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MSE News: Pension timebomb warning as Govt unveils saving scheme

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MSE News: Pension timebomb warning as Govt unveils saving scheme

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MSE_GuyMSE_Guy MSE Staff
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This is the discussion thread for the following MSE News Story:

"A plan to ensure employees save cash in a pension pot from 2012 was today named NEST, but experts say ..."

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  • The new scheme by the government is a hugh CON TRICK.

    My husband is a financial planner and specializes in Pensions. He sees
    hundreds of employees every year and has hardly ever met anyone who
    has more than £100,000 in their pension pot. People have absolutely no
    idea how much income they will get from their pension pot at retirement.
    £100,000 used to give about £5,000 per annum, but I think it is less than
    that now - how many people can live on £5,000 per year.

    It is an absolute scandal and the government do nothing to educate people.
    they are trying to get some kind of kudos from setting up this scheme, but
    no one I know, or have ever met - understands pensions. Most people glaze
    over when you bring up the subject. Most people are devasted when they
    find out the truth, often too late to do anything about it.

    This is much more important than the Bank Charges scandal - but
    it doesn't get half as much coverage!!

    The reason the government are raising the retirement age is because they
    know that in the future most people will not be able to retire - except
    civil servants - but they don't want to advertise that either.
  • edited 7 January 2010 at 8:35PM
    AegisAegis Forumite
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    edited 7 January 2010 at 8:35PM
    Richmuma wrote: »
    The new scheme by the government is a hugh CON TRICK.

    My husband is a financial planner and specializes in Pensions. He sees
    hundreds of employees every year and has hardly ever met anyone who
    has more than £100,000 in their pension pot. People have absolutely no
    idea how much income they will get from their pension pot at retirement.
    £100,000 used to give about £5,000 per annum, but I think it is less than
    that now - how many people can live on £5,000 per year.

    People should still be able to get 5% annuities at the moment. I'm pretty sure I've seen a few quotes lately for annuity rates a little over that.
    It is an absolute scandal and the government do nothing to educate people.
    they are trying to get some kind of kudos from setting up this scheme, but
    no one I know, or have ever met - understands pensions. Most people glaze
    over when you bring up the subject. Most people are devasted when they
    find out the truth, often too late to do anything about it.

    This is much more important than the Bank Charges scandal - but
    it doesn't get half as much coverage!!

    The reason the government are raising the retirement age is because they
    know that in the future most people will not be able to retire - except
    civil servants - but they don't want to advertise that either.
    My guess is that it's more to do with revenue raising. The longer people work, the more income tax they pay. People who can retire at 50 are generally pretty high earners, so getting another 5 years out of them is a good thing for the government. It also means that when they die they're more likely to have stuff left over in their vested pension pot which will potentially be subject to tax
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  • jamesdjamesd Forumite
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    That's one nest egg to avoid building up if at all possible. So far the plans are to lock you in to one investment provider that seems likely to offer a very limited choice of lowest bidder investments. Better to try to persuade your employer to set up an alternative group personal pension to avoid that lockin and get better choice along with the flexibility to change provider.

    It's still worth doing if your employer doesn't offer something decent instead.

    Richmuma, how much you get from an annuity varies but it's currently quite low in part because of quantitative easing that's reduced the amount of annuity income your pension pot buys you. It'll probably improve as QE stops.

    Pensions are just like stocks and shares ISAs when working, a place to hold investments. But with a tax break when you put the money in and the first ten thousand or so of pension income in retirement tax free because it's covered by the personal allowance you get once you reach state retirement age. That makes investing for retirement in a pension the best deal going for almost everyone for the first ten thousand Pounds of retirement income.

    The government is raising the retirement age because:

    1. It was unfairly generous to women, who both retired earlier and lived longer, so they got far more pension for their money than men, if they paid the same contributions. And the areas that were unfair to women are also being addressed, with things like dropping the number of years to get a state pension to thirty.
    2. The baby boom generation will be retiring over the next twenty years and that will decrease the number of working tax payers who can pay taxes to cover the pensions of the larger retired generation.
    3. Life expectancies are increasing, so the number of years of retirement to be paid for by each year of working taxes and saving is going up.
  • moleratmolerat Forumite
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    Lots of people being forced to give money to Gordo and Ali's chums (and next employers) the banks.
  • cw18cw18 Forumite
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    So will there be an increase to CTC / WTC at the same time?

    My DD earns pennies above the minimum wage, and relies on her CTC/WTC top-up to cover the bills. But if she's expected to pay 4-5% of her salary into a pension this is likely to cause her major financial headaches.

    I know it says it's possible to opt-out, but what penalties will there be for those who do? Will they be told (in the future) that they didn't do anything to plan for retirement, so will get even less of a State Pension (if it's even there)

    Don't get me wrong - I'm not against saving for retirement. I've paid into company schemes from late 1984 until November 2008 (when I was made redundant). I started work again 9 weeks ago, but am in a much lower paid job (hourly rate, and PT instead of FT - but glad to be working again), and I'm not sure even I could afford to contribute from now on...... So it looks like I'll have to opt out when these things come in and rely on the various schemes (and AVCs) I have behind me already :confused:
    Cheryl
  • StevieJStevieJ Forumite
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    cw18 wrote: »
    So will there be an increase to CTC / WTC at the same time?

    My DD earns pennies above the minimum wage, and relies on her CTC/WTC top-up to cover the bill
    s. But if she's expected to pay 4-5% of her salary into a pension this is likely to cause her major financial headaches.

    :confused:

    I hope for her sake the tax credit system survives a new govt after the election
    :eek:
    Government: "Should we get a pet?" 52%: "Yes" Government: "OK, we'll get a cat" 1/2 of 52%: "Oh no, I hate cats. I wanted a dog."
  • jamesdjamesd Forumite
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    cw18, pension contributions reduce the income that counts for tax credits, so an increase in the tax credits seems likely.

    There's no immediate direct penalty for opting out. You still accumulate basic state pension and additional state pension (S2P, formerly SERPS). The idea is that the combination of those two plus this will take the poorest workers to an income above the pension minimum income guarantee means-tested benefit level.
  • Sorry, but what a silly post this is...
    Richmuma wrote: »
    The new scheme by the government is a hugh CON TRICK.

    Why is it?
    Richmuma wrote: »

    My husband is a financial planner and specializes in Pensions. He sees
    hundreds of employees every year and has hardly ever met anyone who
    has more than £100,000 in their pension pot. People have absolutely no
    idea how much income they will get from their pension pot at retirement.
    £100,000 used to give about £5,000 per annum, but I think it is less than
    that now - how many people can live on £5,000 per year.

    Probably not many. But what does your husband advise people to do if they say they cannot afford to live on £5k per year pay less into a pension or pay more?

    There is only one way that you you are going to get more income at retirement and that is to save more. That could be by paying more each month, by starting paying earlier or a combination.
    Richmuma wrote: »
    It is an absolute scandal and the government do nothing to educate people.
    they are trying to get some kind of kudos from setting up this scheme, but
    no one I know, or have ever met - understands pensions. Most people glaze
    over when you bring up the subject. Most people are devasted when they
    find out the truth, often too late to do anything about it.

    I'm not sure why you think it is a scandal. I agree there are very few people who understand pensions. Just like 20 years ago there were not many people who could program a video recorder, or 10 years ago work a mobile phone. Would you/your husband prefer that pensions remain a subject that people glaze over or, do you think it would be better to engage the population and make saving for your retirement the norm. Of course this will not be an overnight change in attitude, it will take a generation before people who start saving in 2012 have pension pots large enough to provide an income that is worth having but surley it is worth starting now than not at all. It will also take time for people to become familier with how they work but in 10 years time they will be as familier as a bank account or an ISA.

    Incidentially as a financial planner specialising in pensions I would have thought that your husband would have welcomed these reforms with open arms. A whole new generation of potential customers slowley getting educated in his area of expertise. Crickey I know I'd like my customer base to grow like that!

    I hate the Labour Government as much as the next person, but, this is something they have got right. We have a serious pensions issue in this country and the sooner we start tackling it the better. The accounts also have cross party support.
    Richmuma wrote: »
    This is much more important than the Bank Charges scandal - but
    it doesn't get half as much coverage!!

    Agreed. This is even 'free' money. You can effectively double your money. Your 4% contribution will attract a further 1% tax relief plus a 3% contribution. That is something worth talking about!
    Richmuma wrote: »
    The reason the government are raising the retirement age is because they
    know that in the future most people will not be able to retire - except
    civil servants - but they don't want to advertise that either.

    Exactly. But there is no such thing as a free lunch. People are living longer which is a good thing for most but not those providing their income. That is why annuity rates are worsening (as the same amount of money will have to provide a pension which is paid over a longer period) and retirement ages are increasing. The number of people of a working age are decreasing and those in retirement increasing the sums simply do not add up. I do not think it is unreasonable to try to help people provide for themselves in retirement?

    Whats the alternative? I'm sure our children would not be happy with paying a basic rate of 35p in the pound with the increase simply so that when you hit 60 you can retire and live a comfortable life for the next 40 years?

    Incidentially. It is legislation which requires employers to automatically enrol their employees into a suitable pension scheme. Personal Accounts/NEST is just one option that an employer has to fulfil that duty in the same way that HSBC and Barclays are one means of having a bank account. I thought this a point worth noting as many of the arguments that people have against Personal Accounts/NEST are actually with the legislation itself and not with what is looking like an actually rather good scheme to use to comply with the legislation should you as an employer not have another suitable scheme.

    Picking up points from a few of the other posts, it will have a range of investment funds but also a default fund. The charges that apply are likely to be much lower than would be found under a typical personal pension scheme however if an individual grows out of the NEST target market then personal pensions might provide better options.
  • cw18cw18 Forumite
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    jamesd wrote: »
    cw18, pension contributions reduce the income that counts for tax credits, so an increase in the tax credits seems likely.
    Two points from this.

    1. I doubt she'd see a £-for-£ increase though, as Tax Credits are on a sliding scale (%age based) - and as far as we can make out she already gets the maximum CTC as she's only working 16 hours a week.

    2. I always thought pension contributions were ignored, but I'm not 100% sure this is as cut and dried as it was. In my last couple of years in a FT job I used 'salary sacrifice' for my pension contributions, which meant I also didn't pay NI contributions on them (if there's a loophole that the employer is going to encourage us to use, then I'm going to use it! may have only saved me pennies a week, but it's still pennies in my purse :rolleyes2 ). This never came up in conversation with Tax Credits, as they always asked for taxable pay and that was the figure I gave them. But when I phoned in November (having returned to work) to add WTC to my CTC claim, I was specifically asked if I pay for anything - including a pension - by a salary sacrifice scheme !!!!
    Cheryl
  • edited 8 January 2010 at 10:42AM
    jimbo_the_jetsetjimbo_the_jetset Forumite
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    edited 8 January 2010 at 10:42AM
    I'm sure we all agree that what is needed is a high profile media campaign by the government to spread the word to those who can't understand the 200 odd page pension reform document!!

    Hopefully the general election campaign might lead to more info being released.

    On that note I read in one news article that things might not be up and running until 2017? Does anyone know what that refers to? I currently work for a small company (4 employees) and no chance of a company pension. I am currently building up savings in cash and a stocks & shares ISA with a view to dumping a lump sum into my 'NEST' in 2012. Don't want to wait until 2017!!

    Finally just found this :

    http://www.padeliveryauthority.org.uk/

    So for those who are confused (like me a little bit) PADA is the Personal Accounts Delivery Authority (people responsible for organising it) and NEST is the National Employment Savings Trust (the actual savings trust)
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