Pension changes 2012 onwards: what impact on you and the economy?

tomterm8

dunstonh wrote: »

That reason makes no sense. A pension is just a tax wrapper. Just like ISAs, investment bonds and other tax wrappers. You can put the same investments into most tax wrappers allowing you to invest your savings in the pension (or other tax wrappers) as you wish. If you dont trust pensions then you cant trust ISAs or any other tax wrapper or unwrapped investment. That would make you totally paranoid.

NEST is still not guaranteed to come in. Currently, the Govt is talking with the pension industry as to whether the private sector can deal with it. It has already been put back several times and there is a feeling it could go back further or be completely replaced with a brand new product that combines ISAs and pensions in some way.

Many of the companies that are affected by NEST have been aware of it for nearly 5 years now. Many have factored in the costs already or are of the belief that it wont happen.

A pension is not just a tax wrapper: you are restricted from taking the money out for a period of decades, and there is no certainty that the terms will remain the same over that period. The government keeps on fiddling around with the terms of pensions. Investing in a pension, as they are currently formulated, is an act of trust that a government in 20 years time will not screw you over.

I don't have that trust: I prefer to keep my money in asset classes and tax structures whose terms I have some ability to predict.

vivatifosi

kabayiri wrote: »

What assurances do we have that future governments don't tinker with things, or put their hand in the pot, just like Gordon Brown did?

The government needs to earn people's trust, not assume it has their trust as an automatic right.

I agree. It is one of the reasons I distrust Gordon Brown so much.

If I was to lay out my fears going forward - and I'm having quite a distopian day today so please excuse me if I'm sounding slightly tinfoil hat - it would be this.

Governments want to push people towards a personal pension because they are living longer and although there is a small baby boom at the moment the long term trend is towards an aging population. Whatever the EU rules are on this currently, most EU countries will be trying to trim back on generous pensions and the rules are likely to change. Pensions are seen as a long term and necessary target by governments across the EU.

I can see that there will need to be a state pension when I retire in the late 2020s (or early 2030s if they move the dates back), but I can't see that they will want to spend loads on top ups. They may even say to me that I have too big a pension pot and tough, you can't have a state pension (my pension forecasts are relatively modest btw).

By then, I also think the way transactions happen and money works will be different. E-money will make it much easier for the government to say we'll give you this much towards your housing, this much towards food, this much towards power, a small amount for clothing and that's your lot.

Another alternative to that is that they push the age of retirement back further and further so that only those that have saved for a retirement get to leave the workforce at a decent age.

I can't for one minute imagine that when I retire I'll get a free bus pass or a top-up payment for heating in the winter. Whoever is in power they'll have grabbed that back way before then.

OK, some of that may be worst case scenario, but it isn't a worst case scenario I personally want to leave to chance.

dunstonh

A pension is not just a tax wrapper: you are restricted from taking the money out for a period of decades, and there is no certainty that the terms will remain the same over that period.

The pension is a tax wrapper. That is a fact. The terms of the tax wrapper and restrictions do not mean it ceases to be a tax wrapper. All tax wrappers have rules. Some more restrictive than others. All tax wrappers get played with as well. PEPs for example are not as tax free as they were when they were introduced. Personal pensions have only been altered once since they were introduced and that is the age 50 to 55 rule. Some minor tweaks were made but only on things like triviality which needed updating and actually is more beneficial now. The end of annuitisation will be good as well.

The government keeps on fiddling around with the terms of pensions. Investing in a pension, as they are currently formulated, is an act of trust that a government in 20 years time will not screw you over.

That is certainly a negative with the pension wrapper. Although not all changes have been bad.

I don't have that trust: I prefer to keep my money in asset classes and tax structures whose terms I have some ability to predict.

You dont trust the wrapper and thats fine. However, that doesnt have any impact on the investments or asset classes.

Historically, Governments didnt change things retrospectively very often. Gordon Brown started doing it with lots of things and that has been extremely damaging. Unfortunately, the Coalition seem to be following that bad example.

tomterm8

dunstonh wrote: »

The pension is a tax wrapper. That is a fact. The terms of the tax wrapper and restrictions do not mean it ceases to be a tax wrapper. All tax wrappers have rules. Some more restrictive than others. All tax wrappers get played with as well. PEPs for example are not as tax free as they were when they were introduced. Personal pensions have only been altered once since they were introduced and that is the age 50 to 55 rule. Some minor tweaks were made but only on things like triviality which needed updating and actually is more beneficial now. The end of annuitisation will be good as well.

That is certainly a negative with the pension wrapper. Although not all changes have been bad.
You dont trust the wrapper and thats fine. However, that doesnt have any impact on the investments or asset classes.

Historically, Governments didnt change things retrospectively very often. Gordon Brown started doing it with lots of things and that has been extremely damaging. Unfortunately, the Coalition seem to be following that bad example.

So, to be blunt, you can't assure me that after 20 years, with countless unforseen circumstances, I will be able to withdraw my money, or even if anything you said in your post will be correct at that point in time, or even whether I will be able to invest the money I put in now in the way I chose, or what the terms of withdrawing the money will be, or the tax or retirement age will be, or frankly anything at all.

But I am, as you say, paranoid because I don't trust that the terms I invest money in will be the same when I come to take it out again. Because, historically, governments most often don't change the terms of the pension schemes. Except, of course, the most recent government, and the current government, which is clearly in the process of changing the terms of pension schemes.

OK, I guess I am paranoid then.

jamesd

Do you think that we'll continue to receive MIRAS in ten years? (hmm, maybe that one is pointless now...) What do you think the taper relief will be like for residential and BTL property in fifteen years? (and this one as well) Will council tax be scrapped when home value tax is introduced or will it become earnings-related? (why tax on value instead of earnings, isn't that regressive?) What rate do you think the excessive home value tax will be at in 20 years? (introduced to catch people who try to avoud tax by buying high priced homes) How high will the non-pension investment capital value tax be in 15 years? (introduced at 40% to catch the rich people without affecting people's retirement pensions)

What do you plan to use that has a predictable tax structure?

tomterm8

I've no idea about any of those questions, Jamesd, which is why I avoid deals that bind you into a decision for decades at a time, wherever possible. It's common sence.

Thrugelmir

vivatifosi wrote: »

If more people pay into pensions and their disposable income drops, what impact will that have on the economy and house prices?

In the longer term it will benefit the economy and most importantly individuals themselves. The savings habit has been well and truly lost. If it requires forced saving for retirement then so be it.

We are living longer on average. This has to be paid for.

While retirement savings cause a temporary blip this money will eventually return into circulation. As people use the money for every day needs. A % will also find its way back the exechequer as tax revenue.

I've worked in SME's for the majority of my working life, including total new business start ups. Pensions are low on the list of priorities for both employees ( and employers).

Many SME businessess have no long term horizons. With the aid of (outside) investment, shareholders now look for an exit route 3 -7 years after the business is formed. Employment is no longer guaranteed for an extended period of time. Jobs for life are a thing of the past for many. Labour markets are now flexible. Temping and contracting is no longer viewed in a negative light.

With no pension provision. People will be selling their houses to fund their later years. So pensions or not. House prices will be affected by the saving habits of the past 15 years or so. It'll take a generation for this to pass.

dunstonh

Many SME businessess have no long term horizons. With the aid of (outside) investment, shareholders now look for an exit route 3 -7 years after the business is formed. Employment is no longer guaranteed for an extended period of time. Jobs for life are a thing of the past for many. Labour markets are now flexible. Temping and contracting is no longer viewed in a negative light.

This is the problem with the capitalist system in that it has taken it too far.

You even have a massive company like Aviva now under threat of being broken up and sold off because shareholders feel they will make more money with the general insurance arm being sold to Royal Sun Alliance and the life, pensions and investments arm being sold to Phoenix. Aviva may have its faults and this is not the thread for that. However, it is a viable and profitable company that employs loads. If it gets broken up, you end up with less people employed, less consumer choice and bigger companies that do more damage to the economy if they fail. However, the shareholders that pushed through the break up make their bucketload and dont care. Short term gain. No long term planning.

treliac

vivatifosi wrote: »

From 2012 the rules on pensions will change. Although changes are being phased in, agency workers, temps and part time workers will also be included in the new legislation.

I feel that the boom in agency work, short term contracts and the like has been partly driven by the lack of a requirement to give parity of employment terms and conditions.

Now temp workers have to be given annual leave and soon will have to be considered when it comes to pensions. It won't suit all employers and it will have a knock on effect across the economy.

There is currently a generation of workers who have not had these benefits/opportunities. In future all employees will be on a more equal footing although, I'm sure, the head in the sand types won't welcome higher deductions from their pay.

Change can only be a good thing in my opinion.

neverdespairgirl

olly300 wrote: »

With regards to the self-employed I won't be surprised if they are forced into the government NEST scheme at some point.

Apologies for being thick, but how's that different from a SIPP for the self-employed?