This piece first appeared in Saga Magazine in March 2009
The text here may not be identical to the published text

Retirement postponed

Crunch time for retirement

Four out of ten people approaching retirement believe they will have to carry on working because of the current economic crisis. A YouGov survey of 2160 adults in December found that 41% of working people aged 55 or more said they expected to delay their retirement by at least a year and 15% expected to extend their working lives for five years or more. Only one in twenty thought they could bring forward their retirement and just over a third thought they would retire when expected.

Such pessimism is fuelled by the falling interest rates on savings and the reduced value of many pension funds. But it is not just smaller incomes that are the problem. Because we are all living longer we have to stretch our money over more life. Official figures show that a woman aged 65 can expect to live until she is 88 and man until 85. But half the population will live longer than that. So someone retiring at 65 has is an even chance of more than twenty years life and a fair chance of much more.

Research by Life Trust Insurance claims that the total cost per household of retiring at 65 and then living to 85 is £412,700 – and £471,000 to 88. If you survive to 100 the cost rises to £708,500. Early retirement pushes up the cost. You will need £25,000 a year per household until you reach 65 – or £15,000 if you live alone.

These projections assume that inflation will be only 2.3% over that period and that patterns of spending are typical. So the real cost could be much more. But for those on below average incomes it is not much less as spending in retirement is dominated by essentials such as food, fuel and heating. But whatever the cost, longer life and reduced income are forcing more and more people to work longer.

Inheritance tax crunch

The Inheritance Tax threshold goes up on 6 April to £325,000. That new level applies to estates left by people who die on or after that date. But with falling property prices people who have already paid inheritance tax on a relative’s estate can feel they paid too much. Property that took an estate above the limit a year ago (currently £312,000 and £300,000 in 2007/08) may now be worth at least 15% less and that could reduce the tax due or even wipe it out altogether. Similar considerations apply if part of the estate was shares. On average shares in UK companies are now worth around a third less than they were a year ago. And if the person who died left shares in banks then their value has been almost wiped out.

However, tax is due on the value of the estate on the day of the death. Given the extraordinary current circumstances It is possible – though not very likely – that the Revenue would allow a revaluation of the estate. It is certainly worth asking.

A more certain way is to sell the shares or property shortly after the death. Then statutory rules can cut the tax even after it has been paid. If the executors sell the property within four years of the death and it fetches a lower price than the valuation then the tax can be recalculated using that lower value. A similar rule applies to shares but they must be sold within twelve months of the death. If the items are sold within that time scale then the claim for the tax refund can be made up to six years after the tax was paid. More from the probate and inheritance tax helpline 0845 302 0900 and www.hmrc.gov.uk/inheritancetax

Borders

People in England face council tax rises of around 3.5% in 2009/10. The increase – of £48 a year on the average band D home – is less than last year’s rise but still ahead of inflation which is falling rapidly.

But in Scotland the tax will be frozen for the second year running after the Scottish parliament voted £70 million to pay the 32 local authorities the cost of doing so. Councils which do not freeze the tax will not get their share of that money so it is likely they will all take and freeze the tax. In 2008/09 every council in Scotland did so the tax except Stirling – which cut it by 1.1%. In the long term the Scottish National Party – which forms the Scottish government – plans to scrap the tax altogether replacing it with a form of income tax. At the time of writing plans in Wales are still unclear.

The Scottish council tax freeze is just one example of devolution affecting personal finance. In Wales prescriptions charges were scrapped for everyone from April 2007. In Northern Ireland they fell to £3 in January and will be scrapped from April 2010. Scotland now charges £5 but that will come down each year until 2011 when they will be free. In England cancer patients have joined the list of those who get free prescriptions. But the minority who have to pay – aged 16-59 and not pregnant – have to fork out £7.10 an item. And that is expected to rise in April.

Ombudsman

The Financial Ombudsman Services is gearing up for a record year. It expects the number of new complaints about banks, insurers, advisers, and lenders to soar by 30% to 150,000. On past experience more than 55,000 of those will be from people over the age of 55.

The FOS takes complaints on just about all personal finance topics. At the moment its postbag is dominated by charges for unauthorised overdrafts, credit cards, mortgage endowments and payment protection insurance. But the Ombudsman expects that the recent turmoil in financial markets and the growing financial difficulties faced by individuals will lead to an increase in complaints about mortgages, investments and pensions, and motor insurance as well. 

Older customers bring their own problems. One is ageism, especially where credit is involved. Although it is not illegal to discriminate solely on grounds of age banks should not do so if the person who applies for credit can meet the repayments. Another problem area is investment. Many older people are advised to put their money into long-term products which are only suitable for younger people who can lock up their money for a long time or for those who do not need to take an income from it. If it has not made this clear in the ‘key facts’ information which every financial product must come with then a claim will probably succeed.

The Ombudsman is not a consumer body. Its purpose is to resolve disputes between customers and financial companies. That often means it will suggest a compromise rather than finding one side wrong and the other right. But if it does believe there has been bad treatment or mis-selling it can order redress and compensation.

The Ombudsman is to boost its staff by more than 400 compared to its plans of a year ago. They will not just deal with the extra the Ombudsman is also hopes to clear cases more quickly, slashing the time to complete each case from nearly 22 weeks to just under 15. The extra cost will be paid for partly by the financial services industry. In future companies will pay £500 for each case rather than £450. Though each company will still get three free cases per year. The service is completely free to individuals and the Ombudsman says there is no higher success rate for individuals who pay professional ‘claims handlers’ to take their case.

Anyone who feels they have been unfairly treated should complain first to the financial company itself. If the complaint is unresolved after eight weeks the case is ‘deadlocked’ and you can go to the Ombudsman.

 
A new way to tell the time.

Digital. analogue. And now rotating orbiting revolving satellites and telescopic hands. The Urwerk Hammerhead 202 is the first new way to tell the time since digital watches appeared in 1972 to rival the familiar dial and hands invented in the fifteenth century. The Urwerk’s complicated rotating mechanism is powered by the wearer’s movements. Active owners can slow down the rewinding by tuning the flow of air in its sold gold case. The hour is shown by a number on each face of the rotating cubes and the minutes by the hand pointing to the short segment below it. A small dial tells you the phase of the moon and – just in case you are away from windows – another whether it is day or night. Watching the complex mechanism go through its paces is indeed entertaining. But there is no seconds hand. No timer. And no alarm.

Chris Cameron Gudge is an ex-watchmaker who manages Marcus in Bond Street, the only Urwerk dealer in the UK. I asked him why spend £107,000 on a Urwerk when you can get an accurate digital watch for £4.99?

“Craftsmanship” he says “We worked out how to get clockwork to tell the time accurately 300 years ago. Digital over thirty years ago. Now let’s have fun! Urwerk makes 200 of these a year. I get two or three. If I had 30 a year would I sell them? Probably. But they cannot make more. There are just not enough skilled people. These are engineering masterpieces. Different. Exclusive.”

And probably a good investment. Though Chris would never say so.