Fears over pension freedoms, rent rises and financial advice

Cracks are beginning to show in the new pension freedoms, hailed by the Chancellor as a ‘pensions revolution’. About 160,000 people have had to pay fees to access their pensions since these freedoms were introduced in April 2015, with some seeing more than 10 per cent of their retirement pot swallowed up by charges. The study by Citizens Advice and published in The Guardian said that those with smaller pots were the group hit the hardest. Last month, the Financial Conduct Authority announced that exit charges for people cashing in their personal and stakeholder pensions are likely to be capped at 1 per cent of the value of a member’s pot. These early exit fees are imposed on someone when they transfer or take their benefits over the age of 55 but before retirement age. Evidence emerged that some companies were imposing punitive charges on over-55s trying to take advantage of the freedoms which abolished the requirement to convert a pension pot into an annuity, leaving people free to do whatever they like with their retirement cash. Rent rises The Guardian also reports that many tenants renting privately are likely to be hit with rent increases following changes to the tax regime for landlords. Research published today by the lender Kent Reliance found that about a third of buy-to-let landlords intended to pass on increased costs to their tenants following the surcharge on stamp duty for second property owners and cap on tax relief for buy-to-let mortgages. Four in 10 of the landlords expected to increase rents in the next six months, with three-quarters saying they would do so to offset the reduction in tax relief on mortgage interest. The average rent rise buy-to-let investors anticipated was 5.6 per cent, or £49 a month. Millionaires’ Club According to The Telegraph, eight villages in Essex, Surrey, Greater Manchester, Hertfordshire and Hampshire have joined the so-called ‘Millionaires’ Club’, where average asking prices, recorded by Rightmove, have leapfrogged the £1 million mark. The villages join 185 others that all have average asking prices of over £1 million, although some of this number may have been dragged up by a few high-value sales. Miles Shipside, director of Rightmove, said: ‘Established residents of these new millionaire villages have seen their houses increase in value rapidly over the past few years. Many have been helped by the appeal of being within commuting distance of London, and others boosted by people cashing in on London prices, tempted by a bigger house in the country.’ Cut-price mortgages Fierce competition between banks and building societies has driven mortgage rates on offer lower and lower over the past few months with a spate of lenders cutting rates again this week, Thisismoney reports. In the past fortnight Nationwide, HSBC and Yorkshire Building Society have all slashed rates to new lows, while Skipton and Yorkshire building societies have brought rates on their fee-free deals down in the past few days.

The flurry of activity follows figures released by the Bank of England last week revealing the average mortgage rate fell to 2.41 per cent in April from 2.49 per cent in March – its lowest ever – reflecting the rapidly reducing likelihood of the Bank raising the base rate any time soon.

Of all the most recent rate cuts, Post Office’s 1.33 per cent rate fixed over two years, available up to 75 per cent loan-to-value with a £1,995 arrangement fee, has an attention-grabbing headline rate.

Meanwhile, house prices fell at the fastest pace in more than four years last month as buyers await the outcome of the referendum and after a surge in activity at the start of the year when landlords rushed to beat a stamp duty hike.

With two weeks to go until the Brexit vote, a new report suggests that economic uncertainties are the main reason behind the 0.4 per cent fall in house prices recorded in May. The average price paid for a home across England and Wales fell by £1,312 to £293,599 between April and May – the biggest monthly fall recorded since November 2011, according to the latest house price index by estate agents Your Move and Reeds Rains.

Brexit

Low income families could receive hundreds of pounds less in benefit payments if the UK leaves the EU, according to an economic think tank. In its central forecast, the National Institute of Economic and Social Research (NIESR) said some households could lose up to £2,771 a year.

Falling national income might result in cuts to the welfare budget by 2020, the NIESR study said. Using existing forecasts, NIESR assumed that national income will fall by up to 6 per cent by 2020 if the UK leaves the EU, compared to what it otherwise would have been. The Vote Leave campaign said the report was based on ‘dodgy’ assumptions. Government bonds

The return on benchmark UK government bonds has fallen to a record low as investors move in to safer assets on concerns about the global economy. The yield on the UK’s 10-year gilt dropped below 1.25 per cent for the first time. The yield on the German equivalent also sank to a record low.

More buyers cause bond values to rise and yields to fall, hitting annuity rates, pension fund income, and debts. ‘The low yield on government bonds paints a pretty pessimistic picture of the global economy, and suggests we are set for an extended period of low or negative inflation, and weak economic performance,’ said Hargreaves Lansdown analyst Laith Khalaf. Concerns over financial advice

In its response to the Government’s consultation on public financial guidance, the Financial Services Consumer Panel has raised concerns that the abolition of the Money Advice Service (MAS) could leave consumers without a source of impartial financial guidance, and slow down progress on the UK’s financial capability strategy.