Govt white paper details

EdInvestor

Here's the Mail story

It seems that the full S2P will be restricted to basic rate taxpayers.

But as higher-rate taxpayers already get an an additional 18% tax rebate as relief on provate or company pension contributions, does this not seem reasonable?

I note that just the other day the TUC was saying how unfair it was that higher rate taxpaers get such a lot of extra pension tax relief - and the money isn't even subject to pension restrictions, it's cash in hand........

CIS

Theres nothing wrong with helping lower earners at the detriment of those who can afford other provisions, but as the article points out , the freezing of the band maximum will creep ever closer to the lower levels of wager and then the people its trying to help will start to lose out - they need to be clever with the balancing otherwise people will suffer.

Milarky

From the Execuitve Summary (437KB):

The closing date for receiving comments is Monday 11 September 2006.
Please ensure that your response reaches us by this date. Your response can be submitted by letter, fax, or email to:

Pensions Reform White Paper Team
Department for Work and Pensions
Level 3, The Adelphi
1–11 John Adam Street
London WC2N 6HT

Telephone: 020 7712 2855

Fax: 020 7962 8591

Email: [EMAIL="pensions-white-paper@dwp.gsi.gov.uk"]pensions-white-paper@dwp.gsi.gov.uk[/EMAIL]

Full proposals in White Paper (2.3MB)

EDIT: Just found this titbit:

3.88 We propose to move from the current system of annual credits in the State Second Pension to weekly credits.* This will provide more flexibility, enabling people to combine credits and paid contributions during a tax year to build up a year of State Second Pension. It ensures that we are recognising social contributions and earnings equally for the purposes of state pension entitlement and consistently in both tiers of the State Pension

.*This means, for instance, that if you work only 'half' a year (because a job either ends or starts half way through a tax year) you will receive all benefits on a strictly proportionate basis. At present all of your earnings for that part-year must reach the annual limits before a) you make that a 'qualifying year' and b) get credit towrds S2P on top of this.This is something I remember brining up and suggesting to a government minister in 1998/99 - after the first Labour White Paper on pensions came out. Of course they ignored that idea then. But now, curiously, it has merit. So that's a delay of exactly 10 years - from 2002 when the S2P came in and they could have done something - to 2012(ish) when it will take on these features. (I also referenced the 'state second pension' as the 'S2P' at the time - before this moniker was being used by government. I'd like to think they used that idea subsequently but I suspect many other people starting using 'S2P' spontaineously and it was taken up because of that :rolleyes: )

...Update... here's the government's logic:

Findings from the National Pensions Debate: extending coverage
Proposals to increase entitlement for carers accords well with the public’s view of the principles on which an additional State Pension should be based. At the National Pensions Day, participants were asked to give their views on what should count towards the State Second Pension. The majority believed that paid work, voluntary work, caring for children, caring for the sick, elderly or disabled and time spent long-term sick or disabled and unable to work, should count towards the State Second Pension. Of these, people agreed most strongly that paid work and caring for the sick, elderly or disabled should count.

..which translates as: "We asked a load of non-experts what we should do: 'devise a system of careful checks and balances for which you get out what you pay in - or one in which you out get what I pay in?' and they all gave the same answer.. Which was 'nice'."

Here's something they tried to sneak under the radar too..

2.5 To strengthen the system further, we now propose:

....to extend the Financial Assistance Scheme to ensure people within 15 years* of their scheme’s normal pension age in May 2004 may qualify for help.

*It was three years to retirement. Effectively - and without admitting it - the government has reversed stance on this issue. This means they are treating pre-2004 company pension scheme failures much more closely to post April 2005 failiures (i.e. those under the Pension Protection Fund)

This is welcome - but not enough of course. They are duty-bound to give the same level of protection to pre-2004 schemes as the protection they have created for post 2005 ones. That would include:

The same cap of £25k (not £12k) on pension payments for affected members ...
The same upper percentage of 90 percent (not 80 pc) as under the PPF..

Others will disagree - because of cost falling on the public purse (whereas for the PPF it is notionally bourne by private sector companies paying in for others through the levy system) but the way the govt has buckled under the threat of making cost savings with the public sector pension 'liabilities' makes a mockery of the suggestion that they do (or don't do) things because of what it will cost the public.

Paul_Herring

VeryTrying wrote:

What sort of message is this going to send out? - pay extra for additional pension, and at some point in the future we (the government) will change the rules and pocket your money.

This is the main reason I elected to remain opted out a few years ago.

Paul_Herring

Just been reading the executive summary (http://news.bbc.co.uk/1/shared/bsp/hi/pdfs/25_05_06_pensions_summary.pdf)

Our first priority is to make it easier for more people to save more for their
retirement. To achieve this, in 2012 we will introduce the following:
36. A new scheme of personal accounts, which will provide a straightforward opportunity to contribute to a high-quality, low-cost savings vehicle. The scheme will have the following key features:
• Employees will contribute 4 per cent of a band of earnings of between around £5,000 a year and £33,000 a year
• Employers will make minimum matching contributions of 3 per cent on the same band of earnings
• A further 1 per cent will be contributed in the form of normal tax relief [6]


[6] 1 per cent represents basic rate tax relief on individuals’ contributions – in addition, individuals may be entitled to higher-rate tax relief and neither employers nor employees pay tax or National Insurance contributions on employer contributions

How exactly is this helping me to save *more*?

Currently I save 16% (net of gross), my employer contributes 5%(gross of gross) and the government grosses up my 16% by adding another 4.5% (£22/£78)

Now I know I have the option of declining HMG's most generous pension offer in favour of my own, but will they be applying the aforementioned "1% basic tax releif" to my contributions instead of the 4.5% they apply currently?

And what of those that do join this scheme?

Currently, for every £78 I contribute, HMRC gives me £22 (assuming basic rate)

But for the above pension, if £78 is my 4%, the government's 1% comes to only £19.50

Is my maths playing up or are the government actually making a saving on this (ignoring the fact that they normally wouldn't be paying anything for those that weren't saving) and denying full basic rate tax relief?

Milarky

Paul_Herring wrote:

But for the above pension, if £78 is my 4%, the government's 1% comes to only £19.50

Is my maths playing up or are the government actually making a saving on this (ignoring the fact that they normally wouldn't be paying anything for those that weren't saving) and denying full basic rate tax relief?

Your maths isn't faulty it's just that the round figures: 1%, 4%, 3% have superficial appeal and the majority of people won't be expected to notice any difference - as you have. Turner suggested a '1 - 3 - 4' split of 8 percent and if he had wanted to to he could have insisted on basic rate (or even basic rate plus such as '2 - 7 - 11' or '3 - 8 - 9') levels of goverment contribution. But he didn't. I don't think the adoption of rounded numbers is a 'mistake'. Another way of looking at this is that because the gov't money now comes with quasi-compulsion (i.e. auto enrolment) they actually don't have to pay anything in! But in order not to appear too Scrooge-like they will continue to add tax relief - albeit not so generous. Also, it is far far easier to just follow Turner on this (who presumably made his proposals for a NPSS look fairly 'cheap' just so they would be picked up) than try to sticke off in a different direction.

["Direction of Travel": don't you just hate that phrase?]

ChrissieI

The number of years N I payments is going to change from 44 to 30
Is there still the five years automatic credits at age 60
If so then don't we only have to have earned 25 of our own?

downshifter98

the autocredits will be ended so its a 'real' 30 years required - however these clauses :-

Ensuring that every year counts

3.96 Currently, to build up any entitlement to basic State Pension a person must satisfy two National Insurance conditions of entitlement. The first is satisfied through having earnings over the Lower Earnings Limit or by paying Class 2 or Class 3 contributions to make one qualifying year.The second is that they must then have at least 25 per cent of the number of qualifying years required for full basic State Pension

3.97 These rules mean that small numbers of people have no entitlement to basic State Pension despite having up to nine years of contributions or credits.

3.98 The Government proposes that the two conditions of entitlement are abolished. Up to 100,000 people a year reaching State Pension age could benefit from this.These reforms underpin the other changes we are making to broaden the coverage of state pensions and in the context of the overall reform package – which includes more obvious recognition of caring responsibilities – they will have a far greater positive effect.

these appear to say that even 'non contributory' years will count!! Does anyone else have thoughts on this?

CIS

It looks like they're just doing away with the minimum qualifying entitlement and allowing every qualifying year to count as approx 3.3% of the basic pension whereas currently the first 11yrs count for nothing, then once you get past the 25%, each year (including the 11yrs accrued) starts counting as approx 2.3%.

Milarky

I believe that they have said they will move from annual credits to weekly credits for both the basic and the additional pensions. (see middle of post #14). What this (should) mean is that you get credit under both schemes 'concurrently' - whereas at the moment all your credit goes either towards making a year a 'qualifying' year or else - once the year has been 'qualified' by your having earned enough since April you (only) then start building credit towards the additional pension. Instead if, say, you earned £252 a given week they will split that - £84 towards the 'stamp' for the flat rate pension and the balance - £168 - towards the additional pension. Work for just 13 weeks and you would recieve 0.25 QFYs (i.e £84 x 13 weeks) and £2184 (£168 x 13 weeks) of 'band earnings'. Under today's rules you would get nothing (because £252 x 13 weeks = £84 x 51 weeks) because you need '52' weeks 'stamps' (@£84pw) and you only have 51 from these earnings. You can 'sign on' and get 'credited' for this single, missing stamp but you would then have 'nil' band earnings because all the earnings will have gone towards making the year a QFY and none into band earnings. Changing the basis from annual to weekly (if this is what they mean) would therefore roughly double the the value of this set of earnings AFAICS.

The '30 year rule'
Whilst this makes it a relative 'dodle' to get to a basic state pension over a fifty year working lifetime, they aren't making it possible to build up additional (S2P) pension at the same rate are they? In effect (and some people will complain about this but I don't see why, really) to get the maximum out of the S2P you will have to contribute for every year of your working life. That means that you will effectively make additional contributions of 20 years towards the basic pension first if you then want to enhance you S2P in those years. What that sounds like to me is a system of 'annual' credits for years 31-49 and only a system of 'weekly' credits in years 0-30. [Hmm! I wonder if they haven't worked that out yet?]