Excess National Insurance Contributions

Sapphire

EdInvestor wrote:

What a strange post from jamesd. I'd have thought it's very obvious that women coming up to retirement now have been quite seriously disadvantaged by the rules in the past, that is why something like only 30% of them qualify for the full basic state pension, compared with 87% of men. The position of the younger generation will be immensely imporved by the new 30 year rule - the numbers of women getting the full state pension will rocket to 70% overnight Younger ones will be much better looked after, as will less well off younger people, with the restructuring of the state second pension.

There always appear to be a few losers when things change, like the OP.Another group will be those who retire before 2010 with more than 30 years NI conts, but less than the full amount for the basic pension.

Yes, quite agree - very strange post. :cool:

Sapphire

jamesd wrote:

It seems clear that those in her age group and retiring in the next 10-15 years should have had to work longer and pay more to qualify for state pensions. That's never popular, of course...

Why should she have to work any longer than her parents, and especially without having had enough warning that she needs to do so to be able to plan an extension of her working life? Bear in mind also that - whether the law regarding the employment of the elderly has changed or not - her earnings potential is likely to be very poor due to discrimination against older people in the workplace.

djohn2002uk

jamesd, I think from your replies to edinvestor it seems that you do a fair bit of reading but not enough digesting. A bit like listening but not hearing. I sugest you read again because to me she makes a lot more sense than you do.
Makes me think that although it's obvious you have an axe to grind over the age group that the OP is in, you also give the impression that you could be in the younger group that you feel will be disadvantaged. Don't you think that this has been going on for years and each generation lives longer and the generation behind picks up any tab that's needed.

jamesd

She should have to work longer than her parents because she will live longer after retiring than her parents. Women who retired in 1950 could expect to spend 26.1% of their adult life in retirement. Women retiring in 2000 could expect to spend 36.9% of their adult life in retirement, before any change to the age to raise it above 60. The money to pay for those extra 4.5 years in retirement has to come from somewhere and there are three ways to get it:

1. Retiring later, to reduce the number of years in retirement and increase the time during which contributions are being paid.

2. Paying higher contributions.

3. Having the children (or general next generation) paying more to subsidise the retirement.

This is why pension ages are in the process of increasing for both men and women. Women more than men initially because their life expectancy is already longer than for men, so that gap needed to decrease. We should really have women retiring a couple of years later than men, not five years earlier, if both are to be in retirement for the same proportion of their lives. Just because women live longer, so more time earning is needed to provide for the longer life and longer time in retirement.

She should certainly have received notice and it would be unfair to just do it today without notice. Should have happened at least ten years ago, so the start of the baby boom generation had notice.

I agree about the unfortunate discrimination situation.

The longer life expectancy for women is why they get a lower annuity pension payent for the same pension fund value. Not only do women get paid less when earning, an injustice that needs correcting, they also need to work longer or save more to get the same income when they retire, because they live longer.

jamesd

djohn2002uk wrote:

Makes me think that although it's obvious you have an axe to grind over the age group that the OP is in

Better to read the reports and see what they say. Really. It's not an axe, it's just demographics, the changing population and how to deal with the change.

The group that is retiring now and in the next few years hasn't (as a whole, not as individuals) provided sufficiently for their longer life expectancy. I'd say that's more a political failure, with governments not doing their job of adjusting to longer life expectancy rather than anything individuals did or didn't do.

Still, we're better off than the US, where the government still isn't doing anything about it beyond talk and trying to ignore it. At least here there are changes happening.

djohn2002uk wrote:

you also give the impression that you could be in the younger group that you feel will be disadvantaged.

I'll probably be retiring when the ratio of those working to those retired is at its lowest. That is, when the baby boom generation hasn't started dying at high rates yet, so the pressure on the younger generation is at its greatest. A bit after my likely retirement the pressure on the next generation starts to fall. If there's much strife about it later I'll be perfectly placed to suffer for the longest possible time.

djohn2002uk wrote:

Don't you think that this has been going on for years and each generation lives longer and the generation behind picks up any tab that's needed.

That's worked pretty well because the baby boom generation had more people to pay the bill for the smaller generation their parents are/were in as the parents' life expectancy grew. Now the picture is reversing and we'll see more people retired and fewer people in work.

EdInvestor

The money to pay for those extra 4.5 years in retirement has to come from somewhere and there are three ways to get it:
1. Retiring later, to reduce the number of years in retirement and increase the time during which contributions are being paid.
2. Paying higher contributions.
3. Having the children (or general next generation) paying more to subsidise the retirement.

One suspects jamesd is probably making the same mistake commonly made in the pensions industry that the assets available for retirement funding consist only of pension entitlements.

Since the pension industry has lost such a lot of this money in recent years, the position must look dire to these people (especially as annuity rates have also gone down). Hence they feel there is a crisis.

However, as people in the real world are well aware, there are plenty of other assets around which can be used to fund retirement: starting with property, whether it be investing via BTL or overseas, trading down from a valuable family home to release capital, or using equity release as an income top-up in later years.

Annuities do not have to be used: instead one can hold onto one's capital, keep investing it via income drawdown and ASP and let it grow, to pay out a bigger income in future.:)

People are also getting a lot smarter about not handing over large chunks of their money to the financial services industry and surrering high charges, derisory annuity rates, underperforming pensions and endowments,and expensive products that attract high taxes as well. They are learning the benefits of DYOR and DIY.

A growing number of people are removing themselves from the scene totally by living overseas, which will be most helpful in reducing the cost of running the NHS to those still at home.

Nor is the younger generation losing out now: the "Bank of mum and dad" is well documented as a source of house deposits, and many is the student kid living rent free ( and tuition free as well quite possibly) in a BTL owned by his parents which will later top up their pensions.

Jamesd should stop thinking pensions are a zero sum game. Everyone else gave up thinking like that years ago, when it became obvious the industry had screwed up big time.

oldandhappy

The main reason we purchased a property abroad over 20 years ago was for some financial security in our later years. 2 years ago was the right time for us to sell it and retire on the proceeds.We did not want to work till we dropped, we wanted more time to ourselves which is what we have.Mrs H.

Bossyboots

Getting back to the original post, National Insurance also goes into funding the NHS so while there might be enough paid in to secure the full state pension, that is no reason to expect to stop paying towards state medical care, a system which no doubt is made more use of by the retired simply because of the biology of advancing age.

jamesd

EdInvestor wrote:

One suspects jamesd is probably making the same mistake commonly made in the pensions industry that the assets available for retirement funding consist only of pension entitlements.

See, for example, figure 1.16 on page 57 of the report. That one shows private provision at about 5.75% of GDP today, rising to about 7.1% of GDP in 2035 then falling.

I'm not sure what you are excluding with entitlements, though. Are you excluding personal pension pots and annuity purchase or income drawdown from entitlements? Excluding ISAs? Trying to mean only state benefits of any type and exclude the rest? The Pension Commission didn't exclude any of these.

If you're interested only in state spending, that's in figure 1.5 on page 47. For 2033 it shows 140% as many pensioners as today, 6.9% of GDP spent. If we want todays percentage of GDP levels for each pensioner that's a shortfall of 19%. The total needed to keep the per-pensioner spending constant as a percentage of GDP, so their living standards rise with the rest of society, rises from about 6.1% of GDP today to 8.3% of GDP in 2033.

EdInvestor wrote:

Since the pension industry has lost such a lot of this money in recent years, the position must look dire to these people (especially as annuity rates have also gone down). Hence they feel there is a crisis.

However, as people in the real world are well aware, there are plenty of other assets around which can be used to fund retirement: starting with property, whether it be investing via BTL or overseas, trading down from a valuable family home to release capital, or using equity release as an income top-up in later years.

Property is one of the things the report considers. See page 81 for home ownership as % of GDP and by age as it changes over the years. See pages 84, 86 and 87 for discussion.

EdInvestor wrote:

Annuities do not have to be used: instead one can hold onto one's capital, keep investing it via income drawdown and ASP and let it grow, to pay out a bigger income in future.:)

I definitely like this more than most of the pension schemes - much more than buying an annuity.

EdInvestor wrote:

People are also getting a lot smarter about not handing over large chunks of their money to the financial services industry and surrering high charges, derisory annuity rates, underperforming pensions and endowments,and expensive products that attract high taxes as well. They are learning the benefits of DYOR and DIY.

I'm currently giving my employer's benefits company a hard time over this. Full upfront and trail commission with no advice at all for the Scotish Widows IFA product. Just for fun their IDD claims they offer advice and are providing personal recommendations, when they are doing neither. I'm not at all impressed with them.

EdInvestor wrote:

A growing number of people are removing themselves from the scene totally by living overseas, which will be most helpful in reducing the cost of running the NHS to those still at home.

Nor is the younger generation losing out now: the "Bank of mum and dad" is well documented as a source of house deposits, and many is the student kid living rent free ( and tuition free as well quite possibly) in a BTL owned by his parents which will later top up their pensions.

The youngest generation is getting a less good deal than I did. For university I got full tuition plus living expenses plus benefits if I didn't work during the holidays. Today it's free tuition, loans and work in the holidays and bank of mum and dad. You really think that particular younger generation is getting a better deal than I got? Their worse deal is part of why those things you're discussing are happening, though the house prices are a massive part of it over the last few years.

My grandparents provided rent-reduced housing for one of my uncles. My mother is doing it for one of my brothers. It's what parents do, in each generation.

EdInvestor wrote:

Jamesd should stop thinking pensions are a zero sum game. Everyone else gave up thinking like that years ago, when it became obvious the industry had screwed up big time.

You have a good line in attacking me. How about attacking the Pension Commission's numbers and conclusions instead?

jamesd

Bossyboots wrote:

Getting back to the original post, National Insurance also goes into funding the NHS so while there might be enough paid in to secure the full state pension, that is no reason to expect to stop paying towards state medical care, a system which no doubt is made more use of by the retired simply because of the biology of advancing age.

With 40% more pensioners expected in 2033 than today this seems pretty significant.

oldandhappy wrote:

The main reason we purchased a property abroad over 20 years ago was for some financial security in our later years. 2 years ago was the right time for us to sell it and retire on the proceeds.We did not want to work till we dropped, we wanted more time to ourselves which is what we have.Mrs H.

Good for you. I hope you have a great retirement... I'll try to do as well myself.