MSE News: Pension timebomb warning as Govt unveils saving scheme

cw18

Hadn't picked up on that, but NI threshold is still below the level where you start to pay tax though.....

Tax Allowance = £6475pa = £124.50(ish)pw
NI Threshold = £110pw


ETA: Just had a read of the examples on the PADA site - looks like contributions can be paid from the first £1 of earnings, but it's based on anything above around £98 if you don't "opt out" or select to pay from an earlier point.

jamesd

You can get tax relief on the first 3600 of gross pension contributions even if not working and not paying income tax.

cw18

Didn't realise that, so many thanks for the info

dunstonh

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

There is no tax relief on the Govt scheme. Only on personal pensions and conventional pension schemes. This is why its better for companies to use their own pensions and not the Govt one.

cw18

It says on the PADA site that the minimum contribution has to be 8%, but that is made up of a combination of employers contribution, employees contribution and tax relief

dunstonh

cw18 wrote: »

It says on the PADA site that the minimum contribution has to be 8%, but that is made up of a combination of employers contribution, employees contribution and tax relief

The Govt contribution is not tax relief though as its a fixed contribution. Unlike personal and conventional company schemes.

tartanterra

Incredible.

After years of debate, and with a growing consensus in the country that something has to be done, our political masters have produced a half hearted scheme which may or may not actually happen.

It's enough to make you despair.

exil

The government is going to get it in the neck whatever it does or does not do. If it does "something" it will turn out to be the wrong thing. If it does "nothing" it will be castigated for inaction and delay.

NB this is not a party political point. Pensions is one of the few things that the main parties are going to do with an eye to the future and with a measure of consensus as no-one knows who is going to be in power in 10,20,30 or 40 years time and thus the seeds a government sews now could mature into roses - or triffids - during a period when they themselves (or their political successors) are in the hot seat.

As usual this scheme is likely to turn out to be a compromise, and therefore is likely to please nobody.

The big question is - if we think it's a good idea for pensioners in the future (that is, not the ones who are pensioners today but those who are starting their working lives or are still at school or college) to have a reasonable income - how is this to be funded? by private saving or by future taxpayers? or by money saved by current taxpayers into a fund ringfenced for the purpose (and what kind of fund? gold reserves? stocks and shares?)
- if it is to be by private saving - should this be voluntary or compulsory? And if voluntary, what do we do with people who refuse to save? let them starve? put them in the workhouse?

dunstonh

The political bit I would aim at the Labour Govt is that it is creating another Govt quango/committee/body to set up pensions which are expected to actually cost more than the cheapest pensions you can get from insurance companies and other pension providers.

Why create more inefficient Government bodies when you can use the private sector.

exil

Would private sector charges really be less given the small amounts involved for each person? Could I really provide myself or a small number of employees with a pension more cheaply?

Not just the UK government - look at this

http://in.reuters.com/article/businessNews/idINIndia-39353020090430

http://www.dnaindia.com/money/report_how-pranabda-killed-new-pension-scheme_1271715

My own fears about this are more related to having a state-regulated fund invested in stocks and shares. What would be the fallout if there's a stock market crash that hits this fund? Will there be a clamour for taxpayers to supplement the fund - there'll then be an almighty row between those about to draw their pension (who will naturally want this rescue to happen) and youngsters (who will have less invested in the scheme and won't like the idea of paying extra tax to the benefit of sixty somethings). We already have the notion that the state should bail out private sector occupational pensions and it already funds public sector pensions in addition to the state pension. Now as a socialist I don't object to the state funding pensions on principle. I do fear the political and economic fallout if people see a lifetime of savings going down the toilet in a future crash.

The problem behind this is that in the UK, like the US and unlike in Japan, we prefer to spend money rather than save it. And as we've found out, the economy seems to fall in a heap as soon as people stop spending. Not sure what the answer is - and I don't think anyone else does either!