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MSE News: Pension timebomb warning as Govt unveils saving scheme

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  • dunstonh
    dunstonh Posts: 119,883 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    But isn't it GOING TO BECOME compulsory? I thought that was the whole point?

    No. It will be compulsory for employers to offer a pension with at least the same level of contribution/benefit but it will not be compulsory for the employee to take them up on that. They can opt out.
    edit: I see you can opt-out which I find rather stupid.

    Yes. I agree. It just keeps the nanny state going and ensures that the taxpayers will continue paying for those that cant be bothered.
    I wonder if employers are going to quietly encourage people to opt out to avoid paying their share!

    Compliance by 2017 means that it can be absorbed into future pay rises over that period.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • stphnstevey
    stphnstevey Posts: 3,227 Forumite
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    Once the goverment makes it almost cumpulsory for employers and employees to contribute to a pension, why wouldn't they look to severely reduce or remove completely the state pension?

    Who pay's for the cost of the pension?

    The chioce of funds are likely to be very conservative (no pun intended) in an attempt to stop risking your money, but do you think they will allow you to transfer the funds to a better pension fund, much like Stakeholders allow now?
  • jamesd
    jamesd Posts: 26,103 Forumite
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    edited 12 January 2010 at 12:21AM
    Schemes like this rely on direct payments into the pension by the person who will receive it (or their employer or tax break). The state pensions are wealth redistributors that tax income and then redistribute it from those paying the most to those paying the least. So it's not likely that this will replace the state pensions.

    One reason to very strongly dislike this is that no, you will not be able to transfer the funds to another pension if the main provider is used. Last I read the plan was to revisit this [STRIKE]decades from now[/STRIKE] in 2017. Or put another way: even if you later learn how to manage your investments or build up a large pot and want more options, your money is going to be locked up so you can't do that.

    At least there is some probably accidental honesty here in the changing of the name from Personal Accounts that imply your own control to National Employment Savings Trust that better reflects control of the money.

    At least when writing about it here the logic will be fairly simple. Anyone who is showing an interest in their pension pot or investments is likely to be in the group that will eventually want more control, so it's likely to be easy to suggest avoiding this scheme to most posters here. Unless their employer offers no choice, in which case considering time to retirement and potential improved investment terms from better choices would have to be considered when deciding whether losing the employer contribution was worthwhile to get those better investment choices.

    Think of this is the cheap to run option that nobody with a choice will choose to use once they learn about the alternatives. Cheap to run because those on low incomes making low pension contributions are not profitable for normal pension providers, so something cheap is needed.
  • emweaver
    emweaver Posts: 8,419 Forumite
    StevieJ wrote: »
    I hope for her sake the tax credit system survives a new govt after the election
    :eek:

    which parties are going to abolish it? tbh i cant see they will as so many families rely on it
    Wins so far this year: Mum to be bath set, follow me Domino Dog, Vital baby feeding set, Spiderman goody bag, free pack of Kiplings cakes, £15 love to shop voucher, HTC Desire, Olive oil cooking spray, Original Source Strawberry Shower Gel, Garnier skin care hamper, Marc Jacobs fragrance.
  • lemontart wrote: »
    great save for old age - no worries of course as I am already in the position where I do not earn enough to cover my bills and am doing two jobs just to try and stand still and stop the slide further into debt I would like to know how I am supposed to conjure money up to do this or what else I have to give up as already skip meals, have no heating as cannot afford to run even if I could afford to get repaired,


    ....and therefore you'd like to live like this in your old age as well, would you?

    I feel sorry for your situation at the moment, but think it is short-sighted not to plan for your retirement as best you can.

    I hope your situation improves soon.
    (AKA HRH_MUngo)
    Member #10 of £2 savers club
    Imagine someone holding forth on biology whose only knowledge of the subject is the Book of British Birds, and you have a rough idea of what it feels like to read Richard Dawkins on theology: Terry Eagleton
  • I detest government interference in so many aspects of our lives. However, this scheme is long overdue.

    We are now living in a society where self provision for the future takes a backseat to possessing a big television, and spend, spend, spend is the mantra of so many. I was lucky enough to be brought up by my grandparents, who despite not being well off, taught me the value of saving for a "rainy day".

    This scheme should have been brought in years ago, and whilst I will probably "opt out" of it when it is finally implemented, I will only do so because I am already a member of other schemes which I think will probably be better than anything on offer from the Government's chosen provider.

    Saving for retirement should be compulsory, and there are plenty of financial vehicles out there for people to utilise for this purpose.

    If society doesn't get itself into a savings culture soon, we could end up in the outrageous situation where those who have been prudent and saved for their retirement, could end up being punitively taxed on their pension income to pay for the !!!!less who could have saved for their retirement, but instead chose to blow their money.:eek:

    As I say, I don't like the government putting it's oar into so many aspects of everyday life, but in this case, I see no other option. We are, indeed, sitting on a timebomb and this problem should have been tackled years ago.
    Nothing is foolproof, as fools are so ingenious! :D
  • Milarky
    Milarky Posts: 6,356 Forumite
    Part of the Furniture 1,000 Posts Photogenic
    edited 9 January 2010 at 6:23PM
    Hmm! It looks like being even more a flop than workplace stakeholder pensions were in 2001. Remember those? A few years in 85% of 'schemes' had no members at all and the rest had maybe one or two members only (and potential membership started at 10 - the employee number threshold)

    So it looks like PAs or 'NESTs' as we shall learn to call them aren't being taken seriously by anyone much (and those are 'in the know'!)

    Shame the gov't were unable to consider pukka 'savings accounts' that were 'pension-like' but not actually required to buy an annuity (eg 'Kiwi saver') They at least had the potential to promote savings habits. But in the end they must have thought it was necessary to cook up a scheme which kept the insurers in employment rather than what was best for consumers.

    Just a bit of jargon, the people behind this actually go by the acronym 'PADA' (Personal Accounts Delivery Authority) - in case you thought I made that up!

    ..meanwhile this logo cost you, me, us £363,000 to commission..

    nest_203x150.jpg
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  • jamesd
    jamesd Posts: 26,103 Forumite
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    Milarky, well, the logo makes some sense. It will probably help to build up a nest egg for future governments to reduce liability for the pension Minimum Income Guarantee, which is a key reason why the Pensions Commission recommended such a scheme.
  • cw18
    cw18 Posts: 8,630 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Photogenic
    Just had another thought....... this would actually cost low paid part-time workers a higher percentage of their take-home pay, than it would a higher paid person.
    Employers must contribute at least 3% of your salary in most cases, and the total minimum amount saved must be 8%, made up of employer contributions, worker contributions and tax relief.

    So this implies the employees contribution (including tax relief) has to be at least 5%

    With tax relief (assuming Basic Rate is still at 20%) a tax payer would only lose 4% of their take-home pay.

    But then take the low paid part-timers (like my DD) who don't actually earn enough to PAY tax -- presumably they'd still have to pay 5% of their GROSS income, which will also be 5% of their take-home pay :o
    Cheryl
  • Milarky
    Milarky Posts: 6,356 Forumite
    Part of the Furniture 1,000 Posts Photogenic
    cw18 wrote: »
    But then take the low paid part-timers (like my DD) who don't actually earn enough to PAY tax -- presumably they'd still have to pay 5% of their GROSS income, which will also be 5% of their take-home pay :o
    I may be mistaken but I seem to recall that the potential contribution was a percentage of income above the NI threshold or personal allowance - not from £1pa up...
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