Pension Age Going Up and Strikes Public Sector

hugheskevi

NEST will force most companies to have a scheme but not to contribute. I think HMG hope that companies will chip something in, or at least allow salary sacrifice, but that seems a trifle optimistic to me.

Think you are mixing up 3 different things here...

Currently, Stakeholder Pensions rules force companies with 5 or more employees to offer access to a pension, but they do not have to contribute.

The new statutory rules will force companies from October 2012 (phased in until at least beyond May 2015 depending on company size) to automatically enrol employees and make contributions of at least a specified level.

NEST is a new pension scheme which employers may choose to use to fulfil their new statutory pension duties to their employees. Employers can alternatively use other pension schemes such as Group Personal Pensions to fulfil their duties.

gadgetmind

hugheskevi wrote: »

Think you are mixing up 3 different things here...

Oops, guilty as charged, I'm sure.

The new statutory rules will force companies from October 2012 (phased in until at least beyond May 2015 depending on company size) to automatically enrol employees and make contributions of at least a specified level.

This was the bit I wasn't aware of. Do you have a link regards size/date/contributions? I'm not saying that companies contributing is a bad thing, but they should do it to retain staff rather than because they're forced to.

Employers can alternatively use other pension schemes such as Group Personal Pensions to fulfil their duties.

We have the latter, hence my confusion and conflation.

hugheskevi

This was the bit I wasn't aware of. Do you have a link regards size/date/contributions? I'm not saying that companies contributing is a bad thing, but they should do it to retain staff rather than because they're forced to.

There is a link here

However, it was recently announced that firms under 50 employees would not have to undertake the new duties until at least May 2015. Hence until a fully revised schedule is published, it isn't clear when contributions will increase from their initial 1%/1% to their final 4%/3% (employee/employer).

gadgetmind

hugheskevi wrote: »

it isn't clear when contributions will increase from their initial 1%/1% to their final 4%/3% (employee/employer).

I'm sure that a 3% contribution will be sufficient incentive for many to opt out. Of course, they will then bleat on about state pension age being tweaked.

atush

I assume they just put it up so high in the end that they hope that people will drop before they can claim it. Thus then it not being paid out to that person that worked all their life.

In a way, this smacks of blind ignorance. Not your fault perhaps, as maybe your history teachers were on strike the day that the origins of the welfare state were taught?

Like Duns said, when the state pension was set up, the age for taking and the benefits paid were based on how LONG PEOPLE LIVED THEN, which wasn't very long. Many didn't make it to the then retirement age at all, and those that did, didn't hand around for decades but a just a few years. So year on year people lived longer, due the the introduction of antibiotics, vacinations, the NHS, improved working conditions, not getting blown up by bombs or shot by an enemy etc. Now they are living many years longer, some 25-35 years longer. So something that was meant to last less than a decade has to last 2-4 decades.

Then you need to take into acct the BABY Boom. Made when men came back from war, and many babies were born for a few decades esp once times became good again (until the widespread legality and use of contraceptives). So this year, the first of those baby boomers retired and began claiming state pensions (although the women who worked int he public sector may have retired before this and clained their Public service ones) and are beginning an increased spiral of payouts that will last decades during which the number of each worker paying tax and into public and private schemes will dropping as the birth rate did.

Plus you are obv mistaking the difference between state pensions, and work pensions both private and public which are paid in addition to the state pension. which you cannot rely on unless you pay into one. And the ones that the public service workers are striking about, is a very very generous pension scheme better than 99% of private sector ones. They are striking as it wont be as generous as it was before plus they are being asked to work longer like the rest of the population.

A state penion can only be taken From the date for your age (although you can defer it to receive more later but cannot take it early) with private or public service pensions which aare based on your work life, how long you paid in etc. These can be taken much earlier (ie from 55-60) but weith reduced terems (ie you get less per year).

tartanterra

hugheskevi wrote: »

Many of this group will be on the 41% taper in Tax Credits, along with 20% income tax relief. That is quite an incentive.

Add in things such as salary sacrifice, possibly employer NICs rebated and employer contributions and for many the net cost of making contributions will only be perhaps 20% or so of the total amount going into the pension, perhaps less.

For those that truly have the lowest earnings, the State pension provision will be sufficient. Sadly that is simply as the meagre State provision replaces their meagre income, but that is the way of the system. For those earning more than the minimum, it is a lifestyle choice.

dunstonh wrote: »

Very good point. The theoretical maximum if you treat tax credits as tax relief is around 73%. i.e. 73% of the pension contribution can be paid for in tax relief and tax credit increases. (pension contributions lower income and therefore increase tax credits).

I'm amazed that more people aren't aware of this.

I bet there is quite a few people out there who are making large pension contributions and don't realise that this has brought them into the qualifying threshold for tax credits.

Ladywriter1968

gadgetmind wrote: »

My daughter has one and she's still at school!

OK, we don't lob much in for her, roughly in line with the example I gave, but it removes future inertia as she doesn't have to do anything more than sign the new direct debit mandate once she's earning for herself.

this is interesting, never heard of being able to have one at school, I thought you had to be working to be able to have one, what are they called? the pension you use for your daughter, as I may look into this one for us?

Ladywriter1968

tartanterra wrote: »

I'm amazed that more people aren't aware of this.

I bet there is quite a few people out there who are making large pension contributions and don't realise that this has brought them into the qualifying threshold for tax credits.

do you mean if they contribute to much privates that they wont get tax credits?

gadgetmind

Ladywriter1968 wrote: »

this is interesting, never heard of being able to have one at school, I thought you had to be working to be able to have one, what are they called? the pension you use for your daughter, as I may look into this one for us?

You can start a pension from birth!

A non tax payer can put in up to £2880 pa (and anyone can pay this on their behalf) and HMG then add another 25%. So, if you put in £20 a month, £25 goes into the pension pot.

For a low monthly figures, you're really limited to stakeholder pensions, so I started one with Aviva for her via Cavendish.

I figured that by starting one early, it removed the inertia when she does start earning, and she's always got the option of transferring it later on.

Of course, given that the money will probably be in there for 4-5 decades, you can always be pretty aggressive with your fund choices. I used 100% equities with a strong global bias.

dtsazza

Ladywriter1968 wrote: »

do you mean if they contribute to much privates that they wont get tax credits?

What tartanterra is referring to is that when you contribute to a pension (any pension, including a personal one), you are effectively lowering your income for most tax/benefits purposes.

That is, if you earn £25,000p.a. and pay £5,000 into a pension then you can claim benefits (such as tax credits) as if you were earning £20,000p.a.


This ties into one of your other observations; you're right that not all companies offer to contribute into a pension scheme. While this lessens the benefit, it doesn't remove them altogether; as dunstonh pointed out above, you can have up to 73% of your contribution effectively rebated through the tax system alone, i.e. not considering employer contributions at all. Which means that every £100 take-home pay you give up into your pension, will immediately be worth £370 in the pension.

If the company contributes too this is even better (and it almost never makes sense to leave this "free money" on the table by not contributing) - but even without that, the tax rebates can give a good initial uplift to your contributions.