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Annuity rates rise but alternative retirement income options remain popular
Derin Clark

Derin Clark

Online Reporter
Published: 11/05/2021

Retirees looking for a secure retirement income will be pleased to see that the average annuity income has increased year-on-year, but with average incomes still lower than they were in 2019, those entering retirement may want to consider alternative retirement income options.

Research carried out by Moneyfacts.co.uk found that the average annual annuity income in May 2021 was £2,357, this is an increase from the previous year when, in May 2020, the average income was £2,271. Two years ago, however, the average annuity income was £2,516, meaning that those retiring this year and who take out an annuity, will be £159 worse off each year than those retiring in May 2019.

This, combined with low saving rates, means that many workers nearing retirement are financially facing a challenging retirement, as Rachel Springall, finance expert at Moneyfacts.co.uk, explained: “Building a comfortable retirement pot may feel out of reach for some, particularly when interest rates sit at record lows and inflation is predicted to rise, leading to an erosion of the true spending power of retirees’ savings pots that supplement their pension provisions. Annuity income has failed to return to levels seen before the pandemic, which means consumers considering this option will be getting less yearly income than they may have expected. Retirees may well be facing a pensions shortfall and their savings are not working as hard as they could.”

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FSCS warns retirees are choosing riskier pension investments

With saving rates reaching historic lows over the last 12 months, research from the Financial Services Compensation Scheme (FSCS) has found that one in five (20%) retirees have considered riskier pensions and investments products as they offer a higher rate of interest.

According to the research, which was conducted among retirees between the age of 55 and 75, more than a third (36%) of consumers have invested their money after retiring. Of those investing, 69% said they knew all their investments were FSCS-protected, but just 36% knew the exact amount of FSCS protection available for their money, which the FSCS warns, could mean they are unknowingly investing money in products beyond the FSCS’s compensation limit.

One of the most surprising findings from the research is the fact that just 12% of retirees said they had taken advice from an independent financial adviser to see how they could make their money go further.

Ideally, when planning for retirement consumers should consider speaking to an independent financial adviser, especially if they are considering taking riskier pension investments options, as the adviser will be able to provide information and advice on what the best options are for the retiree’s individual circumstances. Our guide on how to get pension advice provides information on how to contact an independent financial adviser, including how to book a free consultation with independent advisers Kellands.

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Two-thirds of retirees risk running out of money

Two-thirds (66%) of workers retiring this year are at risk of running out of money if they rely on just their personal and state pension, a new report has revealed.

The report from Standard Life Aberdeen found that 2021 retirees are planning to spend an average of £21,000 a year during their retirement, which if they just lived on their personal pension savings, along with the money they would receive from their state pension, would result in two-thirds being at risk of running out of money.

As well as this, the report found that the average value of pension pots for those retiring this year is £366,000, but a third (33%) have less than £100,000 saved. Commenting on the findings, John Tait, retirement advice specialist at Standard Life Aberdeen, said: “Pension pots are without a doubt the most popular option for funding retirement, but it’s so important that retirees consider any other savings or assets they can use when deciding whether they can afford to retire or not.”

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Retirement savers warned to protect pension savings from fraudsters

Consumers saving towards retirement are being warned to protect their pensions from fraudsters, as Action Fraud reports that £1.8 million has been lost to pension fraud so far this year.

Action Fraud data found that in the first three months of this year, there were 107 reports of pension fraud received, which is an increase of almost 45% compared to the same period during 2020.

Prior to this year, the number of pension scams had been falling steadily, from 1,788 in 2014 to 358 in 2020, however with the year-on-year increase for the first three months of 2021, reports may rise this year.

According to Action Fraud, Pension scams often include free pension reviews, ‘too good to be true’ investment opportunities, or offers to help release money from your pension even though you’re under-55. Pauline Smith, head of Action Fraud, explained: “Criminals are malicious and unapologetic when it comes to committing pension fraud. They are motivated by their own financial gain and lack any kind of empathy for their victims, who can often lose their whole life savings to these scams.

“We know pension fraud can have a devastating impact, both financially and emotionally, but any one of us can fall victim to fraud and it’s nothing to feel ashamed or embarrassed about. It’s incredibly important that instances of pension fraud, and attempted scams, are reported to Action Fraud. Every report helps police get that bit closer to the people committing these awful crimes. Reporting to Action Fraud also allows our specialist victim-support advocates to provide people with important protection advice and signpost them to local support services.”

Mark Steward, director of enforcement and market oversight at the Financial Conduct Authority (FCA), added: “Scammers target people from all walks of life. It doesn’t matter the size of your pension pot, scammers destroy retirement dreams so it’s vital that consumers know how to protect themselves from scammers.

“The best way to protect yourself is to know who you’re dealing with. Always check the FCA Register to make sure that anyone offering you pension advice or any other financial service is authorised by the FCA to perform the service they are providing for you, and that the details they are providing are the same as those on the Register.

“Unexpected and unsolicited offers, free pension reviews, promises of high returns which sound too good to be true and pressure to make a decision quickly are all warning signs of a scam. Use the tools on our ScamSmart website to protect yourself and your retirement.”

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How to switch equity release and save money

Borrowers who took out an equity release plan several years ago could save themselves money by switching onto a new plan, as new research shows that equity release rates have fallen significantly in the last five years.

Earlier this week, we reported that over the last five years the average rate on equity release plans has fallen by 2.08%, down from 6.15% in April 2016 to 4.07% on 26 April 2021. As well as this, during the same time period, the number of equity release plans has increased significantly, up from 66 to a record high of 510.

Although the increase in choice and fall in average rates is good news for those currently considering equity release, it could also mean that those who took out an equity release plan in the past may be able to reduce their interest rate by switching plans. Even two years ago, in April 2019, the average equity release rate was 5.09%, which is 1.02% higher than the average rate available in April 2021.

In addition to this, with more choice available in the market, equity release borrowers may be able to switch to a plan that better suits their borrowing needs today. For example, borrowers can now choose plans that allow them to repay some of the money borrowed or make interest repayments. For those who are considering switching plans, it may be worthwhile speaking to an equity release broker who will be able to provide the right options available for their individual needs.

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The best lifetime mortgage rates available during April 2021

29th April 2021

This week we published research that found the number of equity release deals available on the market is at a record high of 510

This week we published research that found the number of equity release deals available on the market is at a record high of 510

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Equity release choice at record high

26th April 2021

The number of equity release deals on the market has reached a record high, with over 500 options now available

The number of equity release deals on the market has reached a record high, with over 500 options now available

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Should you contribute towards a pension for your grandchildren?

1st April 2021

It is no secret that starting a pension as early as possible helps make it easier to save towards a financially comfortable retirement

It is no secret that starting a pension as early as possible helps make it easier to save towards a financially comfortable retirement

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The best lifetime mortgage rates available during March 2021

26th March 2021

Homeowners over the age of 55 who are looking to release equity from their home, but who do not want to downsize by moving home, may want to consider a lifetime mortgage

Homeowners over the age of 55 who are looking to release equity from their home, but who do not want to downsize by moving home, may want to consider a lifetime mortgage

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Most Popular Retirement News

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Two-thirds of retirees risk running out of money

5th May 2021

Two-thirds (66%) of workers retiring this year are at risk of running out of money if they rely on just their personal and state pension, a new report has revealed

Two-thirds (66%) of workers retiring this year are at risk of running out of money if they rely on just their

Read More
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Pensioners need a £33,000 a year income to enjoy a comfortable retirement

17th October 2019

In order for workers to enjoy a comfortable retirement that includes holidays abroad, a generous clothing allowance and a car they will need to have saved enough for a £33,000 per year income

In order for workers to enjoy a comfortable retirement they will need to have saved enough for a £33,000 per year income

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Annuity rates rise but alternative retirement income options remain popular

11th May 2021

Retirees looking for a secure retirement income will be pleased to see that the average annuity income has increased year-on-year, but with average incomes still lower than they were in 2019, those entering retirement may want to consider alternative retirement income options

Retirees looking for a secure retirement income will be pleased to see that the average annuity income has increased year-on-year

Read More
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FSCS warns retirees are choosing riskier pension investments

5th May 2021

With saving rates reaching historic lows over the last 12 months, research from the Financial Services Compensation Scheme (FSCS) has found that one in five (20%) retirees have considered riskier pensions and investments products as they offer a higher rate of interest

With saving rates reaching historic lows over the last 12 months, research from the Financial Services Compensation Scheme (FSCS) has found that one in five

Read More

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