- Pensioners retiring on HALF the income they would have got before the crisis
- Rock collapse precipitated a chain of events that flung Britain into turmoil
- 1.9m who took out interest-only loans face selling their homes to repay them
Pensioners are retiring on HALF the income they would have got before the financial crisis struck ten years ago, a major Money Mail report today reveals.
On this day in 2007, it transpired that Northern Rock had sought emergency funding from the Bank of England, sparking the first run on a bank for more than a century, with panicked customers queuing for hours to get their cash out.
It precipitated a chain of events that flung Britain into a financial turmoil so bad that we are still suffering the aftershocks ten years on.
Today a series of investigations by Money Mail lays bare the devastating effect this has had on households.
Many pensioners are retiring on half the income they would have got before the crisis
As well stripping the pensioners of vital income we reveal how:
- 1.9 million borrowers who took out interest-only loans face selling their homes to repay them
- Rock-bottom rates mean savers are earning just a fifth of the interest they were ten years ago
- Growing families can’t move house because property prices have still not recovered
- First-time buyers have to wait two years longer to get on the property ladder
- Around 3,290 branches have been shut as banks and building societies cut costs
- Self-employed workers and older borrowers have been locked out of the mortgage market
In the months that followed the collapse of Northern Rock in September 2007 the severity of the financial crisis awaiting Britain became clear.
Other victims followed, with investment bank Lehman Brothers filing for bankruptcy in September 2008, spreading panic through markets across the world.
A month later, Iceland’s financial market collapsed and the UK Government had to step in to protect British investors.
It was then forced to use taxpayer money to bail out the Royal Bank of Scotland, Lloyds TSB and HBOS to prevent a total collapse of the UK banking system.
Since the crisis, income from pensions, savings and investments has plummeted, thanks to a toxic combination of low interest rates and the Government’s policy of printing extra money, known as quantitative easing.
These were supposed to be emergency measures to salvage Britain’s economy — but they’ve left a lasting dent in incomes for older savers.
Meanwhile, the cost of living has jumped, compounding the squeeze on those relying on savings to fund their retirement.
Our research found a 65-year-old couple with a combined pension fund of £100,000 and cash savings of £40,000 could have generated an annual income of £9,909 in 2007.
They could have collected this sum by purchasing an annuity — an insurance contract that pays an income for life — with their pension fund and putting the cash in the best savings account offered by a bank or building society. This would have paid a rate of around 6.5 per cent.
Victims: Paul and Christine Rattle say rock-bottom savings rates have forced them to dip into their capital to fund their retirement
Today, the most a couple in the same position could get is £5,383 — 46 per cent less
Baroness Ros Altmann, the former pensions minister and campaigner for the elderly, says: ‘Pensioners are the real victims of the financial crisis, not the bankers who should have paid the price.
‘The impact of attempts to rejuvenate the economy have meant that even though they saved hard throughout their working life, pensioners are finding they have to survive on very little in retirement.’
Paul and Christine Rattle are among those savers suffering from the cut to their income.
The retired couple, from Bulkington in Warwickshire, say rock-bottom savings rates have forced them to dip into their capital to fund their retirement.
Paul, 67, who worked in a customer service centre for an electricity firm, says: ‘Over the past few years we have spent around £10,000 of our savings because the income from deposit accounts is next to nothing.
‘We are very concerned about burning through our savings and have had to make a number of cutbacks. We can only hope banks raise interest rates on accounts in the not-too-distant future.’
Pension savings no longer provide a decent standard of living because the income from an annuity has plummeted since 2007.
Annuity rates — which determine the level of income on offer — have slumped because they are largely determined by the returns on Government bonds, or gilts.
Trigger: The collapse of Northern Rock precipitated a chain of events that flung Britain into a financial turmoil so bad that we are still suffering the aftershocks ten years on
These returns have fallen each time the Government has printed money through its quantitative easing programme, which involves buying gilts. Rising life expectancy has depressed annuity rates further.
The £100,000 saved by the couple in our example would have generated an annual income of £7,230 in 2007, based on the best annuity rate available at the time of 7.2 per cent, according to data firm Moneyfacts.
Today, that same money would buy an income of just £4,880 at the best rate on the market of 4.8 per cent — that’s £2,350 less to live on each year.
Mercifully, the pension freedoms, which came into force in 2015, ended the requirement to buy an annuity.
However, the only real alternative to getting a return of more than 4.8 per cent is risking the cash on the stock market. That means it could run out too quickly and leave no income in later life.
Pensioners who put money in bank savings accounts have also suffered as the Bank of England base rate has fallen. Cuts to interest rates began a few months after the Northern Rock crisis.
In December 2007, the base rate notched down from 5.75 per cent to 5.5 per cent. Just 12 months later it had been slashed to 2 per cent.
In March 2009 it sank to 0.5 per cent, where it settled for more than seven years before being clipped to the current level of 0.25 per cent.
First-time buyers have to wait on avergae two years longer to get on the property ladder
A £40,000 savings pot would have earned a couple annual interest of £2,679 in September 2007, when the best rate on an easy access savings account was 6.5 per cent, from West Bromwich Building Society.
This compares to today’s best buy rate of just 1.25 per cent from Ulster Bank, which would generate a paltry £503 over 12 months — or £2,176 less.
More bad news came for savers when the Funding for Lending Scheme was launched in July 2012.
The scheme offered cheap money to banks and building societies to allow them to lend money to consumers more freely.
But access to cash meant they didn’t need savers’ money, and competition for business waned — along with savings rates.
Anna Bowes, of rate advice website Savings Champion, says: ‘When interest rates started falling, little did we know that these historic lows would linger so long.
‘In 2007, we thought interest rate cuts were a temporary shot in the arm for the economy. No one had any idea that we would be in the same place a decade on.’
While incomes have taken a battering, the cost of living has been rising. Inflation rose by 2.7 per cent annually on average between 2007 and 2017, according to the Office for National Statistics.
Rising household expenditure has hit pensioners in the pocket.
The total annual cost of running a home in 2007 came to £23,655, according to a study by price comparison firm uSwitch. Today it’s £24,994.
While the overall increase is 5.7 per cent, the cost of gas, electricity and water rates are almost 50 per cent higher.
Energy bills, which represent a large proportion of monthly outgoings for retired households, soared by 44 per cent.
In 2007 the average bill for gas and electricity was £815. Today that bill would total £1,171. Water bills have soared by 48 per cent from £267 to £395 today.
Tom Lyon of uSwitch says: ‘For pensioners, this increase is even more pronounced, as their disposable income is typically lower than that of the average household.’
Courtesy: Daily Mail Online