Currently men are eligible to draw the state pension on their 65^th birthday, and women can start to receive theirs a month after their 60^th birthday.    

However, these age limits will be raised to 66 for both men and women in 2020, and then to 67 between the years 2026 and 2028.  Increased life expectancy will see the state pension age increase steadily over the decades.

The report was compiled by the accountancy company, PriceWatershouseCoopers.  Head of Pensions, Raj Mody, warned that we needed to ‘recondition’ our expectations of how long we must work before we can receive the state pension.

He said: ‘If their father and grandfather talk of an age when they retired in their 60s, or even 50s, that is not a world that will apply to today’s children.

‘They need to accept that their working life will last for five or six decades.’

The report states that a child born this year is ‘unlikely to receive their state pension until they reach 77’.  In addition to this, the firm predicted that the next generation of children would be unlikely to be able to retire on a state pension until they were 84.

However, due to the advances in medical sciences and better health care, both generations should still be able to have twenty years of retirement to look forward to, with experts predicting that babies born today will live until the average age of 97, and their children will live until they are 104.

As for those working today, PwC expects that people in their 30s will be working until they turn 70, and those in their late 40s and younger will retire at 68.

The report was written using official life expectancy predictions compiled by the Office for National Statistics (ONS), who recently stated that approximately 33% of British babies born in 2012 will reach their 100^th birthday.

Baby girls are more likely than boys to see in their century, with 39% of girls born this year living until their 100, and 32% of boys.

There are presently only 14,500 people alive in Britain today who are aged 100 or over.  By 2035 it is predicted that there will be 110,000 British centenarians.

The Monetary Policy Committee (MPC), elected yesterday to keep the QE programme as it stands at £325 billion. The committee also voted to keep interest rates at the record low of 0.5%.    

Pensioners will be pleased with the news, as previous rounds of quantitative easing have had devastating effects on annuity rates.  However, they will still continue to suffer, along with other savers, due to the continuing low interest rate.

The ruling implies that the Bank of England may be ready to revise their aim of bringing inflation down to 2% by the end of 2012.  Last month inflation actually rose again from 3.4% to 3.5%, and most financial experts agree that it is unlikely to come down to the Bank’s target before 2014.

Barclays Capitalists have predicted that the inflation rate will stay above 3% throughout the year, and only drop to 2% by the third quarter of 2014.

Chief Economic Advisor to the CBI, Ian McCafferty, said: “The combination of sluggish activity and sticky inflation put the MPC in a difficult position, and this decision is likely to have been a close call.

“But it appears the persistence of inflationary pressures tilted the balance in favour of keeping the stock of asset purchases unchanged.”

Age charities and campaigners have welcomed the news, as annuity rates are linked to the yields on Government bonds this has led to rates being slashed by the quantitative easing program during the past three years.

Director General of Saga, Ros Altmann, said: “The Bank has consistently ignored inflation overshooting and insisted the evidence suggests QE has worked. This blind faith in a massive monetary experiment is dangerous.”

The Bank of England has raised concerns over the official GDP figures which revealed the economy had shrunk back 0.2% in the first quarter of the year.  This came on the back of a 0.3% decrease in the last quarter of 2011.

However, elsewhere the National Institute of Economic and Social Research reported that the economy grew 0.1% between February and April this year.  Official figures have also revealed that the manufacturing sector grew by 0.9% in March.

Financial experts cannot agree if the Monetary Policy Committee (MPC) will decide to go ahead and increase the quantitative easing past the £325 billion that has already been raised. The last time the Bank of England put a cash injection into the economy was back in February, where it raised another £50 billion.    

Economists do seem to agree on one point though; that savers will continue to be in for a rough ride as they assume that the Bank will keep the interest rate at 0.5%.

The last MPC meeting was in April and the minutes saw that members were holding back on plans to increase QE. However, the latest figures from the Office for National Statistics (ONS) showed that gross domestic product fell by 0.2% in the first quarter of the year, on top of a 0.3% fall in the last quarter of 2011, plunging the country back into recession.

To add to the despair, the inflation rate isn’t getting any closer to the Bank of England’s aim of 2% by the end of 2012.  In fact it actually rose in March to 3.5%.

But, some industry experts have questioned the ONS data, citing that purchasing managers’ surveys compiled in the first quarter of the year had shown growth in the manufacturing, construction and service sectors.

Chief Economist at HIS Global Insight, Howard Archer, said that MPC decision on QE would go down to the wire, but he felt that the Bank will refrain from announcing another round of QE later in the week.

He said: ‘We expect the MPC to hold off from more QE due to its current heightened inflation concerns and a belief that the economy is seeing underlying modest growth despite the reported first-quarter GDP contraction that put the economy officially back into recession.

‘However, we expect the MPC to keep the door very much open to more QE should the economy fail to show underlying improvement over the coming months.’

Economist at the brokers firm Investec, Philip Shaw, holds a different opinion.  He predicts the committee will announce more QE in a bid to bring down the inflation rate and stabilise the economy.

He said: ‘It is entirely feasible that some MPC members are fretting about ‘sticky’ price pressures. ‘However, the way in which events over the past month have panned out suggest that these considerations will be overtaken by the more subdued macro picture.’

Low interest rates, rampaging inflation coupled with a £275 billion program of quantitive easing have created a perfect storm for retirement savers that has left them with diminishing returns.

However, there may be a glint of light at the end of a long, dark tunnel.

Research by independent financial research company Defaqto has revealed the average instant/easy access savings rate is at the highest level for three years as banks and building societies vie with each other to attract new cash deposits.

Paltry interest returns on savings

The reality is banks and building societies are finding funds difficult and expensive to borrow on the wholesale money markets that are gripped in fear over the collapse of the Eurozone.

One option is to try to raise more funds in-house – and that means paying better rates to savers to entice them to bank their cash. Those deposits then translate in to funds for lending or security to boost the bank’s credit rating on the money markets.

The emphasis is on the term ‘new deposits’ because many savings accounts running for a year or more offer pathetic interest rates: nearly one in four (22%) of easy access accounts pay 0.10% interest or less on a balance of £1,000.

In figures, that’s a paltry £1 interest – while inflation at 3.5% is wiping £35 a year off the total and tax is pinching at least 20p from that £1, leaving a saver with a net loss of £34.20.

How tactical saving works

A saver paying tax at basic rate (20%) depositing £1,000 in May 2009 in to an instant/easy access account, leaving the interest reinvested, would after three years have earned net interest of:

If the account was opened in May 2009, taking the highest available rate, then transferring to the account with the highest interest rate in May 2010, staying with it for one year, then transferring to the account with the highest interest rate in May 2011 and staying with it for one year £71.73
If stayed with the easy access account without an introductory bonus that has been available to new customers throughout the period and paid the highest return over the last three years £61.39
If opened the account with the highest interest rate in May 2009 and earned that rate for the first year but then earned the average instant/easy access rate for the remaining two years £38.90
If opened the account with the highest interest rate in May 2009 and earned that rate for the first year but then earned 0.50% gross for the remaining two years £30.19
If stayed with an account that paid the average instant/easy access rate for the three years £23.47
If stayed with an account paying 0.10% gross AER throughout the three years £2.40
If stayed with the lowest paying instant/easy access savings account (which paid 0.01% gross AER) for the three years £0.24

Defaqto’s banking specialist David Black said: “This analysis really illustrates the benefits of reviewing your savings account on a regular basis. There are significant benefits in switching your account every year to take advantage of successive accounts offering introductory bonuses.

“By following this tactic over the last three years you would have earned over 298 times as much interest as the lowest paying account and over three times as much interest as the average interest rate paying account.

“With such a wide variance in the interest rates, savers should wake up and take advantage of the best offers available rather than paying the price for loyally staying with the same easy access savings account for years.

“Typically the highest rates available either have an introductory bonus or a guaranteed minimum rate, so use them and then switch to another such account when the bonus or initial rate period ends as this will significantly boost your returns.

“Make sure that you’re aware of, and happy with, any withdrawal restrictions that the account may have.”

Best and worst interest rates

The average interest rate paid on a £1,000 balance by the instant/easy access accounts currently available is 1.25% gross AER.

Average rates paid on savings accounts have varied over the years:

• From March 2009 until December 2009, the rate was between 0.72% and 0.92%

• In 2010 the range was 0.84% to 0.93%

• In 2011 rates varied from 0.94% to 1.24%, while so far in 2012 rates have inched up from 1.21% up to 1.25%.

The highest paying easy access account for a £1,000 balance were:

• ING Direct Savings Account paying 2.75% gross AER (including a 12 month introductory bonus of 2.22%) in May 2009.

• Coventry Building Society 1st Class Postal (issue 5) paying 3.00% gross AER (including a 12 month introductory bonus of 1%) in May 2010.

• Northern Rock eSaver (issue 5) paying 3.01% gross AER (including a 12 month introductory bonus of 1.50%) in May 2011.

How to be a rate tart

The lesson for retirement savers is to join the swelling ranks of ‘rate tarts’ who show no loyalty to their banks or building societies because in turn, these institutions are looking after their shareholders and not their customers.

Classic rate tarts keep an eye on interest rates and switch financial institutions for the best deal whenever they can.

A report, published by the Pension Policy Institute, estimates that by 2020 the amount of gold-plated pension schemes still going will be less than a million, and employees will be forced to contribute to alternative, cheaper to run schemes instead.   

At its height in the 1960s, there were more than eight million private sector employees who held a defined benefit pension scheme with their company. In 2012, that figure has dropped significantly to 1.6 million.

The PPI are predicting that this figure will drop even more and the ‘substantial decline’ will increase as more and more employers abolish their final salary pension schemes.

At present there 23.2 million people employed in the private sector and it’s been estimated that just 5% will have a defined benefit pension in eight years’ time.

This move will see millions of people have to carry on working into their 70s, yet still end up retiring on a pension that is much smaller than it would have been if they’d have had a defined benefits scheme.

This news will undoubtedly lead to more bad feeling between those with private sector pensions and those with public sector pensions, as official figures show that not only do public sector workers have better pensions, they also tend to get paid more and work shorter hours than their counterpart working in the public sector.

The report from the PPI also predicted there will be a massive increase in the amount of defined contribution pensions, both in part to the latest Government reforms to pensions and because final salary pension are proving to be too costly for companies to continue to offer to their staff.

In October this year the automatic enrolment scheme begins, and over the next 5 years all people over the age of 22, who work in the private sector and earn more than £8,105 each year, will automatically be included in a company pension scheme, unless they opt out.

Currently, there are approximately 7 million private sector workers who have a defined contribution pension.  The PPI predicts that automatic enrolment will drive this figure up to 15 million once all eligible workers have been enrolled.

The PPI report explains that defined contribution pensions are more economical for companies to offer. It says: ‘If investment returns are poor, the member retires with a smaller pension pot and gets a lower pension income, if life expectancy increases faster than anticipated they will receive a worse annuity rate and receive a smaller annual pension.’

The average contribution value of a defined contributions pension is currently between 7.5% and 13%.  In contrast, a defined contribution pension’s worth is 27%.

The acquisition is being funded by a combination of equity and debt secured by Goldman Sachs and Barclays.  

The founder and chairman of the company, Guy Hands released a statement earlier this week saying: “Our number one priority is to ensure that Four Seasons delivers consistent high-quality care and peace of mind for residents, service users and their families.”

The Four Seasons runs 445 care homes with a total of 22,364 beds and 61 specialist care centres with 1,601 beds.  It currently looks after 20,000 residents and has a workforce of over 30,000.

The company is being sold by a group of banks including the Royal Bank of Scotland, along with hedge funds who stepped in to rescue the firm 4 years ago after writing off half of the debt it owed.

Head of RBS Strategic Investments Group, John Davison said: “We are delighted that we have secured a long term sustainable capital structure for Four Seasons and to be reinvesting alongside Terra Firma.

“By significantly reducing the current debt, the management team of Four Seasons can continue to concentrate on delivering the high quality care and service for which they are rightly so well regarded.”

The Four Seasons has suffered financially over the past few years; the company had been bought by Three Delta at the top of the buy-out boom for £1.4 billion and had entrepreneur Paul Taylor at the helm.  Over the years the group got into difficulties as the debt secured to finance the acquisition grew and the care home business became more unstable.

The company underwent restructuring that saw it lose its investments, and the Royal Bank of Scotland become shareholders in return for writing off debts worth more than £800 million.

In a statement about the buy-out Geoff Westmore, the Four Seaons’ chairman, said: “Our current lenders will be repaid in full and, going forward, the company will have a substantially lower amount of debt and a stable and secure financial structure.

“This will enable Four Seasons to continue doing what it does so well, which is provide first-class care to our residents and reassurance to their families.

“I have been impressed with Terra Firma’s enthusiasm for the business and their commitment to the company’s future and to maintain our high standards of quality.”

In April, Terra Firma also came to the rescue of the Garden Centre Group with a £276 million package along with financial backer, Lloyds bank.

Firms have been given the go-ahead to get rid of workers over a certain age if they conform to certain guidelines, despite the Government abolishing the default retirement age.

Just a few months after forcing people to retire at 65 had become outlawed; this new change will see many employees forced out of their jobs once the company deems them too old.

Yesterday’s court case saw Leslie Seldon, a partner in a law firm, lose his appeal after he claimed he had been compulsorily retired at the age of 65.

His case was dismissed, but the court did lay out new guidelines that mean companies have to show a clear public interest in not keeping the person on, and must also consider a range of alternatives to forcing the employee to retire – such as a role change within the company.  They were told that cases needed a wider justification than solely the commercial interest of the company.

The new ruling allows companies to discriminate against a person’s age if they can prove it’s a “proportionate means of achieving a legitimate aim”.

Justifications for making a worker retire include; making it simpler to hire younger workers, promotion of middle managers, and being able to train other employees.  It also cites being able to finish the careers of older staff with “dignity”.  Companies will need to show that these aims are legitimate and are being followed through.

Bosses will also have to prove that they have ruled out all other possibilities, such as more flexible working hours or allowing an employee to continue working for a predetermined amount of time.

The ruling showed that it is now considered “in the public interest” to open up job opportunities for younger people, particularly given the high level of unemployment amongst young adults, at the expense of older workers.

Any company compulsorily retiring a worker would need to show that it was actively hiring younger workers, as well as promoting them.

Lead judgment in the case, Lady Hale said: “Improving the recruitment of young people, in order to achieve a balanced and diverse workforce, is, in principle, a legitimate aim.

“But if there is in fact no problem in recruiting the young and the problem is in retaining the older and more experienced workers then it may not be a legitimate aim for the business concerned.”

The hearing could also see an increase of older members of staff being forced to take performance assessments to prove they are still up to their jobs.

However, although the court stressed the importance of creating jobs for younger workers, it also advised against firms making assumptions about a person capability or competence once they reach retirement age. Lady Hale pointed out that in these times of increased longevity both individuals and society at large will benefit from keeping older people in the workplace.  She said: “Put simply, the younger generations need the older ones to continue to be self-supporting for as long as possible.”

The Pensions Regulator has announced what it calls a ‘pragmatic’ move that will hopefully sure up the pensions for thousands of private sector workers, by giving bosses extra time to resolve the huge pension deficits they’re carrying.

Financial experts were concerned that many companies would be unable to meet their pension promises due to the spiralling debt that most company pension schemes are now in.  However, the regulator’s decision to change its opinion on how the pension deficits are funded will hopefully stop this from happening.

Low interest rates, along with the recent economic crisis and the quantitative easing measures, have all placed employers and company pension scheme representatives under tremendous pressure, as pension fund liabilities have increased by approximately 33% over the past 12 months.

Many FTSE 100 companies such as British Telecom have been trying to reduce the deficits by pumping money into their pension schemes.  The Pension Regulator’s announcement this week will give firms more breathing space to lessen their pension deficits, particularly to those whose affordability of contributions is thought to be ‘challenging’.

Such companies will be given a longer amount of time to bring their pension funds back into surplus.

Some 1,700 out of the 6,800 providers of company pension schemes have been asked to provide the Pensions Regulator with ‘recovery plans’ detailing how they plan to turn their schemes around.

It is estimated that 20% of these firms are in a position where they need to reduce their deficit recovery payments as a matter of urgency.

Bill Galvin, chief executive of The Pensions Regulator, said: ‘It is a challenging time for some defined benefit schemes and we will shortly publish our first annual statement to help trustees and employers to agree plans to meet pension promises to members that will be affordable for the sponsor.

‘While it is likely most schemes will not face major issues as a result of low interest rates, a significant minority are likely to need to  make full use of the flexibility in the scheme funding framework – such as filling the deficit over a longer period and taking account of  any improvement in market  conditions.’

Years ago, qualifying insurance policies were popular investments offering life cover coupled with tax-free growth on savings.

They dropped out of the headlines after the mortgage endowment misselling scandal and lost favour with savers when PEPS, TESSAs and subsequently ISAs hit the scene.

In fairness, the policies are not at fault for their lapse in popularity, but the way financial advisers sold them.

But for some retirement savers, they could offer a safe haven for tax-free investment once ISA allowances are used up.

Qualifying policies benefit from income tax or capital gains tax on investment returns, so work in a similar way to ISAs.

The policies have to meet some basic rules – the ‘qualifying’ bit of their title:

• Investors pay regular premiums annually or monthly that amount to around the same sum.

• The policy term is 10 years or more

• The policy should offer level life cover at 75% or more of the premiums paid over the term

The chancellor has capped annual premiums at £3,600 – so a saver can pay in £60 a month. In return, the insurer gives life cover and a tax-free savings plan, providing the cover is not cashed in before 75% of the term expires.

The premium limit is for all qualifying policies held by an individual – but any started before March 21, 2012, are excluded.

A qualifying policy effectively extends a retirement savers tax-free investment band by adding £3,600 a year to the ISA limit.

Don’t consider them as a replacement for ISAs but somewhere to consider for tax effective saving once the ISA allowance is exhausted.

Qualifying life insurance policies are available from a range of providers. Investment returns will vary depending on risk and fund performance.

Some local councils are cutting their spending by up to 10%, this has led to care homes closing, social workers laid off and general social care charges increasing.

However, there is a worry that the downturn in social care services will have a knock-on effect on the NHS, as more elderly and disabled people are admitted to hospital, or kept in hospital longer than necessary because they no longer have the support around them.

The Association of Directors of Adult Social Services (Adass) have calculated that social care budgets have been reduced by £1 billion, and that a further £1 billion will be cut from budgets over the next few years.

Unfortunately these cuts have come at a time when more and more people are living longer and requiring social care in their old age.

Some local authorities are fighting hard not to cut their budgets by trying to raise money through efficiency savings in other areas, but still find that they have been forced to charge higher fees for social care or reduce services.

Some of these cuts include the introduction of ‘telecare’ to replace personal car, a system that allows a person to raise an alarm if they need assistance.  Other local authorities such as Leeds, Middlesborough and Hampshire are introducing ‘reablement’ programs which look to help more people live independently at home rather than needing the long-term support of a care home.

Sadly though in many areas, councils are closing care homes and cutting social workers jobs.  And many have resorted to increasing the charges for care services such as home help and meals on wheels.

The sheer scale of the cuts has prompted all-party talks and the coalition is going to publish a white paper on the topic.

Director General of the charity Age UK, Michelle Mitchell, said: “Cuts to social-care budgets are having a devastating impact on vulnerable older people. As a result, vital services are being withdrawn and reduced and this has led to an unprecedented crisis in care, jeopardising older people’s health, dignity and well-being.

“Social care provides the fundamental support to enable people to wash, eat and maintain relationships. There are currently nearly 800,000 older people who need care, who receive no support from either public or private agencies. The Government must not shirk from its responsibility, but must address the current funding shortfall, and create a sustainable system for the future funding of social care.”