Money news, advice and predictions for savers and spenders.
By Jeremy Gates
There was something grimly ironic about the recent launch of a new action group to champion the rights of savers, a species that is threatened with extinction.
Save Our Savers is a group set up to try and protect our precious savers from the out of control spending that has occurred in the past decade. However, its launch comes in a week when a big jump in inflation means most savers are now losing money on their savings that are sitting in banks or building societies.
The Reverend John Strain, a parish priest and spokesperson for Save Our Savers (SOS), says: "Savers have been far off the political radar for decades now, but the disregard for the plight of savers has shattered public trust in the policymakers.
"Anyone would think Government doesn't want people to provide for themselves, and would rather we all borrowed and spent our way into old age dependency."
Rev Strain, also an advisor for work, economy and business to the Diocese of Guildford in Surrey, says: "We have hardly heard a peep so far from any of the main parties in favour of savers, but as they gear up for the general election, every vote will count.
"Savers form a huge constituency, and this time it will be a powerful and vocal one too."
That's fighting talk, but most savers are now losing money on their savings.
Moneysupermarket.com says that of the 261 easy access accounts for balances of £1,000, not one pays enough interest to negate the combined effects of inflation and tax. Meanwhile, only 14 out of 42 regular savings accounts pays interest above 3.63% for basic rate taxpayers, to leave them notionally in profit.
To add insult to injury, better paying bonds over one, two and five years (all covered by the Government's £50,000 guarantee) are mainly provided by foreign banks.
The best one-year bond, at 3.65% on a minimum £1,000 deposit, is FirstSave (First National Bank of Nigeria). ICICI (Indian bank) offers 4.25% over two years (minimum £1,000) while State Bank of India tops the charts at 5.25% on five years (minimum £10,000).
Although locking into a five-year bond today is risky, when rates could rise soon, the five year bonds paying monthly income from Saga (5.10%, minimum £1) and Aldermore (5.15%, minimum £1,000) are also attracting investors who need to top up pensions.
If savings is one disaster area, private pensions are an even bigger mess.
Yet as Save Our Savers sails into battle, another attack on private sector pensions may be under consideration.
John Broome Saunders, actuarial director at BDO Investment Management, thinks the Government could try to tax the lump sum payable on retirement - which pensioners currently take tax-free - by a devious piece of accounting.
Broome Saunders says: "The clever thing to do would be to introduce a lower rate tax on the whole lump sum and, at the same time, increase the current 25% allowance to offset this.
"Pension scheme members would take home a similar, or possibly higher lump sum, and therefore wouldn't feel too upset. Moreover, the Inland Revenue would get an immediate boost to tax revenues - about £1 billion per year from a 20% tax on the lump sum.
"Of course, pension scheme members would lose out in the longer term, as they would end up with lower pensions."
Other pension experts say this plan is unthinkable, because the Government dare not do further damage to the already battered image of private pensions.
"A more likely line of attack," says Laith Khalaf, pensions analyst at financial advisor Hargreaves Lansdown, "is higher rate tax relief on pension contributions by higher paid workers.
"This serves a political purpose: Politicians can say they are taking money from fat cats to help the lower paid, and the limit at which it takes effect could steadily fall, possibly all the way from the £150,000 threshold announced in April 2009 to perhaps £50,000 in due course."
Although SOS wants savers to be protected from "extreme rate shocks" and backs "simple, joined up and worthwhile tax breaks to attract long-term savings", it's possible that the hard-up Government can spare little for many years to come.
SOS calls for "repairing and explaining the pension system", but there has been no sign so far that a new Tory Government would speedily repeal Gordon Brown's raid on pension funds, which has cost upwards of £75 billion since 1997, and accelerated the collapse of final salary schemes.
For the great majority of workers who keep paying into defined contribution pension schemes, the steady fall in annuity rates to historic low levels means many will die long before they even get back the money they paid in.
At Rockingham Retirement, a leading retirement income broker, spokeswoman Laura Goodman says the average 65-year-old man retiring with £30,000 in his pension must live to 82 to get back the money paid in.
"A woman would have to live until she was at least 84 to recoup the £30,000, via a traditional annuity, based on today's rates, which is just dreadful value," says Goodman.
Despite the grim statistics, saving has to be seen as worthwhile for the long term. If everybody gets the Government to finance their retirement, benefits will be spread very thinly indeed.
The first step on this path might be the realisation that long-term savings don't have to be in a pension pot.
Andrew Hagger at Moneynet.co.uk says: "If you are a taxpayer, it might make sense to go for ISAs ahead of pension saving because interest is ring-fenced against tax and carried forward to future years. There is currently a good case for locking into bonds, to a maximum of two years ahead, in case rates rise strongly from here."
At SOS, the Rev Strain takes a wider view. He wants a re-evaluation of the role of savings in our society.
"The Christian church has a long tradition of urging people to spend their money on peace, justice and sharing wealth with others," he says.
"Perhaps we are not so strong on the godliness of saving. It isn't selfish. It is how we can build generally for the future prosperity of families and communities."
"I am a great believer in linking faiths, and although Muslims and Christians disagree on some things, they both share a belief in the virtues of saving and building for the future."
The first target for SOS is the abysmal ISA rates offered by banks and building societies, some as low as 0.1%.
"We want to make politicians aware of the disgust which people feel about savings rates," says Rev Strain. "There is real political concern about keeping rates low for borrowers, but nobody speaks up for savers."
At the launch of SOS, veteran Labour MP Frank Field urged the new group to get the support of one million fellow savers.
If you want a new deal for savers, this is the time to show your support.
:: Information: Join the action group at www.saveoursavers.co.uk.
Useful sites to help with long term pension planning include Hargreaves Lansdown (www.h-l.co.uk; and the Pensions Advisory Service); and the pension section of Direct Gov (www.direct.gov.uk).
Hargreaves Lansdown pension enquiries (0117 900 9000 and www.H-L.co.uk; Rockingham Retirement (0800 144 4144 and www.rockinghamretirement.co.uk).
Poundnotes
:: The traditional ISA season, to beat the April 5 deadline, has started early this year, says Michelle Slade at Moneyfacts.co.uk.
Her top selections for variable rate cash ISAs are Manchester BS (3.01%, 60 day withdrawals, min dep £1,000); Newcastle BS (3%, 120 days, £500) and Buckinghamshire BS (2.82%, 180 days, £100).
Her top one-year fixes are Bank of Cyprus UK (3.33%, min £1); United Trust Bank (3.25%, £500) and Cheshire BS (3%, £1,000).
Slade says: "The tide is turning, and ISAs are seeing rates increase, while other savings rates are being cut."
:: The Skipton BS decision to bump up its standard variable rate mortgage rate could trigger a rush to remortgage onto fixes in the next six months, according to Santander Mortgages's Remo Index.
Yorkshire BS has made an early push for some of this business with a two-year fix from 3.29%, with max LTV 60% and fee of £1,195. Yorkshire already has a two-year fix at 3.59%, with a £495 fee, so the new product gives consumers a lower rate in return for a higher fee.
Yorkshire also has a two-year tracker at 2.49% (bank rate plus 1.99%), with a 60% LTV and £1,195 fee. Great for remortgages, not so easy for first time buyers with small deposits.
Moneysupermarket.com says there are now 2,500 mortgage products available for the first time since May 2009. It's still a far cry from August 2007, when there were over 30,000 mortgage products available.
:: Although two-thirds of financial planners say investments in fixed income funds should continue to account for 11%-25% of their clients' personal portfolios in 2010, there is a need to diversify the funds chosen.
That's the conclusion of research carried out at The ABC of Bonds Roadshow held by AXA Investment Managers, Baring Asset Management (Barings) and Cazenove Capital.
The most popular choice for financial advisors is strategic bond funds (65%) followed by absolute return bonds (57%); corporate bonds (53%); global bonds (39%); high yield corporate bonds (27%) and Gilt funds (21%).
Around 93% of financial advisors say clients seek advice on how to earn extra income from investments, while returns on cash remain so poor.
:: For 11 million households with a mortgage, there is a silver lining to recession, says Andy Gray, Barclays head of mortgages, in light of the information that average monthly mortgage repayments have plunged from £607 in December 2008 to £497 today.
The biggest saving has gone to Londoners, who have enjoyed a monthly repayment cut of £228. In the North East, by contrast, the saving was only £80.
The Welsh spend the smallest proportion of their take-home pay on mortgage repayments - just £143 in every £1,000. Londoners, by contrast, stump up the most - £189 - but it keeps them in position for the fattest capital gains on resale.
:: High five savers
Phone No Rate Account Period Deposit Interest paid
State Bank of India 0207 454 4315 5.25% (F) New Hi Return Fixed Dep Five years £10,000 Yly
Aldermore 0845 604 2678 5.15% (F) Fixed Rate Account £1,000 Yly
Investec Bank 0845 366 6333 3.34% High 5 Three Month (P) £25,000 Yly
Cheshire BS 0800 195 1514 3.25% 30 day Postal Saver 30 Days (P) £1,000 Yly
FirstSave www.firstsave.co.uk 3.25% 90 Day Notice 90 Days £100 Mly
:: Top five borrowers
Phone No Rate Period Max% Adv Fee Incentive
HSBC (Rem) 0800 494999 2.29% discounted for two years 60% £1,499 Yes
First Direct 0845 610 0100 2.58% variable for term 65% £999 Yes
Furness BS 0800 220568 3.49% for three years 75% £499 Yes
Post Office 0800 707 6204 3.49% variable for term 80% £599 Yes
The One account 0845 610 1060 3.75% for term 75% none Yes
Code:
*F - Fixed
*P - Operated by Post
*B - Operated by Post/Telephone
*T - Operated by Telephone
*W - Operated by Internet
*H - Operated by Internet/Telephone
*S - Available only to those aged 50 or over
*R - Available to those aged 60 and over.
:: Source: Money£acts - Tel: 01603 476 476 (All rates subject to change without notice).
