed to financial hardship and mortgage payment defaults, during the subsequent recession.

The Bank of England has today announced it will keep interest rates at 0.5%, which will hold mortgage rates stable for UK homeowners.

Rates have now been held at this historically low level for 11 consecutive months, as part of the Bank’s plan to stimulate economic growth, complementing its programme of quantitative easing, by which £200bn has been pumped into the UK economy.

While the continuation of the 0.5% base rate is good news for mortgage holders, some mortgage lenders are already sceptical that the Bank will continue to hold interest rates down for the remainder of the year, given the relatively strong inflationary growth in recent months.

With inflation reaching 3.5% in January and 2.9% in December, some lenders are speculating that the Bank of England may well raise interest rates in the latter half of 2010, in an attempt to combat inflation.

As a result, these lenders have conceded they are already considering future increases in their own standard variable rates (SVRs) of interest, and that this is already being reflected in their calculations of ‘affordability’ when offering mortgage deals to customers.

Some lenders have stated that their restrictions on the amount of borrowings they are offering to those seeking first time buyer mortgages are based on the ability to repay “both initial and future mortgage repayments.” This means they calculate using SVRs much higher than the current average of 4.75%.

Customers seeking first time buyer mortgages are being advised to seek quality independent financial advice, as an independent mortgage advisor, with their ‘whole of market’ approach, can find the very best mortgages based on the whole of the UK market.

As independent mortgage advisors, Principle First has recently been able to source mortgage deals for a number of clients with rates of less than 2%. The Association of Mortgage Intermediaries has revealed that using an independent mortgage advisor will save an average of £963 on your annual mortgage repayments.

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