In a bold move aimed at incentivising individuals, particularly healthcare professionals, to extend their working years, the UK government announced the abolition of the Pension Lifetime Allowance (LTA) in the 2023 Autumn Statement. Set to take effect from April 6th, 2024, this decision seeks to encourage more people, especially doctors, to remain active in their professions for longer durations.
Abolishing the LTA
The abolition of the LTA is expected to benefit individuals with substantial retirement savings, as well as public sector workers with sizable final salary schemes. However, amidst the anticipation of this policy change, concerns have been raised within the industry regarding the pace of implementation and its potential implications for customer advice and outcomes.
Industry experts have called for clarity and guidance on the new rules and regulations, urging the government to provide further details to facilitate a smoother transition. Some industry leaders have even advocated for delaying the implementation of the abolition until 2025 to ensure a more seamless adjustment period.
Despite the abolition of the LTA, complexities persist within the pension system, including caps on tax-free lump sums and lump sum death benefits, adding layers of intricacy to navigating the new regulations.
Review of State Pensions
In addition to the abolition of the LTA, the government's 2023 Review of State Pensions shed light on the challenges posed by increasing life expectancy and the fiscal sustainability of the State Pension. As the retirement age is set to rise to 67 between 2026 and 2028, questions arise regarding the government's commitment to intergenerational fairness.
The triple lock mechanism, which guarantees State Pension increases by the highest of inflation, average earnings growth, or 2.5%, continues to be a focal point of discussion. Despite criticisms regarding its cost and fairness, both the Conservative and Labour parties have shown reluctance to reform the triple lock agreement, emphasizing the importance of safeguarding pensioners' financial security.
It remains crucial for individuals to stay informed and proactive in managing their pension plans amidst evolving regulations and policies.
Shampa Roy-Mukerjee is an Associate Professor (Economics) and Director of Innovation and Impact, at RDSBL, UEL.
There are many lenders who have strict criteria and maximum age limits when it comes to approving mortgages, however, there are specialist lenders who are happy to offer mortgage products to borrowers of any age.
There are many schemes that have been created with pensioners in mind, such as lifetime mortgages, equity releases and interest-only retirement mortgages. But there are also traditional mortgage products available for those considered old. Thankfully there are a number of specialist lenders out there willing to offer repayment and interest-only standard mortgage products to pensioners and retirees.
Eligibility For Older Borrowers
It’s not surprising that lenders will be less inclined to lend to people as they get older for the simple fact that they have less time to repay the loan. There are however specialist lenders, who can be accessed through specialist mortgage brokers, that have no upper limits when it comes to the age of prospective buyers. Not only are mortgage products available for this age demographic, but there are some great deals with competitive interest rates available for those looking to get a mortgage later in life.
Older borrowers, particularly pensioners, are typically considered higher risk primarily due to the fact that their regular income is usually lower than their younger counterparts and therefore lenders are more concerned with their ability to meet monthly mortgage payments. Meeting the affordability criteria can be more challenging as you get older and most lenders, especially in the current economic climate, are not willing to take the risk.
There are three main eligibility criteria that lenders look at when applications are made for standard mortgage products:
1. Affordability
This is probably the most important test that the lender will apply to your application. The affordability test will look at whether the borrower can realistically meet the monthly repayments for the property they wish to purchase.
For borrowers in their 40s and 50s, lenders may be quite stringent in their criteria and will be assessed on their current income and employment. Although still quite a way to go to retirement age, this age group will possibly be accepted for a mortgage with shorter repayment terms.
For the older age group, retirees and pensioners, proving that they can meet the repayments with their pension income is paramount to being accepted. All monthly outgoings will be taken into account as with any age group applying for a mortgage. The majority of lenders will allow 3 to 4 times annual income, with some even going up as far as 5 to 6 times.
For those considering an interest-only mortgage, this figure could potentially be a lot higher with some, but not many, offering 10 times annual income, provided you are using a secured loan to release cash.
2. Mortgage Term Length
The term length of the home loan is an important consideration, particularly for older borrowers who have fewer options available to them in terms of the number of lenders willing to approve them for a mortgage.
The majority of lenders will have an upper age limit which will restrict the term of the loan. For example, if you are 60 years old and the lender has an age limit of 75 years, then you will probably be required to take the loan over a shorter period which will, in turn, result in higher monthly repayment rates. Borrowers will need to prove that they can afford the higher amount for the lender to feel confident enough to approve the mortgage.
It varies from lender to lender as to whether they will allow a mortgage to run into the borrower's retirement age. Some will allow it, whilst others will have more stringent rules regarding mortgages being paid off prior to retirement. It all boils down to individual lenders’ criteria and most importantly the affordability aspect.
Qualification criteria will depend on various factors including the amount of retirement income the borrower realistically can expect to receive on a monthly basis, the date at which they will officially retire and the amount of money that has accumulated in their pension scheme, if they have one.
3. LTV (Loan to Value)
The loan to value amount is very important when lenders are considering the approval of a mortgage for older borrowers. The LTV is the ratio of the mortgage against the value of the property that will be purchased. For example, an LTV of 60% means that the buyer pays a deposit of 40% of the property's full value and the lender will cover the remaining 60% with the home loan.
The larger the deposit that older buyers have, the more likely they are to be accepted for a standard mortgage product. Many lenders will require a 20% deposit for a standard repayment mortgage with competitive interest rates. Others will accept as little as a 5% deposit but the interest rate will be understandably higher.
For interest-only mortgages, lenders will generally accept a 15% deposit but for older applicants, most require a minimum of 25% down payment. The property in this type of mortgage agreement is considered as the ‘repayment vehicle’, meaning that the ultimate sale of the house will repay the home loan in full. With a retirement interest-only mortgage there is no end date like there would be for a regular interest-only home loan.
4. Maximum Age Range
The maximum age range varies from lender to lender. The majority will approve applications from buyers up to the age of 70 as long as they meet all the eligibility criteria. For older applicants (75+) the choice of lender is significantly diminished and reduces even further for the over 80’s. However, this does not mean that this age group is completely excluded, as there are lenders, although only a few, that are happy to approve applications provided they meet all the criteria required by the lender.
Why Older Mortgage Applicants May Not Be Approved
There are a variety of reasons that older mortgage loan applicants may be rejected for a home loan:
- Bad Credit History – for all age groups this could present a problem when applying for finance, particularly for the older age demographic. A retired buyer is already considered to be high risk so lenders will be unlikely to approve when the applicant also has a bad credit history. There are, however, some specialist lenders who will consider these applicants.
- High-Interest Rates – as there are fewer lenders willing to lend to pensioners and retirees, interest rates are higher due to the lack of competition.
- The Type of Property – lenders will assess the type of property that the buyer wishes to purchase to ensure that it is not a non-standard construction which could potentially be difficult to sell at the end of the mortgage term.
If you are hitting your fifties now, and you don’t have a pension pot or any savings, you’ll be pleased to hear it’s not too late to do something about it.
In fact, it is never too late to start saving for old age. Obviously, the sooner you get started the better, so why not make that now?
In this article, I’ll be looking at some of the pension and saving options for late starters. Whether you’ve just hit the big five-oh milestone, or you are creeping towards retirement, there are still ways to build a savings pot and make your money work better for you,whether that’s through a pension, learn from an investment blog or otherwise.
First up let’s take a brief look at the State Pension.
What pension will you get from the State?
The State Pension is a regular payment from the Government you can claim when you reach State Pension age. The amount you get is based on how much you have paid in National Insurance contributions.
The State Pension age has undergone radical change in recent years. Women used to be able to get the State Pension at age 60, and men at 65. From November 2018, both men and women have to be 65, but this is gradually increasing, depending on when you were born. The State Pension age will reach 67 for both men and women by 2028. It could change again in the future.
The full amount of the current State Pension is currently £168.60 per week. Check how much State Pension you could get here.
A pension is actually a tax-efficient way of saving money
Independent Financial Adviser (IFA) and pensions specialist Adam Reeves, says “No matter how old you are it is never too late to think about financially planning for your retirement and paying into a pension scheme. It is actually a tax-efficient way of saving money.”
If you are a UK taxpayer, you will can get tax relief on pension contributions of up to 100 per cent of your earnings or £40,000 annual allowance (whichever is lower).
Pension tax relief is paid at the highest rate of income tax you pay, so for basic-rate taxpayers it is 20 per cent, for higher-rate taxpayers it is 40 per cent and for additional-rate taxpayers it is 45 per cent.
What does this mean? If you are a basic-rate taxpayer if you contribute £100 from your salary into your pension it will only cost you £80 – the government pays £20 (the tax you would have paid on the £100 of your salary). Higher-rate taxpayers benefit more.
See more about tax relief on pension contributions here. As you can see, the tax relief available on pensions is particularly attractive to higher earners and additional rate taxpayers.
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What is a private pension?
Sometimes called a personal pension, and commonly referred to as a ‘Self Invested Personal Pension’ (SIPP), a private pension is a type of investment scheme. You make monthly or one-off payments into a pension plan. Your pension scheme provider adds tax relief to that. The money you put in to the pension plan is invested in a range of assets, such as bonds, shares, property and cash.
How much you get from your pension plan will depend on how much you save, how it is invested and the type of pension plan you have.
It is important to seek independent advice when considering any pension scheme or other form of investment as there are risks. The return on your investment can go down as well as up.
Workplace pension schemes
If you are working in the UK, are aged 22 or over, are under the State Pension age and earning more than £10,000 a year, then you are likely already signed up to a workplace pension scheme (unless you have opted out).
Many workers are now covered by pensions auto-enrolment. This is a government scheme to help people save for later life.
Since 1st February 2018, all eligible workers in the UK must be enrolled in a workplace pension scheme. The amount you and your employer contribute has been increasing since the scheme was introduced. From 6th April 2019 your employer pays 3 per cent of your qualifying earnings and you pay 4 per cent of your qualifying earnings.
If you have previously opted out, you can rejoin, but your employer only has to action one request from each member every twelve months. See more about rejoining your auto-enrolment workplace pension scheme here.
What are the alternatives?
As well as considering a private pension, there are lots of other money-saving tips for over-50s. Now is the perfect time to give yourself a money makeover. Any savings you can make in your expenditure now can be saved for your retirement.
ISAs are another tax-efficient way of saving money. The term ISA stands for Individual Savings Account. It essentially allows you to save money tax-free. See if an ISA could be right for you here.
From Baby Boomers, to Millennials, to Generation Z – as a society we’ve become all too accustomed with categorising people based on the year they’re born in. For banks in particular, it’s long been tradition to segment by age and build campaigns that target customers accordingly. Here Karen Wheeler, Country Manager and Vice-President at Affinion UK, explains to Finance Monthly why banks shouldn’t follow this tradition.
But, have they become too hung up on age groups? We’re now in an era in which we’ve never had more access to rich customer data, which should – in theory – mean that banks can better understand their customers’ behaviour, preferences and expectations. However, according to research by Vanson Bourne and Sitecore, 64% of UK consumers still feel like brands make assumptions about them based on single interactions alone.
Consumers are now easily frustrated by a business that doesn’t seem to understand them. So, what can banks do to prove they have a deep understanding of what their customers really want?
It’s time that banks shifted their thinking and took a smarter approach to segmentation. Basic grouping by age or gender is no longer accurate enough and developing a “segment of one” is key. Here’s three reasons why banks need to look beyond basic segmentation to build better relationships with customers.
1. Broad brushing generations can back-fire
There used to be a predictable life pattern, but now you can get married, have a baby, buy your first house or travel the world at almost any age. The lines are blurring, and things are becoming more fluid. It’s now recognised that just because two people are born in the same age bracket, it doesn’t mean they share the same experiences, needs, attitudes and desires in life.
For example, a 31 year old woman who is married and living in the country with school age children, has very different needs to a single, 31 year old women with a flat share in London. At best, irrelevant offers based on outdated life patterns can be a mild nuisance to customers, but at worst, making assumptions risks causing offence and can backfire on the brand.
Air France recently faced backlash after announcing that it will be launching ‘Joon’, an airline for millennials. Passengers of the airline will be served by cabin crew wearing “basic chic” uniform including white trainers, blazers and ankle-length trousers. Experts have excused the airline of stereotyping millennials and for assuming that every consumer born between the years 1981 and 2000 act and think the same.
2. Personalised offers have more impact
In the past, life stages were more fixed by age, but as society changes and with so much data now available, banks have the ability to build a much more holistic view of their customers which can enable personalised, relevant interactions – giving people what they like most, at the right moment in their lives.
A good example of a bank that’s already doing this well is Barclays. Its “Life moments” strategy is built upon carefully targeting customers with appropriate financial products and services as they approach new life stages, such as having a baby or buying a car – regardless of their age. More recently, Barclays announced it will offer recent graduate job interviewees free overnight accommodation in London, Birmingham and Manchester, after its research found that more than half of graduates surveyed said they had not applied for a job because of the amount it would cost to travel to the interview. By targeting this life specific stage, it positions them as a bank that not only has the best interests of graduates at heart, but a source of help during a time of need.
3. PSD2 is coming
2018 is set to be a game-changing year for banks. As the PSD2 (Revised Payment Service Directive) becomes implemented across the EU, banks’ monopoly on their customer’s transaction data and payment services is about to disappear. The new EU directive opens the door to almost any company interested in eating a bank’s lunch.
Before it’s implemented, there’s an opportunity for banks to use their ‘first mover advantage’. They shouldn’t wait for fintechs, AISPs or PISPs to encroach on their customer relationships, instead they should look at their own platforms and how they interact with their customers. Investing in tactics like better segmentation could improve and consolidate relationships at a time when it’s never been more important.
Many loyalty programmes haven’t worked for banks in the past. But is this simply because they’ve taken an outdated approach to UK consumers and not been personalised enough? Next generation customer engagement is all about tackling this with personalised content and interactions across more levels than ever previously possible. It’s about understanding the intangibles of human motivation to create more rewarding journeys, recognising the value of different rewards to different people and utilising new ways of collecting, storing and making sense of the data that’s generated.
If banks are to become truly valued in their customers’ lives, demonstrating an understanding of their priorities and anticipating their needs is key.
