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Retirees face income shortfall risk
Derin Clark

Derin Clark

Online Reporter
Published: 29/11/2021

Retirees looking for the security an annuity provides may be facing lower retirement income than expected as the average annuity rate fell by 2.90% between July and September (Q3).

As well as this, although pension funds have returned a 0.45% on average during Q3, this is still significantly lower than returns gained last year, which stood at 1.77% on average.

Rachel Springall, finance expert at Moneyfacts.co.uk, explains that the pandemic has had a significant impact on retirement savings.

She said: “A third (36%) of pension funds fell during Q3 2021, which is why consumers would be wise to keep a close eye on where they have their money invested. Those who saved £100 gross per month for 20 years into a personal pension would have built a pot of £53,157 on average, and taking a standard annuity at age 65 would result in a yearly income of £2,200.

“The majority of pension fund sectors are still offering positive returns, but there has been a notable shift compared to Q2 2021, when 91% of pension funds returned growth compared to 64% in Q3 2021. The average pension returned less than 1%, at 0.45% during Q3 2021 compared to 4.1% during Q2 2021. Compared to the equivalent quarter a year ago (Q3), fund returns have worsened slightly in 2021, but it is worth remembering that 2020 overall was hit hard by the impact of the Coronavirus pandemic. The volatility to fund sectors makes it ever-more prudent for consumers to monitor where their cash is invested, but it is also important that they seek advice to ensure they don’t switch their funds in haste.

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The best lifetime mortgage rates available during November 2021

Money unlocked from property via equity release is set to break the £4 billion this year, with homeowners taking out £2.989 billion via equity release in the first nine months of 2021, research released this month revealed.

Although the equity release market has remained strong this year, our research has found that since October, average equity release rates have been rising.

On 7 October 2021 the lowest initial equity release rate (MER) stood at 2.66% fixed, however just over a month later on 11 November, the lowest rate was 2.8% variable, with the lowest fixed rate standing at 2.96%.

To help homeowners decide whether a lifetime mortgage is right for them, below we’ve highlighted some of the most competitive rates available this month.

The plans highlighted below are not endorsed by Moneyfacts.co.uk but have been chosen as they offer competitive rates for the scenario that we have selected. It should be noted that other plans are available that offer similar competitive rates but may offer incentives, such as cashback, that suit the borrower’s needs better – as such borrowers should speak to an equity release broker who will be able to select the best plans for individual requirements.

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Equity release rates rise as £4 billion in property wealth set to be released this year

In the first nine months of 2021 homeowners have taken out £2.989 billion via equity release, but new data shows that equity release rates are rising, which could dampen the market.

Although equity release is on track to break £4 billion this year, research from equity release advisers found that between July and September 2021 the total number of equity release plans taken out has fallen by 3.2% year-on-year.

While equity release rates may not have contributed to this fall, our research has found that since October equity release rates have been rising.

On 7 October 2021 the lowest initial equity release rate (MER) stood at 2.66% fixed, however today the lowest rate stands at 2.8% variable, with the lowest fixed rate standing at 2.96%.

This means that homeowners considering releasing wealth they have built up in their homes via equity release may want to research the market carefully before taking out a plan or else they could find themselves paying higher than expected interest.

It is important, however, to keep in mind that equity release products have become far more flexible in recent years. Now many plans offer the ability for borrowers to pay back some of the interest or make partial repayments, which can help to lessen the financial impact equity release has on the inheritance borrowers leave behind.

Meanwhile, as Simon Gray, managing director at equity release advisory firm HUB Financial Solutions, explains those considering switching equity release from a plan taken out 10 years ago will likely find rates lower now.

He said: “Anyone considering a long-term financial product needs to stay aware of how the economic environment is evolving and the new opportunities that may offer. Equity release plans are a good example because the fixed interest rates available today are lower than those available 10-20 years ago.

“We have seen a significant increase in re-mortgaging activity over the last two to three years and have been proactively contacting customers we think could benefit as an ongoing part of our advisory business activity.

“Our advice takes account of their current circumstances and any longer-term plans they may have to see if a more suitable plan is available on the market. Interest rates are clearly an important factor, but not the only one, for some people their circumstances may have changed. Modern equity release deals have more flexibility and options – interest-servicing, cashback, fixed repayment charges, for example – which may better suit that client than their old plan.

“Every week we speak with many customers who wish to explore re-mortgaging their lifetime mortgage. While some clients judge there are benefits to them re-mortgaging, that’s not true of everyone we advise.

“Some customers decide to keep the deal they have regardless of what other options may be available to them. As advisers our role is to ensure we understand each individual customer’s circumstances and ensure the customer is fully informed of their options before we make a detailed, personal recommendation.

“Further innovation could make re-mortgaging an attractive option for more people. Just Group has recently introduced medical underwriting across their lifetime mortgages. They estimate, by answering a series of questions about a customer’s medical conditions and lifestyle factors, around six-in-10 people could benefit by getting a lower interest rate, or for those that need to, the ability to borrow a higher amount. This could make re-mortgaging attractive to more customers.”

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Government announces new laws to help protect pensions from scammers

The Government has unveiled new laws designed to help retirement savers protect their pensions from scammers.

From 30 November 2021 pension companies can prevent the transfer of pension funds if they believe that funds may be transferred to a fraudulent third party.

Under current legislation savers have the automatic right to transfer their pensions without the approval of trustees or scheme managers. From the end of this month, however, a transfer request can be blocked by a trustee and scheme manager by giving it a ‘red flag’. An ‘amber flag’ can also be used to pause a pension transfer if there is some concern about fraud, which can be removed when the scheme member confirms they have taken scam specific guidance from the Money and Pensions Service (MaPS).

Although the new laws will take away the automatic right to transfer pensions, the Government states that currently 95% of transfers are not suspicious to trustees and scheme managers.
As well as this, all transfers to master trusts, collective defined contribution (CDC) schemes and funded public sector schemes will be designated as ‘safe destinations’, meaning that funds can be automatically transferred to these schemes.

Becky O’Connor, head of pensions and savings at interactive investor, said: “The proposals could help to prevent pension transfer scams because they remove the automatic right to transfer a pension – something fraudsters have been exploiting.”

She added: “The new system might slow down some pension transfers, although this should not be a significant risk once the regulations have bedded in. It is important that freedom to choose the right authorised and regulated provider is maintained for people who want to move their pension.”
Originally schemes administered by insurance companies were put forward as ‘safe destination’ and thereby exempt from the new legislation, however this proposal has been dropped. Tom Selby, senior analyst at AJ Bell, said: “Depending on the level of concern raised by the responses, this intervention could either be to block the transfer altogether or require the member to take scams guidance from Pension Wise.

“Crucially, it will be up to pension schemes to decide whether a transfer is suspicious or not. Whereas previously blocking a suspicious transfer came with the real risk of being sued, this legislation creates a specific legal framework within which members’ interests can be protected.

“Provided firms apply these rules sensibly and don’t delay matters by asking the risk questions on transfers where it is clear the risks are very low, they should add extra security for transferring members without impacting the vast majority of legitimate transfers.”

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Would you save money switching equity release?

Falling equity release rates mean that some homeowners could save money by switching to a new deal at lower rate, but equity release borrowers need to be careful they are not hit with penalty charges that could cost them more to switch than they would save. Here we look at whether equity release borrowers will be able to switch from their current deal and the potential costs involved.

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Recent News

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Pensions set to rise by 3.2% in April

20th October 2021

In April pensions will rise by 3.2% as the Government suspends the triple-lock and increases state pensions in line with inflation instead

In April pensions will rise by 3.2% as the Government suspends the triple-lock and increases state pensions in line with inflation instead

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Self-employed risking retirement disaster

8th October 2021

The amount self-employed workers saved into their pensions during 2019/20 fell to its lowest level despite a growing number of people declaring themselves self-employed, figures released by HMRC suggest

The amount self-employed workers saved into their pensions during 2019/20 fell to its lowest level despite a growing number of people declaring themselves self-employed, figures released by HMRC suggest

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The best lifetime mortgage rates available during September 2021

29th September 2021

Lifetime mortgages are growing in popularity as the Equity Release Council reported this month that more homeowners are using property wealth to top up pensions and to provide living inheritance to children and grandchildren

Lifetime mortgages are growing in popularity as the Equity Release Council reported this month that more homeowners are using property wealth

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Over 55s gifting billions to younger generations and topping up pensions using equity release

27th September 2021

Borrowing using a lifetime mortgage, a type of equity release has steadily increased during the first six months of 2021 with more than 35,000 borrowers unlocking £2.3bn of cash from their homes

Borrowing using a lifetime mortgage, a type of equity release has steadily increased during the first six months of 2021 with more than 35,000 borrowers unlocking £2.3bn of cash from their homes

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Most Popular Retirement News

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The best lifetime mortgage rates available during November 2021

24th November 2021

Money unlocked from property via equity release is set to break the £4 billion this year, with homeowners taking out £2.989 billion via equity release in the first nine months of 2021

Money unlocked from property via equity release is set to break the £4 billion this year, with homeowners taking out £2.989 billion via equity release in the first nine months of 2021

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Retirees face income shortfall risk

29th November 2021

Retirees looking for the security an annuity provides may be facing lower retirement income than expected as the average annuity rate fell by 2.90% between July and September (Q3)

Retirees looking for the security an annuity provides may be facing lower retirement income than expected as the average annuity rate fell by 2.90% between July and September (Q3)

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Should you increase mortgage repayments or your pension contribution?

16th June 2021

Whether it is getting a pay rise or paying off ,a long-term debt, getting a little bit extra each month can be a great boost to personal finances

Whether it is getting a pay rise or paying off ,a long-term debt, getting a little bit extra each month can be a great boost to personal finances

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Equity release rates rise as £4 billion in property wealth set to be released this year

11th November 2021

In the first nine months of 2021 homeowners have taken out £2.989 billion via equity release, but new data shows that equity release rates are rising

In the first nine months of 2021 homeowners have taken out £2.989 billion via equity release, but new data shows that equity release rates are rising

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