Why Chancellor’s Autumn statement was bad news for millions of pensioners
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Chancellor’s Autumn statement was bad news for millions of current and future pensioners, says finance expert Peter Sharkey.
Given the ridiculous volume of brainless nonsense we witness every day: social media; the staggeringly thick utterings of the professionally offended; the sinister attempts to destroy British history etc, it came as no surprise earlier this week to discover that Wikipedia operates an internet page headed ‘bill shock’. Seriously.
We’ve all experienced it. For example, in days of yore, when we were permitted to visit restaurants (remember them?), you may recall your reaction when an eye-wateringly steep bill arrived following an indifferent meal or shoddy service, prompting either an immediate onset of indigestion, or, at the very least, a sharp intake of breath. That’s bill shock.
Wikipedia describes the sensation, “…as a term for the surprise an individual receives on any bill that has an amount higher than expected pending to be paid (sic) …other examples of bill shock have been noted in credit card bills, rental bills, and utility bills.”
The ubiquitous website could have saved everyone a lot of time simply by using the word ‘shock’ or ‘surprise’.
Faux ‘bill shock’ was the immediate, typically pious reaction of the usual array of politically-motivated talking heads who condemned Chancellor Rishi Sunak for telling the truth last Wednesday afternoon when he delivered his Autumn Statement.
Yet anyone who believes the Chancellor should deliver anything other than a statement that brought us face-to-face with financial reality needs a prolonged sit down.
Mr Sunak did not attempt to disguise the harsh facts: The economy has contracted by more than 11% since March, the largest fall in output in 300 years. Britain is now borrowing more money than in any other peacetime period. Unemployment is expected to exceed 2.5 million next year and the economy is still forecast to be 3% smaller by 2025 than had been anticipated at the start of this year.
Unfortunately, it’s no consolation that almost every other nation on Earth is experiencing a similar predicament.
Peoples across the world are realising that their respective government’s emergency reaction to dealing with the pandemic’s fallout must be paid for. It’s the macroeconomic equivalent of a snotty waiter presenting your table with a startlingly large bill for an unexceptional meal and inferior wine, then adding insult to injury by charging for mediocre service.
Gritting your teeth, at this point you fumble for your wallet and begrudgingly present your card to settle the bill. Regrettably, this is not an option open either to the Chancellor, nor any other finance minister. No-one is about to reach across the figurative table and say, “Hang on Rishi. I’ll get this. It’s my turn to pay…”
Indeed, matters are expected to remain alarmingly grim for several years.
Robert Colvile of the Centre for Policy Studies, said that Mr Sunak’s statement “recognises the extraordinary scale of the Government’s fiscal response to the pandemic, but also the extraordinary and long-lasting economic damage that it has inflicted.
“It is right to prioritise jobs, health and public services now, rather than immediately closing the deficit, but also right to acknowledge the enormity of the challenges ahead.”
Pensioners, current and future, were not issued with a free pass.
As widely expected, the Chancellor confirmed that the retail price index (RPI) will be replaced by the consumer price index plus housing costs (CPIH) as the measure of annual inflation. The move, scheduled to be implemented in 2030, will affect up to 10 million pension incomes, reducing annual increases in incomes drawn from defined benefit (DB) pension schemes linked to the RPI.
Former pensions minister Sir Steve Webb said that “this is a real loss for millions of present and future company pensioners [who] will get smaller [annual] increases” as a result.
City firm Insight Investment noted that “Anyone with a pension that is linked to RPI will see an immediate drop in their pension pot.” The company calculate that a 55-year-old on a defined benefit scheme would lose more than £70,000 on the cash value of their pension.
This is a huge sum which could knock a serious hole in retirees’ future plans.
Little wonder that several equity release firms reported a sharp rise in online enquiries on Wednesday following the Chancellor’s statement. As historically low interest rates (2.24%) on lifetime mortgages can now be fixed for life and up to 56% of a property’s value may be turned into tax-free cash, releasing equity could plug the pension shortfalls forecast for millions of retirees.
Is your pension likely to be affected following the Chancellor’s statement? If so, you may wish to consider accessing the wealth accumulated in your property, but how much could you release from your home?
The figure is determined primarily by your age, health and your property’s value, which must be at least £70,000. These are the principle requirements, although alternative options exist based upon personal circumstances. You can get a very good idea of how much equity you can release by visiting the Moneymapp.com website and filling out the equity release calculator.
It’s worth noting that equity release isn’t a panacea. It’s not suitable for everyone and it may compromise your eligibility for means-tested state benefits.
As many readers have already discovered, there’s a wealth of information to be discovered at: https://www.moneymapp.com/equity-release . In addition, there are hundreds of blogs and articles dealing with the subject on the Moneymapp website, including Peter Sharkey’s weekly blog, rated among the UK’s very best. Read more at: https://www.moneymapp.com/blog
You may still email any queries or questions regarding equity release to: email@example.com
Please note that Moneymapp.com cannot advise readers on whether equity release is suitable for them. However, Moneymapp.com can introduce readers to professional advisers who will explain the process and its implications for your estate and entitlement to means-tested state benefits.
Cash poor but asset rich. Is this you?
Read Peter Sharkey’s latest blog exclusively at www.moneymapp.com/blog