Household costs increase and personal debts rise - Telegraph.co.uk

This is now having a major impact on financial planning for the future.

Pensions lose out

With annuity rates down 45 per cent over the past 16 years and falls in stock markets wiping billions of pounds off the value of private pensions, those in work need to pay in far more to their schemes. But latest research shows that more than one in three adults who have yet to retire has stopped paying into pensions.

Of these, more than two-fifths have no plans to start investing in their pensions again.

One in five people working for companies providing pensions are even turning down "free money" by failing to join these schemes – with half saying they simply cannot afford to join the scheme, according to research from Zurich.

Some 12 million public sector workers and 4 million in the private sector will be affected by the move from linking pensions to the RPI measure of inflation to the historically-lower CPI rate. So even those who are members of schemes are likely to see hundreds of pounds wiped off their annual pension once they retire.

As a result the need to increase retirement provision is greater than ever. And recent figures from the Office for National Statistics show a 10 per cent fall in personal pension contributions over the last year.

Your money or your life

A further 1.5 million households do not have enough life cover to pay off the mortgage should either partner die, according to another survey. A third of those asked said that the cost of premiums was the main reason for having insufficient cover. Premiums on some schemes start at just £5 per month.

Consumers are also taking more risk with other aspects of their finances - ownership of almost all types of financial product dropped in the second quarter of this year from life cover to motor and travel insurance.

About 80 per cent of people also do not know how they will pay for long-term care even though the average pension pot will fall well short of the funding required. With an average bill of £26,000 and one in four currently needing long-term care for an average of two years, the average pension income of £10,000 will leave a huge annual deficit.

Less saving for a rainy day

Savings are another casualty of the economic downturn. Even among those aged 55 plus, the age group most likely to put money aside for a rainy day, a quarter has no available savings.

"The current economic outlook is uncertain and as our research shows there are some real financial concerns for consumers right now," says Karen Barrett, chief executive of Unbiased.co.uk.

"Savings and pension concerns aren't going to go away so it is important that people take control of their finances now and seek advice on the best way of saving for the future to make sure they have that financial buffer in place for retirement."

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