Last updated at 10:10 AM on 29th January 2012

Read more: http://www.thisismoney.co.uk/money/pensions/article-2093078/Dont-wait-new-code-conduct-annuity-sales-richer-retirement.html#ixzz1l8x2nstj

Hundreds of thousands of people risk an impoverished retirement while the financial services industry dithers over finding better ways to help turn pension savings into an income.

Complex products and poor communication means that workers heading for retirement often miss out on the best annuity – the income for life their pension pot buys.

They might fail to choose an income that rises over time to protect against inflation, one that  provides for a husband or wife after their death (see the bottom of the page) or an annuity that pays a higher income because of their  bad health.

And ignoring the open market option – the chance to shop around to find a better deal rather than taking an offer from your pension company – can cost you thousands of pounds over the years of your retirement.

Financial Mail has been campaigning for better annuity advice for more than a decade, strongly urging our readers to make use of the open market option.

There has been gradual improvement. About 44 per cent of savers switched to a better annuity in the second quarter of 2011, up from  35 per cent in the same period in 2009.

And last month, the Association of British Insurers, which represents most pension companies, proposed a new code of conduct for annuity sales

The plans compel all insurers to issue standard letters setting out choices at retirement.

Firms would have to stress that going elsewhere might get you a better deal. And there would be an end to ‘tick-box’ forms, which are a short cut to taking the insurer’s own, often inferior, annuity.

A consultation on the plan will close this Friday after which the ABI will produce a final version of  the code.

At the earliest, this will be ready in March, but it will not come fully into force until a year later. By that point, a further 750,000 people will have reached the age of 65 and joined the ranks of the retired.

Yvonne Braun, head of savings and retirement at the ABI, says: ‘The one-year deadline for implementing the code is a maximum.

‘I would hope that those companies who pride themselves on customer service will do it more quickly. We are very keen to see real change on the ground.’

Alan Bradbury, head of annuity business at insurer Phoenix, says: ‘We have to put the customer at the front of the process. We don’t want to make money out of them taking the wrong option.’

But critics worry that insurers are trying to make retirement planning needlessly complex.

Alan Higham, chairman of specialist annuity adviser Retirement Angels, says: ‘What is missing from the proposals is a simple message, preferably from an independent body such as the Department for Work and Pensions.

‘We need to tell someone with £40,000 in their pension, “This £40,000 is your life savings. You have to make the decision on how to turn it into an income. The difference between a good and bad decision could be £8,000 over your lifetime. If you are in any doubt seek some advice”. You can fit that message on one side of paper.’

Increasing living costs for today’s pensioners make it essential to get the best annuity deal possible. Even those who boost their income through an annuity that pays more because of poor health are finding the extra money is being swallowed up by everyday bills.

Six out of ten pensioners questioned by insurer Partnership, a specialist in enhanced annuities, said the extra income was helping them to pay higher food bills. A similar number said that they had to use their enhanced income to help with rising energy bills.

Linda and Chris Gill, both 62, are grateful they shopped around for the best deal when it came to cashing in one of his pensions.

Chris, from Wallington, Surrey, still works as an estimator for a scaffolding company. But his pension with Skandia could be drawn last year. Chris spoke to specialist adviser Annuity People based in Camberley, Surrey, to check out the deals on offer.

Skandia was offering an annuity through Legal & General. But after asking Chris questions on his health, Annuity People found that he could qualify for an enhanced rate with Partnership.

Chris, who has type 2 diabetes and hypertension, received a 17 per cent boost to the annuity rate. This lifted his annual payment to £2,750 before tax. Linda, a part-time playground monitor at a school, says: ‘While that income is nowhere near enough to live off, we have a big house and large outgoings and the annuity helps us with bills such as the council tax.’

Most women to lose out if left on their own

Older women risk being short-changed in retirement because of the annuity choices that their husbands and partners make.

Two-thirds of women rely on their husband or partner’s income in retirement, according to new research from Phoenix, which runs pensions once sold by firms including Pearl, London Life and NPI.

Many women have only modest State and private pensions in their own right, leaving them vulnerable to a drop in income if their husband or partner dies first.

Phoenix says only four in ten of its  customers choose an annuity that pays any income for a widow or widower.

Just over one-third of annuity buyers picked a single-life annuity, despite saying that  providing an income for their partner was most important.

And worryingly, almost 40 per cent of pensioners thought they had an annuity that provided for their spouse, but in fact had a  single-life policy.

Alan Bradbury, head of annuity business at Phoenix, says: ‘Savers quite naturally want the biggest pension they can afford and providing a pension for two will cost more – but not that much more.

‘The income on a joint annuity might be ten per cent less than on a single annuity.’

December 30, 2011

(Bloomberg) — The U.K. is home to this year’s best performing government bond market as investors seek a haven in nations with top credit ratings and their own monetary policy.

Gilts have returned 17 percent on average in 2011, including reinvested interest, the most among 26 government markets tracked by Bloomberg and the European Federation of Financial Analysts Societies. They beat German debt, considered the euro area’s safest securities, by more than 7 percentage points, the most since 1998. U.S. Treasuries made 9.7 percent.

Pacific Investment Management Co., which said last year that gilts were sitting on a “bed of nitroglycerine,” now predicts the securities will beat bunds and Treasuries again in 2012. The Bank of England has supported the British economy and the bond market with 249 billion pounds ($383 billion) of gilt purchases since March 2009, a step the European Central Bank has failed to replicate to alleviate stresses in the euro zone.

“Gilts are doing well because Britain is not in the euro zone,” Russell Silberston, a money manager at Investec Asset Management Ltd. in London, said in a Dec. 19 telephone interview. “The U.K. may not be in a much better shape than countries in that region, but it has its own currency and monetary policy to deal with the problem. Investors are willing to pay premiums for that.”

Investec, F&C Asset Management Plc and DWS Investment GmbH all say gilts will outperform in coming months.

Beating Bunds

Gilts beat bunds even after volatility is taken into account. Their so-called risk-adjusted return is 2.27 percent, versus 1.54 percent for bunds and 1.87 percent for Treasuries, according to data compiled by Bloomberg. New Zealand government bonds returned the most among major markets tracked by Bloomberg, with a 4.41 percent gain on a risk-adjusted basis.

Standard & Poor’s put 15 euro nations on watch for a possible downgrade on Dec. 5, including AAA rated Germany and France, saying “systemic stress in the euro zone has risen in recent weeks.” The U.K., a member of the 27-nation European Union and which also has S&P’s top ranking, wasn’t affected.

Prime Minister David Cameron rejected an EU proposal on Dec. 9 for greater fiscal integration aimed at ending the euro- region debt crisis after failing to win safeguards protecting the nation’s financial services industry. Deputy Prime Minister Nick Clegg, the leader of the government’s coalition partner, the Liberal Democrats, said the decision risked leaving the U.K. “isolated and marginalized within the European Union.”

Gilt Record

Since then, 10-year gilt yields have fallen about 20 basis points, or 0.2 percentage point, and the pound strengthened 1.6 percent versus the euro, reaching an 11-month high on Dec. 21. Gilts yielded 10 basis points more than German bunds today, compared with a 2011 average of 36 basis points and 54 basis points over the past five years.

U.K. 10-year yields dropped to a record 1.932 percent today while two-year yields fell to their all-time low 0.271 percent. The 10-year gilt yielded 1.95 percent at 9:04 a.m. in London, with the price at 115.8i5 percent of face value.

“What Cameron did hasn’t changed our view that gilts are better and safer assets than euro-region bonds,” said Richard Batty, a global strategist in Edinburgh at Standard Life Investments Ltd., which has about $242 billion under management. “The euro zone has yet to deliver on comprehensive measures to shore up the sovereign issues. The U.K., in contrast, has one of the strongest fiscal plans which it is delivering on, and it has a better rating outlook.”

Austerity Measures

Demand for gilts is rising as the U.K.’s economic outlook dims. The Office for Budget Responsibility, Britain’s fiscal watchdog, lowered its forecasts last month for economic growth to reflect the turmoil in Europe, the biggest market for U.K. goods sold abroad.

The Office cut its prediction for this year’s gross- domestic-product growth to 0.9 percent, from the 1.7 percent it forecast in March, and to 0.7 percent for next year, from a previously estimate of 2.5 percent.

Chancellor of the Exchequer George Osborne responded on Nov. 29 by saying he would add 23 billion pounds of spending cuts to the 80 billion pounds he earlier announced, adding two extra years of austerity to eliminate the structural deficit by 2017. He also pledged to limit state pay increases to 1 percent after a two-year freeze ends in 2013.

Moody’s View

Moody’s Investors Service said on Dec. 20 the U.K.’s top credit rating depends on the government sticking to its fiscal plan and the economy isn’t immune to the turmoil in the euro area, where Greece, Portugal and Ireland have sought bailouts and leaders are struggling to keep the contagion from reaching Italy and Spain.

“Although non-euro area sovereigns within the EU — like the U.K. — can be expected to be somewhat cushioned from both the euro-area sovereign debt crisis and its rating consequences, no EU sovereign rating can be considered immune to this crisis,” Moody’s said in a statement.

Britain’s economy will grow 0.6 percent in the first quarter, while Germany’s will expand 0.9 percent, according to median forecasts in surveys of economists compiled by Bloomberg. The broader euro-region economy will contract 0.1 percent, a separate survey shows.

Foreign investors increased their holdings of gilts by 12.5 billion pounds in October, the most in 18 months, after purchasing a net 9.2 billion pounds in the previous month, Bank of England data show.

‘More Precious’

Money managers in Japan bought 1.53 trillion yen ($19.7 billion) of U.K. bonds in 2011 through September, set for the biggest annual purchases since 2008, data from Japan’s Ministry of Finance showed last month. Japanese investors unloaded the most debt in Germany, totaling almost 1.46 trillion yen, followed by sales in Italy and France, the figures show.

“Triple-A bonds will become much more precious, people will be chasing them,” Hideo Shimomura, who helps oversee the equivalent of $77 billion in Tokyo as chief fund investor at Mitsubishi UFJ Asset Management Co., said in a Dec. 29 telephone interview. Shimomura correctly predicted 10-year gilt yields would fall to 2 percent by year-end. “The U.K. could maintain its triple-A rating. It’s one of my favorites. Yields will go down,” he said.

Ten-year gilt yields may drop to 1.5 percent by June 30, Shimomura said.

Britain’s deteriorating growth outlook prompted the government to raise its planned gilt issuance for the 12 months through March by 6.8 percent to 178.9 billion pounds. Citigroup Inc., one of the U.K. debt agency’s 21 primary dealers, predicts sales for the next fiscal year will increase to 188 billion pounds. Germany said on Dec. 21 it will cut debt sales for 2012 to 250 billion euros, from 283 billion euros this year.

Rating Risk

The market will have no problem absorbing the additional gilt supply as long as Britain keeps its top rating, said Helen Roberts, who oversees about 27 billion pounds as head of government bonds at F&C Asset Management in London. Roberts said she is more concerned about political discord in the coalition than the increase in bond sales.

“If the coalition government falls, then the whole fiscal consolidation could fall with it,” Roberts said Dec. 15 in a telephone interview. “The U.K. rating is based on an expectation that the austerity measures will continue, and if that’s not the case, its top credit rating will be at risk.”

DWS, Germany’s biggest mutual fund with about $331 billion of assets, has a “positive view” on gilts even as the fund expects the economy to slip into recession in the first quarter.

A slump in the economy will prompt the Bank of England to expand gilt purchases with newly created money by another 200 billion pounds, said Andreas Burhoi, a senior money manager at DWS in Frankfurt. The ECB has refrained from so-called quantitative easing, relying instead on the provision of emergency loans to banks to soothe the debt crisis.

“We expect the BOE will stimulate the economy and the gilt market by easing financial conditions after this round of QE ends in February,” Burhoi said in an interview on Dec. 21. “This should support the gilt market,” especially maturities of 10 years or longer, he said.

–With assistance from Wes Goodman in Singapore, Shin Pei in New York and Lucy Meakin in London. Editors: Matthew Brown, Daniel Tilles

Demand for buy-to-let mortgages has increased significantly in recent months as landlords rush to cash in on the continuing boom in rental prices, according to the Bank of England. The scramble to purchase rental properties is even leading would-be buyers to put in sealed bids in some areas of the south-east.

In its latest Trends in Lending Report the Bank said most major UK lenders reported demand for buy-to-let lending continuing to increase over the summer, reflecting rising rental yields. Rents rose in every region of the UK in September 2011, pushing the average rent to a record high of £718 per month – £1,029 in London – according to the latest LSL Property Services buy-to-let index. Lea Karasavvas, director of broker Prolific Mortgage Finance, says this is driving demand for properties: “We’re having sealed bids with buy-to-lets because the rental market is just so strong.”

Landlords are now getting an average yield of 5.3%, up from 5.2% in August, LSL says. Meanwhile, tenant arrears have dropped to their lowest level since April 2010, with just 8.6% of all UK rent unpaid or late by the end of September.

There were 32,000 buy-to-let loans, worth £3.5bn, taken out between April and June, the highest number and value since the last quarter of 2008, according to the Council of Mortgage Lenders (CML). Director general Paul Smee called this “encouraging news”, and said first-time buyers were not being displaced by buy-to-let landlords.

But Matt Griffith of first-time buyer campaign site PricedOut, disagrees. He says: “In a market where equity is king, investors are able to outbid first-time buyers for available lower-level properties. In the housing market, equity is nearly always a result of longevity – which gives older homeowners a head-and-shoulders advantage. Housing wealth and ownership is more generationally lopsided than it has been since the 1940s, and we appear to be seeing older groups pressing home their advantage through investment buying.”

Both tenants and first-time buyers, then, face a bleak future: squeezed out of the market by house prices that remain high across swathes of the country, and soaring rents charged by landlords.

According to the Association of Residential Lettings Agents, the problem is a lack of supply, and the government should be doing more to encourage landlords. It says the private rental sector is nearing capacity – three-quarters of its 6,000 members believe there are now more tenants than properties, with the increase in demand particularly acute in London and the south-east.

Tim Hyatt, president ARLA, says: “There is a finite amount of rental property and unless both housing supply and mortgage availability improves, renters will find their options in the market are reduced. The government is doing little to encourage landlords to invest in new properties, therefore we are running out of quality stock to offer to tenants. This is reflected in rent increases and a lack of choice for consumers.

However, communities and local government minister Greg Clark said in early October that the private rental sector is “destroying family life”. Similarly, MP Caroline Flint , in a speech at the Labour Party conference, said she wanted stronger private tenants rights.

Improved tenure rights, such as longer notice periods for eviction, are favoured by some landlords because they offer them greater security, too, and Griffith thinks they could make the market more stable. “Stronger tenure rights would help reduce the level of short-term investment flows into the sector as well as improving the experience of the renter, who is steadily getting older and as a result requires stability for children, family and schools,” he says.

But many lenders will only issue buy-to-let loans on a property with an assured shorthold tenancy in place (typically a tenancy term of at least six months and no more than 12 months).

“It’s the bankers, not the landlords, to blame here,” Griffith adds. Halifax and Accord Mortgages, for example, both demand that properties be let on an assured shorthold tenancy basis – although some, including Woolwich mortgages, do not.

If the opportunities for lenders and borrowers evaporate, the buy-to-let boom may run out of steam. LSL’s David Newnes points out that while rental yields have hit 5.3%, total returns over the past year fell to 1.8% (a result of house prices falling outside London).

Griffith says banks may be underestimating the risks of buy to let. “Yields are still very low in historical terms, further declines in house prices look likely and tenant arrears have been climbing steeply. Both the later trends may intensify as we move into a very difficult period for UK household income.”

Loans on offer

This year has seen a number of small lenders return to the buy-to-let mortgage market but things have changed since the credit crunch.

“Borrowing 85% [of a property's value] was easy pre-credit crunch, and the fees on those loans were a lot lower,” says Lea Karasavvas, director of Prolific Mortgage Finance. Now charges of £1,999 are not uncommon and borrowers will find little choice above 75% loan to value (LTV).

Rates are not as competitive as they were. “Before the credit crunch there wasn’t a huge difference between residential and buy to let rates,” says property funding specialist Adrian Anderson.

For landlords with at least a 40% deposit, Principality building society is offering a two-year fixed-rate deal at 3.89% and a fee of £999, whileWoolwich has a lifetime tracker at base rate plus 2.98%, with a fee of £1,999.

Other criteria have also tightened – for instance Lloyds banking group now lets landlords take just three loans from its lenders, which include Birmingham Midshires and Halifax, but the minimum rent required is still typically 125% of the monthly cost of repaying the mortgage.

2012 Olympics sparks house price boom in east London, Fears for old East End neighbourhood as young professionals and penthouses push up Stratford house prices.

As night falls on The Grove in Stratford’s town centre, the neon lighting casts a ghostly glow over the pavement. Passersby peer into the windows of one shop and wonder at the gleaming surfaces, the flat screens, the drinks cabinet. Among the betting shops, money lenders and a Perfect Fried Chicken, the new Foxtons certainly cuts a dash.

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