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New figures from the Office for National Statistics show how difficult it is to save up enough in a pension plan to provide a reasonable income in retirement. The report showed that someone aged 65 needs nearly £153,000 to produce an inflation proofed income of £5000 a year for life – rather less than the state pension. Four years ago a man would have needed £118,000 to produce the same result. That is a rise of 29% in four years.

The rise is not quite as bad for a woman of 65. She needs the same amount today as a man because the insurance companies that pay these annuities are no longer allowed to discriminate between men and women and take account of the fact that men live a shorter time. But in 2009 – when they could discriminate – a woman would have needed £133,500 for a £5000 inflation proofed income.  So she needs 14% more now than she did then.

If inflation is taken into account the figures are even worse than the national statisticians say. You need about £5800 in 2013 to buy the same things that £5000 would buy in 2009. And to have an income of £5800 this year – about the same as the basic state pension – you would need a pension pot of £177,000. That is 50% more than a man needed in 2009. The average pension pot is around £30,000. That would buy barely £19 a week index-linked pension today.

The reason for this huge cut in the income you can buy is the Government policy called ‘Quantitative Easing’ – QE. The Bank of England creates new money out of thin air in an attempt to boost the economy. So far it has magicked up £375 billion. It uses it to buy back Government bonds from firms, mainly banks, that hold them. That creates a demand for those bonds and that puts up the price. So a £100 bond might now cost £110. But the return on that bond stays fixed. A return of, say, £3 on a £100 bond it stays fixed at £3 return but if the bond now costs £110 the interest rate is cut from 3% to 2.7%. It is those reduce rates that annuities are linked to.

Printing money – on paper or electronically – also has another effect. It causes inflation. So people who retire face a double whammy – higher prices and a lower income.

SCAMWATCH
Crooks who want to trick you out of your money always know what is in fashion. Nowadays it is likely to be ‘green’ which is used to sell a fraud. Many investment frauds try to get us to put our money into green schemes such as sustainable forests or carbon credits – things you will never see and probably don’t understand. But now green fraud is getting closer to home – at your front door in fact. The police supported organisation Action Fraud warns that conmen (and women) are knocking on doors in the Caerphilly region claiming that homeowners are entitled to a £10,000 grant from the Government’s Green Deal scheme to make their home more energy efficient. They then ask for an administration fee of hundreds of pounds or more to get the process started. Needless to say they then scarper. Green Deal does exist – but they do not represent it. The safest way to deal with anyone trying to sell you things at the door – whether it is roof repairs, insurance, or dishcloths is just to say ‘I never buy at the door. Sorry’. And close it.

STATE PENSION DELAYED BY DAYS
Government plans to delay the age at which state pension can be claimed has sent many people to official websites to find out the date of their new State Pension Age. But that date is itself a fiction for most people. Because the state pension normally begins not on that date but on the next payday which can be six days later. Women born 6 November 1951 to 5 December 1951 will reach state pension age on 6 July. And they might expect to get their pension on Saturday 6 July. In fact the will actually start on a date which could be as late as Friday 12 July. That is because pensions begin on a payday – always a weekday – which depends on the last two digits of your National Insurance number.

The only people who get state pension on the same day they reach state pension age are those whose payday is that very day. The rest have to wait up to six days. Even the name ‘payday’ is misleading as the state pension is nowadays paid in arrears – four weekly in arrears by default. So these women will not get a payment until the week beginning 5 August. You can ask for it to be paid weekly in arrears. Which at least will get you some cash a bit sooner.

The rules for people who reached pension age before 6 April 2010 are different – their payday is normally a Monday or a Thursday and the pension can be paid weekly in advance if they ask.

CHEAPER CALLS
Banks, insurance companies and government departments will in future have to admit how much they make when you call them on an 0844/0845/0870/0871 number. At the moment the cost is bundled up in the charge made by your telephone operator – which can be as much as 41p a minute on some mobile contracts or as little as nothing if you get those calls bundled in a monthly price. But some of that money – anything from 2p to 13p a minute – is passed down the line to the recipient of the call. And from December 2014 that amount will have to be declared in all advertising or mentions of the 08 number under plans announced by the telecoms regulator Ofcom. It will also mean that 0800 numbers re free from all phones – landline and mobile alike.

e-mail Paul Lewis on paul@paullewis.co.uk