Retirement Round-up March 2016

Why does our tax year begin on 6 April?

There are 365 dates to choose from – or 366 in a leap year – so why does the UK tax year begin on 6 April? To answer this one we have to go back nearly 2,000 years to the reign of Roman Emperor Julius Caesar. Bear with us...

Caesar created his Julian calendar which consisted of eleven months of 30 or 31 days, and a 28-day February (extended to 29 days every fourth year). This was a pretty good framework, but it contained a tiny inaccuracy in relation to the actual orbit of the earth round the sun. By the 1500s this inaccuracy had resulted in Caesar’s calendar being 10 days out of step with the true solar calendar.

In 1582 Pope Gregory XIII decided to rectify the misalignment by creating his new Gregorian calendar – thereby removing the 10 day mismatch.

Not for the last time, Britain was reluctant to take orders from mainland Europe so did not adopt the new calendar until 1752 – by which time the misalignment had grown to 11 days. So, in Britain in 1752, to bridge the gap it was decreed that Wednesday 2 September should be followed by Thursday 14 September.

To add to the complexity, at this time in Britain it was tradition to mark New Year’s Day on 25 March – Christianity’s Annunciation Day. The tax year also started on 25 March. The addition of 11 days in 1752 meant that that tax year would run for 365 plus 11 days, taking it to 4 April 1753. The new tax year would therefore begin on 5 April 1753.

A final refinement came in 1800 when it was decided that one more day needed to be added, moving the beginning of the tax year from 5 April to 6 April. This date has remained in place ever since.

The history may be complex but it remains a simple truth that new tax rules are commonly implemented on 6 April. 2016 is no exception. To find out what’s changing this ‘new year’, see our quick guide to this year’s tax changes

 

What can we learn from the economic history books?

Sometimes things remain unchanged for so long that this becomes news in itself. The UK’s Bank of England interest rate is a good example of this. Once known for changing almost as often as our weather, it has now been held at 0.5% since March 2009. You can read our guide to interest rates and why they matter  .To find out more about this strange phenomenon.

Of course, there has been plenty of speculation in the last seven years that rates were finally about to change. The most recent instance was in December 2015, when the increase in the US Federal Reserve’s interest rates led to a growing belief that the UK could follow suit... but the Bank of England has so far resisted the temptation.

Aviva Investors – Aviva’s global asset management business – has studied the history books to see how our experience of the Great Depression of the 1930s could shape central bank interest rate thinking today. So what can we learn from past experience? Aviva Investors have produced a video to help us understand how events of years gone by still influence the present.

Watch Aviva Investor’s video

 

Private savings: the largest source of income in retirement

Most retired households receive the bulk of their retirement income from private sources, according to the Office of National Statistics (ONS).

In its latest household disposable income study, the ONS reported that in 2014/15 52.9% of typical retired household income came from private sources such as private pensions and investments. 47.1% of income came from state sources, such as the state pension. This is a reversal of the situation from 1977, when reporting began. At this time, more than 64% of retired household income came from the state.

Growing income for retired households

While the income of retired households has remained lower than non-retired households over the period, retired households have witnessed faster growth over recent times. After adjusting for inflation, the medium retired household income has grown 2.7 times since 1977, from £7,900 to £21,000 while the income of non-retired households has doubled from £14,000 to £28,000.

Despite the shift towards private sources of income, the importance of the state pension in funding our retirement remains clear. April 2016 sees the launch of a new state pension system. Our quick guide to the new state pension makes a complex system a whole lot clearer.

Times are changing for young and old alike

The office of National Statistics (ONS) regularly releases figures which tell us a lot about the way our society is changing. But the latest set of statistics show this is by no means restricted to one particular age group.

No rush to fly the nest

The figures show that young adults are more likely to be living with their parents than at any time in the past 20 years. Half of 20-to-24-year olds are living with their parents, as are a fifth of those aged 25 to 29 and one in ten of those aged 30 to 34. The ONS research also found young men were more likely to live with parents. The rise in property prices, stagnant wages and the increasing trend of young adults choosing to stay in education for longer have all contributed to the changes.

Over-75s spending more

Meanwhile, at the other end of the age spectrum , it has been reported that spending by the over-75s between 2000 and 2014 on dining in restaurants rose twice as fast as similar spending by the under 30s. On cinema and theatre tickets, it rose five times as fast. According to Capital Economics, over-65s currently account for less than one-fifth of overall consumer spending, but this will rise to one-quarter within two decades.

Changes don’t have to be surprises

Beneath these headline figures we all face different financial challenges and priorities. One thing that unites us all, however, is our ability to plan. On the Aviva website you’ll find a range of tools to help you take control – from basic budgeting to longer-term retirement planning.

Visit our Tools and calculators page and see how we can help you get a clearer view of your finances.

 

Keep dancing... and meet the US president

More evidence has emerged of our longer life expectancy. In February, Public Health England reported that older people in England are living longer than ever before. Their figures showed that for those aged 65, men can expect to live another 19 years to 84, and women a further 21 years to 86.

In the past, statistics have tended to focus on life expectancy at birth but now that most deaths in England occur in people over the age of 80, patterns of mortality in older age groups are becoming more important.

Aviva research has found that most people underestimate their life expectancy. This raises a challenge when it comes to planning our life in retirement. To help with planning, Aviva offers a free life expectancy calculator. It doesn’t come with any guarantees, of course – but it can provide some interesting food for thought.

Longer lives are not just a UK phenomenon. Increasing life expectancy is being witnessed across much of the developed world. In February, for example, 106-year-old Virginia McLaurin became an internet sensation as she fulfilled a lifelong ambition and danced her way into the White House to meet the American President.

Watch Virginia dancing

Keep dancing!

 


AR01635 03/2016

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