New UK annuity reforms – lessons from the US

Photo credit: Linus Bohman (Flickr Creative Commons)
Photo credit: Linus Bohman (Flickr Creative Commons)

This week’s guest blog is from across the Atlantic. David C. John is a senior strategic policy advisor at the AARP Public Policy Institute. AARP is a nonprofit, nonpartisan organization, with a membership of more than 37 million older people across the USA.

 American experience strongly suggests that the coming UK pension freedoms sound better in theory than they will work in practice.  After nearly a decade where the UK has been the gold standard for retirement savings policy, it is about to take a step that it may regret.

As annuity purchases are not required, very few Americans buy them, feeling that they are spending a great deal of money for a comparatively small monthly income.  Even those in traditional DB pension plans usually take a lump sum if they are allowed to do so.  As a result, many US retirees spend unwisely, trust the wrong financial advisor, or make other financial mistakes.

Many people greatly overestimate how long their savings will last.  Most others assume (often wrongly) that they can manage their own money as well as anyone else or that they can live comfortably on Social Security alone.  US Social Security pays a benefit that depends on the retirees’ individual income history.  The average annual amount is about $13,000 (GBP 8,700).

One survey found that in West Virginia, a state with a relatively low average income, 78% of those near retirement and 67% of those at retirement would likely outlive their financial assets.  Workers with lower incomes are most at risk.  A recent national study found that by the 20th year of retirement, more than 81% of Americans with incomes up to $27,000 would run short of money, as would 38% of those earning up to $42,000, and 19% of those with incomes up to $65,000.  Even 8% of those with the highest incomes could not meet their expenses. Continue reading “New UK annuity reforms – lessons from the US”

Pension Schemes Bill entering final stages

Scrabble pieces spelling the work 'pension'

The Pension Schemes Bill has nearly completed its passage through Parliament, taking a step closer this week as Peers considered the Bill at its Report Stage in the Lords. As you’d expect, Age UK has taken a keen interest in this Bill, which is part of the Government’s wider ranging reforms to pensions announced by the Chancellor in the Budget last spring – the most significant changes to private pensions for over a generation.

From this April, there will be great flexibility, and greater choice for older people to access their retirement savings but with greater choice comes more responsibility, and potential complexity and risks, for older people making these important choices. Generally speaking, the pension reforms are a really welcome move giving those with pension savings approaching retirement freedom and greater options about how to access their money. However, with greater flexibility can also come greater risks for consumers. Continue reading “Pension Schemes Bill entering final stages”

Queen announces landmark legislation for older people

We have repeatedly called for improvements to the pensions system and for urgent changes to the shambles that passes for our system of social care and today in the Queen’s Speech two of our proverbial buses arrived at once. The speech contained two pieces of landmark legislation: A Bill to simplify the legislative framework and funding of social care, and a Bill introducing a flat rate State Pension. Both these measures are very much welcomed by Age UK.

440x210_queens_speech_2012_copyright_uk_parliament_flickr_May2012Improving the care and support system in England is long overdue. The complexity of the legal framework, the raft of regulations to plug gaps and the confusion many people experience when trying to navigate the existing care system tells us that care and support need reform. The Care Bill is a vital part of the changes that are necessary. However the current and future funding of adult social care is likely to be the elephant in the room throughout the progress of this Bill. Social care funding has declined by £710 million in real terms since the Government came to power in 2010. This is at the same time as the population of over 85, who are most likely to need social care, continues to rise. Budgets are falling while demand is rising. Continue reading “Queen announces landmark legislation for older people”