Government announce rise in minimum wage

The UK government have announced a small rise to the minimum wage from October 2012.

For people over the age of 21, the national minimum wage is £6.08 per hour. This will rise by 1% to £6.19 per hour from 1st October 2012, as recommended by the Low Pay Commission.

Each year, the Low Pay Commission make a recommendation to the government over the minimum wage. This year’s minimum wage increase is in line with the average 1.4% wage increase for the UK over the course of 2011.

However, the cost of living over the last year has risen by 3.6%, according to the Consumer Prices Index (CPI) measure of inflation which doesn’t take into account housing costs. This figure suggests that despite a slight rise in the minimum wage, low paid workers have effectively taken a 2.2% pay cut after inflation.

For a person working a 40 hour full time week , but only earning minimum wage, the pay rise amounts to only £4.40 extra per week. But some have criticised the size of the raise as being too high.

A spokesperson for the British Chambers of Commerce indicated their disappointment at the raise, which was far above their recommendation. They suggested that the government’s decision significantly adds to business costs, whilst feeding wage inflation at higher levels.

The Unions have criticised the government’s announcement as not being enough for low paid workers. A spokesperson for Unison argued that low paid workers actually need a minimum wage of £8.00 per hour just to stay out of poverty and cope with inflation. They went on to suggest that the government’s decision would ‘condemn millions of families to life on the breadline.’

A spokesperson for the Child Poverty Action Group said: “When 58% of children who live in poverty have at least one working parent, low pay is clearly at the heart of the UK’s child poverty problem. But from April, there will also be a further series of cuts to tax credits, which will hit many of the same families.”

Inflated pension forecasts another brutal blow for over 55s

Retirement savers have long known that pension and investment projections bear little or no relation the real world.

The threat that most have less money than they thought in the bank and pension pots is another brutal blow to over 55s struggling with their finances.

Calculating how much money those approaching retirement needs for their later years is always fraught with difficulty.

So many variables are involved, ranging from personal investment choice, attitude to risk, choice of funds and provider, that putting a finger on that magic number is almost impossible.

Many retirement savers will be eyeing investment projections with keen interest this year, following months of economic and pension upheaval.

Most are based on the same assumptions – growth at 5%, 7% and 9% – but why these figures?

They are not random numbers, they are selected by the Financial Services Authority after consultation with accountancy firm PricewaterhouseCoopers (PwC) and input from the finance industry.

Every finance firm has to base investment projections on these figures to give consumers a level playing field for considering where to put their cash.

Now, the horror revealed by the FSA is these projections are too high and give the over 55s an impressions they have more money than is the case set aside for retirement.

PwC says the median 7% return on investments is optimistic and recommends downgrading the figure – but the FSA won’t reveal by just how much and has launched a consultation with industry groups and financial firms to come up with a more reliable average.

The FSA thinking is terrific – if fund managers are failing to perform by under achieving their targets assessed by professionals, just lower the bar and hey presto, they are doing better than before.

Rather than consumers branding them failures for offering poor returns, they are likely to keep on hitting that lower goal.

Nevertheless, the lesson for retirement savers is don’t rely on projections – take a less risky, considered, conservative view and keep a finger on the pulse with regular reviews to make sure every penny is straining to give the best return.

Peter Smith, head of investments policy at the FSA, said: “It is crucial that projection rates are set at a realistic level so that investors are not misled. Independent research indicates that our maximum projection rates should be reduced.

“We are seeking views on the range of rates so investors receive a reasonable indication of what they can expect from their investment.”

In 2001 the FSA committed publicly to regularly review projection rates. The last review, by PwC in 2007, concluded that the existing rates were valid.