Chancellor George Osborne’s Autumn Statement has attracted much comment including from iShares, Equity Research Council, Clifton Asset management, AXA Wealth, Scottish Widows and Blackrock.
Nigel Waterson, Chairman of the Equity Release Council, says of the increase to state pension age: “Despite a rise in the basic state pension, today’s announcement means many people will have to wait longer to receive this vital source of income. Raising the state pension age may seem a logical step when life expectancy is going up, but it puts more emphasis on wages, savings and other investments to sustain people financially on the approach to retirement.
“Poor savings returns and rising living costs mean that many are struggling to afford a comfortable retirement. In the current climate, the delayed receipt of state pensions will be a worrying prospect for younger generations. More than a third of the population will be aged 55 or over by 2046* – this change may prompt even more to consider options like equity release before they reach state pension age, to make the most of their assets and ease their passage into retirement.
Commenting on the continuation of mortgage interest relief, Waterson adds: “However, today’s announcement brought good news for consumers who took out home income plans before 1999, with George Osborne confirming they will continue to receive mortgage interest relief. The Council and its members have worked hard to protect this benefit. If removed, it could have resulted in a £400 loss of yearly income for those affected: a significant sum for anyone whose late-life finances are delicately balanced.
“Part of the challenge of financial planning for retirement is preparing in advance, which is why we welcome the move to honour the original support offered with these loans. Providing confidence, security and lifelong guarantees is at the heart of The Council’s work to support the equity release industry, and we are grateful that HMRC registered our views through its consultation on this issue.”
Mark Johnson, head of UK sales at iShares says: “Today we welcome the news that, starting from April 2014, the UK government will remove the stamp duty and stamp duty reserve tax on purchases of shares in exchange traded funds (ETFs), which would currently apply if an ETF were domiciled in the UK. This should ultimately increase consumer choice and support the growth in the use of ETFs by a wide range of investors from retail through to pension funds and insurance companies.”
Paul Riddell, director, AXA Wealth, meanwhile says that while the raising of the retirement age was fully expected, what isn’t clear is how the government and pensions and savings industry is going to work closer to encourage more people to save appropriately for the future.
Riddell notes that AXA’s latest Big Money Index found that 42% of people aged 45 to 54 are not currently saving for their retirement at all and 36% said that they will be postponing their retirement and relying on continued employment to support themselves in the future.
He says: “For many years there have been calls for better financial education, both in schools and in the workplace. Our research shows that the many initiatives that have been launched don’t appear to have made much ground. We all need to think longer and harder about how we will fund our retirement and we all need to accept that it will not come as early as we might like. There is no doubt that without the right planning, that starts at an early age, people will need to accept that they will be working well into their 70s.
“These changes will have wide-ranging implications for the economy, for employers and employees both young and old, and for our wider society. We need to assess the full impact of these changes, which won’t truly be known for many years, and we need to develop a coherent and joined-up strategy with the government at national and local level, to combat the real issue of apathy and ensure that everyone understands the implications of not saving for their future.
Riddell says the term ‘state pension’ is increasingly becoming out-dated and sends out a message that people may be able to rely on it as their sole pension income: "This just isn’t the case. A more realistic message that we need to help people understand is that the Government will provide a ‘later life income supplement’ to your own personal provision. The state benefit may support your ‘life’ but it’s highly unlikely to support any kind of ‘lifestyle’.
“We need a radical overhaul in the way we support and communicate the importance of saving for the long term by focusing on transparency, value for money and most of all plain English."
Adam Tavener, Chairman, Clifton Asset Management, says: “It is clear that the Chancellor has listened to the UK’s small business owners who are eager to exploit the current economic growth. The extension of Small Business Rate Relief, rate discounts, business rates now payable in 12 monthly instalments if required and the 50% Re-occupation Relief to get small business back onto the high street are all welcome. However, the key to maximising these opportunities is for business owners to be confident in funding their businesses in the important stages of expansion and development.
“The re-focusing of the Funding for Lending Scheme (FLS) exclusively on business and the imminent launch of the Business Bank are certainly a step forward, however the Alternative Funding sector must now play a vital role in helping owners back their own businesses. Whether employing more staff or making the move into larger premises, Pension-led Funding (along with the likes of crowd sourcing and peer-to-peer lending) is set to increase its influence in financing the UK’s small business economy – either as stand-alone funding or in collaboration with other lenders.”
Focusing on pensions Anthony Carty, group financial director, Clifton Wealth says: “The Chancellor’s recognition of the need to bring forward the later retirement age of the state pension, clearly indicates that the state alone cannot fund an increasingly ageing population. Despite a £2.95/week rise in the state pension and the introduction of auto-enrolment as a positive stimulus for people to contribute to a work-based pension, it is now clear that everyone of working age must consider setting up their own pension plans.”
“The additional measures announced in the Statement to assist young people in joining the workforce, such as the abolition of NI contributions for people under 21, offers them and their employers the opportunity to start the savings process earlier. While young workers will have other priorities – such as housing and day-to-day living – I cannot emphasise enough the need to begin making contributions into a pension plan as early as possible to ensure a comfortable retirement.”
Tony Stenning (right), head of UK Retail at BlackRock, commenting on the need for Britons of all ages to prepare for retirement, says: “We all know we’re living longer and today the Chancellor confirmed that we are also going to be working longer. In our recent survey*, BlackRock found that nearly half (49%) of 25-34 year old Brits are concerned they’ll outlive their savings in retirement and while they may be dismayed by today’s news, this age group has an opportunity to use their longer working life to save a comfortable nest egg for older age.
“However, Brits do have a certain amount of retirement realism these days, largely attributable to rising living costs and lack of preparation and almost a third of people in Britain (29%) believe they will never fully retire, but a staggering one in two (53%) have not begun saving for retirement. It is vital that people are educated on the importance of saving regularly and as early as possible in their working life. We need to build a savings culture which helps people to plan ahead for their retirement – they need to build what they need tomorrow, but can’t wait until tomorrow to begin.”
Reacting to the increase in the state pension age, Ian Naismith, Pensions Expert at Scottish Widows, says: “The changes to the state pension age to be announced in the Chancellor’s Autumn Statement today will have the nation’s workforce reconsidering what retirement could look like for them. Research from our annual Pensions Report has shown that the average British worker wants to retire at the age of 66. This means that for many workers, the prospect of having to work potentially for an extra four years longer than they would ideally like will be a daunting prospect.
“Furthermore, our research showed that the average British worker is looking for a retirement income of £25,000 a year, having saved from age 30. Achieving that level of income is likely to require contributions of around £1,000 per month, which is almost eight times the automatic enrolment minimum for someone earning £25,000 a year and likely to be beyond the reach of most.
“However, this needn’t be the case. Having a plan in place for your retirement, and not just relying on the state pension, can make a huge difference to making sure that reality matches up to expectations. It is clear that private pensions will need to play a bigger role in the nation’s saving habits – saving into a private pension from age 20 rather than 30 to 65 could add almost two-fifths to the final pension. On top of this, although the prospect of working to the age of 70 may seem bleak, our research found this can have a significant effect on retirement savings. A worker saving into a private pension who delays retirement from age 65 to 70 could see their income boosted by 43%. The cumulative effect of more than one of these options could make a big difference in matching retirement expectations.
“Today’s news must also be tempered with the fact that we will increasingly see a trend towards ‘phased retirement’, perhaps through working reduced hours, or shedding responsibilities and moving to a different job with less stress or less manual effort. This, combined with additional income sources such as ISAs or equity release from housing, could play an important role in plugging short-term or long-term income gaps.
“In light of today’s announcement, late career changes will inevitably become more common, and Government and employers should do all they can to facilitate them.”
In his Autumn Statement George Osborne recognised the role of social organisations in solving social problems. He has introduced a "new and innovative" social investment tax relief to encourage individuals to invest in social organisations, says Paul Cheng, chairman of SharedImpact, a charity which aims to improve the financial efficiency and effectiveness of charities and social enterprises.
Cheng says the social investment tax relief: “As a charity ourselves, we welcome the introduction of a social investment tax relief, which will be truly beneficial for the sector. SharedImpact is pleased to see the government backing social investment in the UK. This initiative will help to encourage individuals to invest in organisations that improve the lives of people and communities. It is also a step in the right direction in allowing the sector to become self-sustaining in the long term.
“The charity and social investment sector has long faced a problem when it comes to funding, and this will offer a major relief to the sector. It also signals a new stage in the social investment journey, as a vital and accepted component of the government’s policy agenda. SharedImpact looks forward to being part of this journey and helping to build the social investment market in the UK.”
David Dyer, senior portfolio manager at AXA Investment Management says: “As expected the Chancellor used his Autumn Statement to highlight increased UK growth forecasts from the OBR (from +0.6% to +1.4% in 2013 and from +1.8% to +2.4% in 2014). The unemployment rate was forecast to fall to 7% in 2015 which points to ‘no move’ in interest rates in 2014 as a result of the MPC’s forward guidance policy.
“The main impact of the reduction in the Government’s borrowing requirement is, as expected, a reduction in Treasury Bill supply of £13.5 billion in the current financial year There is however also a small £2billion reduction in gilts sales which will be met via a reduction in the mini-tender programme. Thus the overall impact of the Statement on gilts has been fairly muted.
“As trailed in the run up to the Statement, a major political aim for the government has been to announce measures that improve living standards, particularly by cutting household bills by reducing administered prices. This is in notable contrast to other parts of Europe, as illustrated by reports this morning that the French government is concerned about the impact that a low cost telecoms operator would have on investment and employment growth. The Chancellor confirmed cuts in green taxes to reduce home energy bills and cut the fuel duty escalator on petrol prices. In addition a further cap was announced on regulated rail fares. To a great extent these measures were well anticipated and so there was little impact on inflation forecasts and consequently on shorter-dated index-linked gilts. With a growing economy and inflation still set to remain above the Bank of England’s target, there will still be demand from investors for inflation protection.”