The post-war 'baby boomers' now reaching their Sixties have had all the luck - rising house prices, free NHS medical care, cheap energy, final salary pensions (gold-plated and index-linked in the public sector), and virtually free higher education.
By Jeremy Gates
The post-war 'baby boomers' now reaching their Sixties have had all the luck - rising house prices, free NHS medical care, cheap energy, final salary pensions (gold-plated and index-linked in the public sector), and virtually free higher education.
So why are they hard up? A new report from Help The Aged and Barclays - with research by Bristol University's Personal Finance Research Centre - says money worries are forcing many to delay retirement.
New retirees, it says, often face "the double whammy of living on a fixed income while managing existing credit commitments" - because a quarter of all people approaching pension age have outstanding consumer credit commitments.
Half of households headed by someone in their 50s are still repaying a mortgage, as is one in eight over-60s.
The picture on personal loans is worse. Credit users in their late 50s and early 60s owe, on average, at least four times as much in unsecured credit as their counterparts did a decade ago, says the report.
"Some people approaching retirement owe substantial sums of money in unsecured credit," it says, "with a few individuals owing very high amounts.
"The mean amounts owed by credit users in their late 50s and early 60s are higher than for any other age group."
David Sinclair, Help The Aged head of policy, says: "We know from working with older people that even owing a relatively small amount of money can cause untold misery for those on fixed incomes."
The report confirms a squeeze on older households which has intensified in recent months: the 65-74 and 75-plus age groups are seen by Alliance Trust as hardest hit by rising food, petrol and energy costs, and soaring council tax bills.
It also throws a fresh light on the question of equity release - to unlock £1.37 trillion which over-60s have locked up in bricks and mortar.
Many financial advisers say equity release is a bid for security which some later regret.
Once homeowners take equity release, it is extremely difficult, probably impossible, to buy another home. Some will see most of the equity in their home wiped out.
The earlier you use equity release, the heavier the impact on your finances. Several providers offer plans from a minimum age 55, with maximum loan to value (LTV) of the property of 10%-22.5%.
But a loan of £50,000 at a fixed rate of 6.5%, plus set up fees, grows to £178,000 in 20 years. If house price rises slacken off, equity release can take away a large slice of your wealth.
But the Help The Aged survey suggests more homeowners will eventually consider equity release - unless they want to finish up "asset rich and cash poor".
Equity release also attracts people who can't face the hassle of moving to a smaller home or new area for their final years.
Nigel Barlow, head of retirement income solutions at Just Retirement, a life assurance company specialising in equity release, says the average home involved in equity release is worth £220,000, and average household income £25,000.
The average age of homeowners is 70 - which means less time for interest charges to roll up.
Says Stuart Castledine, managing director of Intune, the financial services arm of Help The Aged: "Equity release works like a pension in reverse, with compound interest increasing the debt.
"A small difference on the fixed rate on an equity release mortgage can make a five figure sum difference to the amount to be paid off 15 years later."
At Intune, the aim is to give advice across different products from 25 providers. In about 50% of cases, applicants are advised to use some other method of stabilising their finances.
In 2007, just over 29,000 retirees released £1.4 billion from the value of their homes, against £1.1 billion in 2006, mainly by three different products:
:: Home reversions: owners sell part or all of their home to a provider in exchange for lifetime rent free occupation and a lump sum decided by age. At 65, owners can expect to get 35% of the value of their home as a lump sum, possibly 40%-45% over 70.
Regulated by the Financial Services Authority (FSA) since April 2007, reversion plans account for 6% of the market - just over 1,500 plans, worth £83 million, in 2007.
:: Drawdowns: a homeowner 'draws down' cash in stages as and when needed, with interest 'rolled up' into the total figure to be paid off when a home is eventually sold. Demand for drawdowns surged from 23% of market in 2006 to over 50% in 2007, around 14,000 plans in all.
:: Standard lifetime mortgage: cash lump sum provided at the start with no monthly repayments. Accounted for 43% of market in 2007, down from 69% in 2006.
In London, average equity release in 2007 was £93,000; in the North £35,500 and in the South-East £60,000.
Says Nigel Barlow at Just Retirement: "It is vital homeowners choose a product which works best for them.
"For example, interest-only fixed rate mortgages from Stonehaven at 6.41% (AER) and Scottish Widows at 7.22%, both advance a lump sum to pay off more expensive credit cards and personal loan debt. The debt is fixed so long as the owners continue to pay off the interest.
"These plans unlock a minimum £10,000 (SW) and £15,000 (Stonehaven) - with an option of converting to rolling up interest at any time. Only at that point are owners facing a rising debt charged eventually against the value of their homes."
Says Stuart Castledine at Intune: "Although people in difficult situations might take equity release at 55, it is a potential option for most people from their 70s onwards, and most people roll up interest.
"People generally use equity release to supplement their income. For them it will be inappropriate to borrow £100,000 to purchase an annuity which will pay an income.
"Usually it will be better for them to take £10,000 and open a credit line which will provide more money as and when they need it."
Because equity release providers assume house prices will continue to rise in the long term, interest rates on equity release loans have been little affected in recent weeks.
Just Retirement's cheapest loan is 6.05%, its maximum advance 40% LTV. Intune currently has Norwich Union loans from 5.99%, cheaper than applicants get by going direct to the company.
:: INFORMATION: Just Retirement (0800 015 0996 and www.justretirement.com); Intune (0845 230 0820 and www.intunegroup.co.uk); Newcastle BS Equity Release Service (www.newcastle.co.uk); Key Retirement Solutions (0800 531 6027 and www.keyretirementsolutions.co.uk);
Leading providers of equity release plans including Prudential, Norwich Union, Standard Life, Stonehaven and Home & Capital Trust all belong to SHIP (Safe Home Income Plans) which operates a guarantee to ensure equity release cannot generate a debt greater than the value of the home. SHIP enquiries: 0870 241 6060.
POUNDNOTES
:: Is the great mortgage panic of 2008, potentially threatening all borrowers who need a new deal, a teensy bit overdone? Francis Ghiloni, at online mortgage company mform.co.uk, thinks it might be, and points out that the rate gap for customers with 90% loans to value compared to borrowers with 50% LTV is just 0.19% on best two year deals, and a tiny 0.04% on best five year deals.
Says Mr Ghiloni: "Mortgage customers face challenging times, but they are not as bleak as is being painted. People coming off two, three and five year fixes will face higher monthly payments."
:: Personal loans are getting more expensive, by an average 1.7% during the past year, says Samantha Owens at Moneyfacts.co.uk. She has detected 27 changes to personal loan products so far in 2008, and anybody taking a £5,000 loan over three years will pay up to £386 more than if they had taken the same loan with Black Horse a year ago.
The cost of a £5,00 loan over three years has soared at Cheshire BS (by £275), at Derbyshire BS (by £270); at Smile and Co-op Bank (by £255).
Some lenders are also slapping higher rates on larger loans, when they used to charge less the more you borrowed.
:: This could be a good time to buy shares, thinks Jeremy Tigue, manager of Foreign & Colonial Investment Trust. This is because equity market are peripheral to the problems currently shaking the financial world and not really part of them, and they will therefore make progress when interest rates are cut to reduce the burden of debt servicing and when confidence returns to the banking system.
When banking and credit markets start to function again, most companies will look "very good value on any historical measure", particularly with FTSE 100 back at levels it first reached in February 1998.
Says Mr Tigue: "Only by predicting a general collapse in profits and a significant number of dividend cuts can the numbers be made to look anything other than very attractive on a long-term view.
"My strong belief is that the first half of 2008 is a very good time to buy."
:: To mark the start of a new tax year on April 6, Bradford & Bingley is launching a one year fixed rate ISA and one year fixed rate eISA both paying a market-leading rate of 6.25% tax-free.
With ISA limits raised for 2008/9, savers can put £3,600 in this tax shelter, though no interest is paid until maturity. No transfers can be made from existing ISAs at Bradford & Bingley, or from any other ISA.
Application forms already available in B&B branches.
HIGH FIVE SAVERS:
Phone No Rate Account Period Deposit Interest paid
Icesave www.icesave.co.uk 6.70% (F) Fixed Rate Savings One Year Bond £1,000 OM
Birmingham Midshires 0845 603 2286 6.65% (F) Fixed Rate Bond Six Month Bond (T) £1 OM
Coventry BS 0845 766 5522 6.45% (F) 50 Plus Notice 60 Day (S) £10,000 Yly
Manchester BS 0161 923 8015 6.41% Premier Sixty 60 Day £1,000 Yly
Kaupthing Edge www.kaupthing-edge.co.uk 6.31% Savings None £1,000 Mly
TOP FIVE BORROWERS:
Phone No Rate Period Max% Adv Fee Incentive
Market Harboro BS 01858 412250 4.25% for two years 75% £595 Yes
Norwich & Peterboro' BS 0845 300 2522 4.69% for two years 90% £385 Yes
HSBC 0800 494999 5.19% for two years 90% £999 Yes
Cumberland BS 0800 032 3030 5.28% to 01/03/10 95% £995 Yes
Cheshire BS 0845 055 4567 5.49% for three years 95% £899 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