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Rail fares, inflation, pension deficits and savings cuts

16 August 2016

9:45 AM

16 August 2016

9:45 AM

Rail fares have increased at double the speed of wages since 2010, research by trade unions suggests.

Fares have risen by 25 per cent in the past six years, while average weekly earnings have grown by 12 per cent, analysis by the TUC and the Action for Rail campaign shows.

Meanwhile, official figures released this morning show that the UK’s inflation rate, as measured by Consumer Prices Index, rose to 0.6 per cent in July. That compares with a rate of 0.5 per cent in June.

Inflation as measured by the Retail Prices Index picked up to 1.9 per cent in July, from the previous month’s rate of 1.6 per cent.

July’s RPI inflation rate sets the cap for how much regulated rail fares in England, Scotland and Wales can rise by next year. The jump in RPI means that regulated rail fares will go up by 1.9 per cent next year.

Pensions

The combined pension funds deficit for companies in the FTSE 100 has seen huge increases in the past year, according to pensions expert LCP.

LCP, in its annual report on the pensions market, said that by the end of July, the deficit was an estimated £46 billion, as against £25 billion a year earlier. And this month, the deficit has widened further to £63 billion, LCP told the BBC.

The position has deteriorated because of lower bond yields, with a sharp fall after the UK’s vote to leave the EU. But sterling’s fall after the Brexit result has partly offset this effect, LCP said.

In other pensions news, figures obtained from the Government reveal the startlingly low take-up of voluntary state pension top-ups, despite the attractive rates on offer.

Fewer than 4,000 people have taken the opportunity to make Class 3A voluntary national insurance contributions, suggesting that the option to buy extra pension income at very favourable rates is not well understood.

Data provided by the Department for Work and Pensions in response to a Freedom of Information request by Old Mutual Wealth shows just 3,848 eligible applicants purchased additional state pension units six months into the 18-month eligibility window.

Uptake is below government expectations. It originally projected eligible individuals would spend more than £800 million purchasing additional state pension income. But savers committed just £64,252,000 to the scheme up to April 10 this year.

 

Wages

The weak outlook for the UK economy will outweigh any potential pay rise for workers if the country’s EU exit leads to immigration cuts, the Resolution Foundation think tank warns.

Future cuts to immigration could boost wages for some British workers, but they will still be exposed to Brexit’s impact on the broader economy, the report says.

Cleaners, security employees and sales staff are among those who have seen their income fall in recent years as a result of immigration, according to the Resolution Foundation.

Interest cuts

Lloyds Banking Group has followed Santander in cutting its interest rates on its customers savings. Santander’s popular 123 Current Account will see a cut from 3 per cent to 1.5 per cent from November. The banks say there is a market expectation that interest rates will stay low, following the Bank of England’s rate cut earlier this month.

Lloyds, 9 per cent owned by taxpayers and the largest savings institution in the UK, warned customers they faced reductions in savings rates – but did not disclose how deep the cuts would be nor give any assurance that they would be limited to Threadneedle Street’s quarter-point reduction.

Housing

Sales of new homes in London fell by 43 per cent in the six months to the end of June compared with a year earlier, as the prospect of the referendum and stamp duty changes dulled buyers’ appetites.

According to analysis of Land Registry figures published in The Times, only 1,491 units were registered as sold in London’s 11 inner boroughs. The figure comes despite price cuts and other offers to tempt buyers.

The market for expensive new flats and houses in the capital was hit hard by the overhaul of stamp duty rates at the end of 2014 and from April, when a 3 per cent stamp duty surcharge was placed on second homes and buy-to-let properties.

Lifetime ISAs

Thisismoney reports that the launch of Lifetime ISAs should be delayed beyond April 2017 because the Government hasn’t yet nailed down details of its plan to help young people save simultaneously for a home and retirement, according to top pension firms.

Savers torn between these two important life goals were promised help with both by former Chancellor George Osborne in last Spring’s Budget.

But critics, including former Pensions Minister Ros Altmann, fear people who open Lifetime ISAs will lose out on employer pension contributions and end up poorer in old age as a result.

Mortgages

Over a week has passed since the Bank of England base rate dropped to 0.25 per cent, its lowest level in over 300 years. This has led to a spur in activity in the tracker mortgage market. The average two-year tracker mortgage deal has just broken the 2 per cent barrier for the first time on record, according to the latest figures released by Moneyfacts.co.uk.

Whether borrowers will flock to this type of deal remains a mystery, as the market is currently flooded with low fixed rate deals that offer borrowers more peace of mind in times of uncertainty.

Debt

New research for Debt Advisory Centre has found that 38 per cent of adults in the UK (18 million people) say they have been issued with a default in the last year due to late or missed mobile phone, utilities and credit card payments.

A default is issued by a credit provider when a credit agreement has been broken. The default will show on your credit history for six years and will have a negative impact if you apply for further credit during that time. Lenders’ and providers’ policies vary, but usually they will only issue a default once three to six monthly payments have been missed.

Missed credit card payments are the most common reason creditors issue a default. Eleven per cent of UK adults say they have received a default from their credit card provider in the last year. Additionally one in ten say they have been issued with a default due to their unpaid utility bills, gas or electricity, within the last 12 months.

Spending

In its annual Cash Happy report, which studies the day to day finances of 3,000 UK households, SunLife found that no matter what we earn, we love a good deal.

The research found that 92 per cent of us feel good when we take advantage of special offers and 89 per cent always look for special offers – even among high earners, more than eight in ten always look for BOGOFs and other deals and three quarters think special offers are worth doing.

Pensioners also love a bargain – 83 per cent of the over 65s are always looking for deals, but they are less likely than workers to go over budget or to try new brands and products as a result of special offers.

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