Finances for the over-50s

Guest writer Emma Lunn investigates some of the financial options for people approaching retirement age.

Michael* was 30 when he was diagnosed with HIV in 1988. Several of his friends had been diagnosed with the virus and, despite feeling well, he went to get tested.

Until his diagnosis, Michael had a good job as a computer programmer and was financially well off. He rented a flat in central London, was saving for a deposit to buy a property, and drove a sports car. Life was good.

But finding out he had HIV changed that. He fell into a deep depression; in the 1980s HIV was regarded as a death sentence and indeed several friends died. Thinking he was going to die too, he quit his job. Now aged 54, he hasn’t worked full-time since.

After his diagnosis, Michael no longer saw a point in making plans for the future. He stopped paying into his private pension and spent his savings. He moved into social housing and lived off Disability Living Allowance (DLA) and other benefits.

His health was up and down until 1998 when he started on combination therapy and his condition stabilised. He briefly looked for a job but computer programming had changed beyond recognition in the ten years he’d been out of the job market. He eventually gave up seeking work as a programmer.

Looking to change direction, Michael qualified as a personal trainer and manages to survive with a handful of clients and various benefit payments. But he lives on the breadline. As he approaches retirement, he has no savings and no idea how he will cope in old age.

The main issues

Michael’s story is in no way unique. The financial situation for a lot of older people is precarious, and many have not been able to build up adequate savings. But this is especially true for people like Michael who were diagnosed with HIV at a time when it was expected to be fatal and who quit their jobs and stopped planning for the future.

Patrick Connolly of financial advisers AWD Chase de Vere says: “For those diagnosed with a potentially terminal illness such as HIV, planning for retirement wasn’t likely to be their biggest priority. They were concerned with their own health, short-term financial priorities and making sure that everything was in order for their close family and dependants.

“However, with ongoing improvements in medicine and health care, those with seemingly a short projected life expectancy can end up living for much longer than they might have anticipated. While this is clearly very good news, it can create potential problems if the individual has neglected their longer-term planning to the extent that they face financial hardship once they have stopped working.”

Speaking at the 2012 International AIDS Conference in Washington DC, Lisa Power from the Terrence Higgins Trust (THT) acknowledged the unforeseen consequences of advice from support groups to those who were thought to be dying. “In the 1980s and ‘90s we encouraged people to give up work and go on state benefits and not be economically productive,” she said.

She ran through the findings of a 2010 study by THT and Age UK, 50 Plus, which examined ageing and HIV.¹

It found that, compared with the general population, older people with HIV are less economically active, less likely to have a financial cushion and more reliant on benefits. Many do not have enough money to manage on and have serious financial worries for their future.

Over-50s with HIV are also less likely to be homeowners and more likely to live in social or private rented housing than others in the same age group.

Other issues more prevalent than average in people with HIV, such as immigration, housing or mental health problems, can also prevent people from planning adequately for retirement.

A 2010 report on poverty and HIV by the National AIDS Trust (NAT) and THT revealed at least one-in-six people diagnosed with HIV in the UK experienced severe poverty between 2006 and 2009.²

Meanwhile, an increasing number of older people are living with HIV. The Health Protection Agency reports that one-in-five people (22%) being seen for HIV care in 2011 was over 50.³

Back in the ‘80s or ‘90s, someone with HIV was eligible for more generous state benefits than they would qualify for today. People deemed unable to work often received social housing and disability benefits.

But the current benefits system is requiring many people living with HIV to undergo assessments of their work capability in order to have their benefits eligibility reassessed. Many people on successful combination therapies may be found fit to work, but experience real difficulties re-entering the job market.

A key concern is how someone who’s been out of the job market for perhaps 10 or 15 years will find employment. Even those with a trade or skill may find that technological developments mean their area of expertise has changed completely. And for those who make it to the interview stage, explaining a long gap on a CV due to illness can be difficult, with employers often wary of hiring someone with a history of illness.

Low retirement savings

It’s not just the HIV-positive community that isn’t saving enough for retirement; the general population is not adequately planning for the future either.

According to the Department of Work and Pensions (DWP),⁴ around eleven million people are not saving enough to achieve the pension income they are likely to want or expect in retirement, and fewer than one-in-three adults are contributing to a pension.

Financial experts often recommend that people start to save into a pension at the age of 25 but most people are much older when they start. Meanwhile, according to a Workplace Pensions Survey by the National Association of Pension Funds (NAPF), 8 in 10 of the people choosing to stay in paid work beyond state pension age will do so because they will not have enough money to stop working.⁵

However, the 50 Plus study found that over-50s with HIV report twice as many other long-term health conditions as their HIV-negative peers, with many reporting mobility problems and difficulties with everyday tasks. So working past retirement age – or working at all – to earn enough money to live comfortably might not be an option.

“If someone has already retired early, then the options for further contributions to pensions are limited as they’d need to start working again in order to be able to afford that,” says Ruth Whitehead, an independent financial adviser. “Getting another job in the current economic climate is not easy.”

Benefits

It’s important for anyone who is unable to work or on a low income to check which benefits they could be entitled to and keep up with changes to existing benefits.

According to NAT, currently more than 10% of people accessing HIV treatment in the UK claim DLA.⁶ From April 2013, DLA will be replaced with a new payment called Personal Independence Payment (PIP). Like DLA, it will consist of two components: 'mobility' and 'daily living' (see What’s happening to benefits? in HTU 203 for more information.)

All new claimants will be assessed under the new system, and all existing DLA claimants reassessed.

A major reform of the benefits system in October 2013 will include the introduction of Universal Credit (UC), replacing a range of existing in-work and out-of-work benefits including Income Support, Employment and Support Allowance, Jobseekers Allowance, Housing Benefit, Child Tax Credit and Working Tax Credit.

The new system is intended to make it easier to take on work as it’s available, without suddenly losing all your benefits.

The government has undertaken to ensure that no one, whose situation has otherwise not changed, ends up worse off when transferred to UC. However, a report produced by The Children’s Society and Disability Rights UK has warned that up to half a million people with disabilities could lose out under UC once it is fully implemented.⁷

Existing claimants’ current levels of benefit will be protected at point of transfer to UC. However, they will have their level of benefit frozen with no increases to take account of rising prices and they may see their support cut immediately if their circumstances change.

Once you reach pension age, there are other benefits you may be entitled to, such as Pension Credit, Cold Weather Payments or Winter Fuel Payments, and a free TV licence. Make sure you look into all the benefits available to you.

Pensions

The most common way to save for retirement is a pension, as this offers certain tax advantages on contributions. When you retire, or reach a certain age, a pension scheme pays you a regular income for life. The sooner you start paying into a pension the higher your income in retirement is likely to be.

There are three main types of pension: state, personal and company (also called occupational).

If you're working, you usually build up the right to a basic State Pension and possibly an additional State Pension. The amount of basic State Pension you’ll receive will depend on the National Insurance (NI) contributions you’ve paid or are treated as having paid. The current maximum State Pension is £107.45 per week.

The government also pays means-tested Pension Credit for those who have not accumulated enough NI contributions.

There are plans to introduce a £144 a week universal State Pension for new retirees, probably from 2017. Entitlement will be based on at least 10 years’ NI payments, with a 35-year NI contribution record needed to get the full amount. Currently you can buy extra NI years; it’s a good idea to contact the Future Pension Centre on 0845 3000 168 to confirm your position and see what your options are.

Many people invest in either a personal or company pension as well. For these, the earlier you start saving, the better. Under a new law, anyone not currently enrolled into a workplace pension, aged between 22 and state pension age, and working in the UK, will be automatically enrolled into a pension scheme into which the employer will be legally obliged to make a contribution. This is referred to as ‘automatic enrolment’ and there is more information about it at www.gov.uk/workplace-pensions.

“The general advice for people, even those approaching retirement, is that it is usually better to do something than nothing at all,” says Connolly, “This will certainly be the case if the government introduces a universal state pension which can effectively do away with means-tested benefits in retirement.”

Up until now, for anyone over 55 the tax advantage of contributing to a personal pension was considerably diminished by the charges taken out during the first ten years in commission and fund fees. Even in a good year the growth on investment could be eliminated by these charges during the first ten years of the plan. A new, more transparent system is now being introduced whereby financial advisers have to charge up-front for pension advice, and ask people explicitly whether they want that fee to be taken as commission from future pension payments. Financial advisers also have to disclose if they are ‘tied’ to the products of particular companies or if they are free to offer advice on the full range of products available.

Take action

The first thing you should do is seek professional advice. The Pensions Advisory Service (www.pensionsadvisoryservice.org.uk) is a non-profit organisation that provides independent advice on all aspects of pensions. As well as the information on their website, you can call its pensions helpline on 0845 601 2923.

Which? magazine also provides transparent information on financial services and enables you to compare charges and performance across pension providers, although you may have to pay a small charge for this service.

If you would like to find an independent financial adviser (IFA), then the website www.unbiased.co.uk may help you find one in your area. You can also search for an adviser with particular expertise, such as pensions or investments.

There are a number of financial advice firms that specialise in the needs of gay people or people with HIV. These include Isis Financial Planners (www.gayfinance.info) and Compass Mortgage and Insurance Services (www.compassindependent.co.uk).

Some general advice about pension and retirement is also relevant.

“As long as you are still earning, you can contribute to a pension and claim tax relief. This means a pension may still be a good option,” explains Tom McPhail, head of pensions research at financial advisers Hargreaves Lansdown.

“However… a more attractive option may be to contribute to ISAs [Individual Savings Accounts] and perhaps flip your ISA pot over to a pension if you feel that is appropriate in the run up to your retirement.”

Patrick Connolly agrees that the best approach to save for retirement is a combination of pensions, which provide initial tax relief but are quite inflexible, and ISAs, which can still be tax efficient and are more flexible.

“Those with HIV or other serious illnesses may prefer to focus on ISAs as they may require the extra flexibility, particularly if their health deteriorates or they want to more easily pass assets to their dependants,” he says, “However, the potential downside is that it is easier to spend all of the proceeds of ISAs and so have very little or nothing left to live on.”

Annuities

If you have saved for your retirement, it’s important to shop around for an annuity when it’s time to retire. An annuity is designed to give you a monthly income until you die.

Comparing different annuity providers can save you money, rather than buying an annuity from your pension company.

Annuity rates depend on several factors; a crucial one is health. Someone with an illness or condition that means they are unlikely to live as long as a healthy person will be entitled to an ‘enhanced’ annuity – which means more money to live on.

Being HIV positive, or having other health conditions, may qualify you for an enhanced annuity so it’s important to declare this when buying one.

Stephen Lowe, director of specialist annuity firm Just Retirement, suggests the following for a HIV-positive person looking at their annuity options:

“Specifically ask [your] financial intermediary or pension company whether they provide enhanced annuities and volunteer to disclose [your] medical and lifestyle information.

“We do quote for HIV and AIDS and an enhanced rate may be provided depending upon factors such as diagnosis date, treatments, CD4 count, viral load, and AIDS-related cancer. Simply put, the best way of obtaining an accurate quote would be to provide recent medical letters which include these details.”

Life insurance

If you’re married, in a civil partnership or have children, life insurance (or assurance) can help your dependants financially after your death. And if your partner were to die first, a pay-out from their life insurance policy could make a big difference to your financial situation.

It used to be impossible to get this kind of cover if you were HIV positive but successful lobbying of the insurance industry means this has changed.

Chris Morgan, marketing manager at Compass, HIV life assurance and mortgage specialists, says: “It took until 2009 for there to be a range of affordable and useful products available in the market place for the HIV community. There are now six providers that offer life assurance; however the terms and premiums they offer differ enormously.I recommend that people seek specialist independent advice before buying HIV life assurance.

“Life assurance can be used to provide a lump sum to support a family in the event of the death of one or both partners. We have recently been arranging HIV life assurance policies specifically into trust for children to make certain they are looked after should anything happen to their parents.”

For more on life insurance, see Rest assured – life insurance for people with HIV in HTU 211.

Equity release

Another option for retirees who own a property is equity release. Equity releases allow homeowners to release tax-free cash from their homes to boost their finances in retirement. The two main types of plans available are lifetime mortgages and home reversion plans. Both types allow you to stay in your home.

Lifetime mortgages offer either an immediate lump sum or a series of payments, which are set against the borrower's home. When the borrower dies or goes into long-term care, the home is sold and the lender takes the value of the sum lent, plus the interest it has accrued.

Home reversion plans involve selling part, or all, of your home to an investment company (called a reversion company) which, in return, will give you a cash lump sum or an income for life and sometimes the option of both. When you die, if you have sold 100% of your home to the reversion company, the property will be sold and all of the proceeds will go to them. Otherwise, the value of any portion of your home that you have not sold will pass to your estate.

To qualify for equity release you need to be over 55 (both partners if a couple), own a home worth at least £70,000, and be living in mainland UK or Northern Ireland.

It’s essential to take independent professional advice before taking out equity release; it’s a big decision that affects both your home and the inheritance you leave to dependants.

The schemes were the subject of controversy in the past after earlier versions ended in disaster when interest rates went up and house and share prices fell in the early 1990s. Thousands of pensioners who had borrowed against their homes found themselves in negative equity and had debts greater than the value of the properties to which the debts were secured.

Since then, most major lenders have signed up to a voluntary code of conduct administered by the Equity Release Council. Meanwhile, the Financial Services Authority (FSA) has brought home income plans within the scope of its regulation.

Looking ahead, some people with HIV may be set to inherit their parents’ or partner’s property. Although it’s a difficult conversation to have, it’s important to talk to your family to find out how they intend to leave their estate when they die – and then factor this in when planning your own retirement. It may be that you have more options than you realise.

It’s never too late to start saving and, for those who have made some pension provision or own a property, it’s essential that you make your money and assets work for you the best you can.

Further information

Find out more about state benefits and pensions at www.gov.uk.

There are many organisations that can help you plan for the future, some of which are listed below.

• Future Pension Centre (www.gov.uk/future-pension-centre)
• Age UK (www.ageuk.org.uk)
• Unbiased (www.unbiased.co.uk)
• Compass (www.compassindependent.co.uk)
• Just Retirement (www.justretirement.com)
• Equity Release Council (www.equityreleasecouncil.com)

*Name changed to protect identity.