Excess National Insurance Contributions

Sapphire

jamesd wrote:

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.

There are far more people going to university now than there were at the time the 'baby boomers', whom you have such bitterness against, were at university-going age. Many people of that generation didn't go to university - they left school after their GCSEs, started jobs in very low-paid professions, and worked their way up from there. Consequently, they will have had much longer working lives by the time they retire than those who did go to university.

Too many people are going to university today and obtaining useless degrees in 'media studies' and the like (arts subjects for the untalented). The quality of education seems to have deteriorated markedly. I've employed people with degrees whose English grammar is absolutely terrible, and who seem less intelligent than many of those who do not have degrees.

If fewer people went on to 'higher' studies, perhaps the overall standard of education could increase, students could get grants, and we would get better qualified people in the professions that really do need degrees, such as medicine and other sciences.

Also, many students are funded, partically or wholly, by their parents - towards whom you seem to have such angst - which wasn't possible in previous generations because most people didn't have the money to fund their children's education.

Not that all this has much to do with the original poster's query - I think perhaps you should have started another thread to air your grievances.

jamesd

Sapphire wrote:

There are far more people going to university now than there were at the time the 'baby boomers', whom you have such bitterness against, were at university-going age.

I'm a baby boomer. I have no bitterness against myself or the others.

Discussing UK retirement trends and how to provide for them doesn't imply dislike of the people who are retiring. It does imply trying to work out how to provide for the costs of it.

Sapphire wrote:

There are far more people going to university now than there were at the time the 'baby boomers',

Exactly. We're now seeing the same happening with the retiring population and need to make similar adjustments there.

Sapphire

jamesd wrote:

1. Discussing UK retirement trends and how to provide for them doesn't imply dislike of the people who are retiring. It does imply trying to work out how to provide for the costs of it.

2. Exactly. We're now seeing the same happening with the retiring population and need to make similar adjustments there.

1. What are your suggestions for trying to work out how to provide for the cost, then? So far I've seen only criticism.

2. What are you suggesting - a cull? When it comes to the excessive number of poorly educated students I made some concrete suggestions, i.e. limit the number of people going to university to study useless subjects (see above).

jamesd

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 while working before retirement. Including private contributions - all foms of pension wealth accumulation.

Both are planned, but the first not until after 2020 for men, when it's planned to raise it by two years in one year steps.

At the moment the big change in % of GDP for state pensions is expected to happen well before the change in retirement age happens. Looks as though the government is ducking doing it as soon as it should be done. Changing that so it does include most of the baby boomers seems like a good idea.

The final report of the Pensions Commission included some survey results which might be interesting:

• 12% agreed that pensioners will have to get poorer compared to the rest of society.
  
• 80% agreed that a greater share of taxes will have to be spent on pensions.
  
• 86% agreed that people will have to save more for their retirement.
  
• 56% agreed that people will have to work longer.

EdInvestor

2. Paying higher contributions while working before retirement.

It's not apparent this is really Government policy. The plan is to lower the number of years required to get the full basic state pension, not raise them.

The thrust of Government policy appears to be to get people investing more outside pensions - eg in the property market, which also has the benefit of stimulating economic growth through consumption spending, reducing the need later to spend on housing benefit, and providing a back-up retirement income topup in the form of equity release or trading down.

Current tax policy on other investing for basic rate taxpapers with no company pension contribution promotes direct equity investment or use of ISAs, not pensions. This is not surprsiing as the country really can't afford to allow the industry to extract 30% or more of people's savings in charges, leaving the government to pick up the shortfall.

It's also a mistake to base retirement income policy on statistics involving pensions only, not only because they grossly underestimate people's potentially income producing assets, but also because the private sector ones are not reliable.

Sapphire

jamesd wrote:

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 while working before retirement. Including private contributions - all foms of pension wealth accumulation.

We seem to be getting into rather a circular argument here, however, to repeat:

1. It is now too late to exercise this option when it comes to the 'baby boomer' generation, since it is already at retirement age or close to it. This suggestion is therefore not workable.

When it comes to 'retiring later', I am sure that many older people would be only to happy to carry on working. However, there is huge age discrimination in workplaces. If, for instance, a personnel manager interviews a mildly qualified young sprog and a 60-year-old for the same job, even though the elder may have much more experience the chances are that the person who will be employed will be the young sprog, no matter how inexperienced it may be (or that it may just have a useless 'arts' degree). Law or no law, age discrimination towards older people is rife.

2. Again, this argument does not apply to the 'baby boomer' generation, for the reasons given in point one above. Are you suggesting that this generation should pay higher contributions retrospectively?

Sapphire

EdInvestor wrote:

The thrust of Government policy appears to be to get people investing more outside pensions - eg in the property market, which also has the benefit of stimulating economic growth through consumption spending, reducing the need later to spend on housing benefit, and providing a back-up retirement income topup in the form of equity release or trading down.

It's also a mistake to base retirement income policy on statistics involving pensions only, not only because they grossly underestimate people's potentially income producing assets, but also because the private sector ones are not reliable.

Unfortunately, I think it is entirely possible that investing in property will go a similar way to taking out a pension. I can remember when people were very strongly encouraged to take out pensions, yet now most people's pensions are worth very little.

I've a feeling the same will eventually happen with property - except that it will be worse because people will have over-borrowed themselves into an enormous amount of debt, something that didn't happen with pensions.

jamesd

jamesd wrote:

2. Paying higher contributions while working before retirement

EdInvestor wrote:

It's not apparent this is really Government policy. The plan is to lower the number of years required to get the full basic state pension, not raise them.

That was my response on things that could be done, not a description of government policy. 86% of people in the DWP survey seemed to have the same view.

Yes, the plan is to lower the number of years to qualify, so more do qualify. That affects how much some will have paid. Others can pay more and in general the increase in retirement age that's planned will make most work longer, increasing the contributions before retirement. I expect that private pension contribution amounts will also be affected by a later state retirement age.

Increased savings of all forms, from property through ISAs and private pensions are also ways to contribute more before retiring.

EdInvestor wrote:

The thrust of Government policy appears to be to get people investing more outside pensions - eg in the property market, which also has the benefit of stimulating economic growth through consumption spending, reducing the need later to spend on housing benefit, and providing a back-up retirement income topup in the form of equity release or trading down.

The main thrust is perhaps better described as a default opt out pension scheme for all. That's the current plan, anyway.

Property, at least so far as the commission was concerned, just wasn't reliable when it came to helping those who were expected to be on lower incomes in retirement. What do you see in the way of things to encourage property investing by the majority of the population, particularly those of average earnings and below? I don't see a lot and abolishing SERPS looks to have been a pretty big blow to it for those on average and low incomes.

They were more keen on current private pensions but rejected them as a good enough solution because people didn't accept them enough of the time. That's why they went for an opt out pension as the best choice for most - so inertia would tend to keep people in it instead of doing what it does today, keeping people out of optional pensions.

EdInvestor wrote:

Current tax policy on other investing for basic rate taxpapers with no company pension contribution promotes direct equity investment or use of ISAs, not pensions. This is not surprsiing as the country really can't afford to allow the industry to extract 30% or more of people's savings in charges, leaving the government to pick up the shortfall.

Hmm, not sure I agree about policy objectives, since stakeholder pensions must be offered by companies with five or more employees unless they do some other qualifying scheme. The current tax free sum also provides a benefit for pensions only.

In practice when making investment wrapper choices I do agree with you, though - ISAs seem to be a very productive way to get people to save for retirement and anything else. Maybe because they are quite simple to start. Would be nice if you could transfer funds from cash to equities, though.

Those charges have been pretty crazy. At least its getting attention. Not that they are much better for a typical ISA than they are for a typical non-stakeholder pension.

EdInvestor wrote:

It's also a mistake to base retirement income policy on statistics involving pensions only, not only because they grossly underestimate people's potentially income producing assets, but also because the private sector ones are not reliable.

I agree that only considering pensions is a bad idea and private pensions seem unreliable mostly because many people don't have them. For thsoe who do, performance is also pretty erratic.

jamesd

Sapphire wrote:

We seem to be getting into rather a circular argument here, however, to repeat:

1. It is now too late to exercise this option when it comes to the 'baby boomer' generation, since it is already at retirement age or close to it. This suggestion is therefore not workable.

Increasing the retirement ages for the later baby boomers is being done. Female retirement ages for baby boomers are going up by five years and both are then going up by one more year. A second added year doesn't start until after the last baby boomers, born in 1965, have retired. Both of these miss the start of the baby boom generation, though, so they don't help as much as they could.

Sapphire wrote:

When it comes to 'retiring later', I am sure that many older people would be only to happy to carry on working. However, there is huge age discrimination in workplaces. If, for instance, a personnel manager interviews a mildly qualified young sprog and a 60-year-old for the same job, even though the elder may have much more experience the chances are that the person who will be employed will be the young sprog, no matter how inexperienced it may be (or that it may just have a useless 'arts' degree). Law or no law, age discrimination towards older people is rife.

I agree. At least as of this month it's now more clearly against the law. Not that that will help much for a while.

Sapphire wrote:

2. Again, this argument does not apply to the 'baby boomer' generation, for the reasons given in point one above. Are you suggesting that this generation should pay higher contributions retrospectively?

Not retroactively. Starting a year or two from now, perhaps, without changing the benefits accrued from past years contributions, and paying the full increase you get in the state pension for each year of delay in taking it.

Milarky

angrytaxpayer wrote:

I am a female aged 58 and to date have paid 42 years' national insurance contribitions which is 3 years more than I need to qualify for the full government pension. I intend to work until 60 when I will then have paid 5 years more than I need to. Does anyone know if I can 'exempt' myself from this extra tax as I am paying nearly 10% more tax than most people? My husband will also have paid 5 years more than he needs to by the time he is 65. There won't be many people in this position but enough I think to try to do something about it.

Just to answer this after the major detour, You can't exempt yourself from paying National Insurance up until state pension age (you wouldn't pay any NI if you worked after SPA, although the employer still has to.)

The other option is to split jobs - each separate employment is subject to a separate weekly/monthly nil rate band (of 5035 pa) for NI purposes - so two jobs paying £11,000 each pay 550 less in NI than one paying £22,000 - that is equivalent to 2.5% of total income and 3.25% of taxable income (i.e. income above the nil band) Have two jobs paying 5035 and pay no NI at all.....

And then there's 'salary sacrifce' (etc) which reduces NI (both kinds) as well as income tax at the same time....

(Basically there is no provision for the automatic recovery of 'correctly' but 'overpaid' NI - only methods of reducing NI. It is like 'insurance' in that it is possible to pay forthe same benefit 'twice' while only being able to claim it 'once')