MSE News: Budget 2012: Single state pension plan confirmed

wakeupalarm

The younger workers are going to pay the price so that those contracted-out, many of whom are or were in Gold plated final salary schemes can have 2-bites of the cherry.

http://www.moneymarketing.co.uk/channels/corporate-adviser/news/altmann-blasts-far-worse-flat-rate-pensions-white-paper/1064564.article

StevieJ

I must say I find it difficult to justify someone with 35 years of contracted out contributions being able to build up entitlement to the full pension, although those with a lesser number of contracted out is not as much of an issue, I think. I can see this changing in the ironing out process.

gadgetmind

StevieJ wrote: »

I must say I find it difficult to justify someone with 35 years of contracted out contributions being able to build up entitlement to the full pension

It's going to take them another 8-9 years on top of that 35 to do it, and someone contracted in for over 40 years would have built up considerable sum in S2P.

However, I'm sure we will see some tweaks, but given the amount of time, consideration and consultation that's gone into that, I'd be surprised if they are significant.

marathonic

StevieJ wrote: »

I must say I find it difficult to justify someone with 35 years of contracted out contributions being able to build up entitlement to the full pension, although those with a lesser number of contracted out is not as much of an issue, I think. I can see this changing in the ironing out process.

I'm 30 in a private pension with just over 6 years contracted out and a pension of £8,600 based on the NI rebates.

Taking the standard assumptions on H-L's pension calcualator, this equates to a pension of just over £30 at a retirement age of 70 (it'll be at least this high by the time I get there).

I'll be able to build up entitlement to the full flat rate pension via post-2017 contributions.

Is this unfair? I imagine anyone at my age who remained contracted in would say it is. Would those same people see it as unfair if the current rules remained and they ended up with £30 per week extra S2P when compared to my contracted out pension? I think not.

At the end of the day, with any rules changes, there are people that will lose out and people that will gain. It's human nature for those that lose out to think that the changes are unfair. At the end of the day, we all have to look after our own interests.

In contracting out, I took a gamble, despite my pension advisors advice, that the government would screw us over - which was very likely given I'd 40-45 years left before state pension age.

If it's any consolation to those that think I'm being given preferential treatment, bear in mind that it's HIGHLY likely that the goalposts will be shifted again before I retire.

The one lesson that can be learned from this is "do not rely on the state when making retirement plans - treat any state pension as a bonus or luxury upon retirement".

The government are trying to get away from means testing, and rightly so. Too many people who leave retirement planning to the last minute are afraid to start out of fear of losing means testing benefits.

zagfles

StevieJ wrote: »

I must say I find it difficult to justify someone with 35 years of contracted out contributions being able to build up entitlement to the full pension, although those with a lesser number of contracted out is not as much of an issue, I think. I can see this changing in the ironing out process.

Not only that, but it would seem those in public sector final salary schemes won't even face higher contributions or lower benefits post 2017 to reflect the higher employer NI contributions! Yet specific legislation is being passed to allow private sector employers to do exactly that even if the scheme rules don't allow it!

The debate in Parliament is here:

http://www.publications.parliament.uk/pa/cm201213/cmhansrd/cm130114/debtext/130114-0001.htm#1301142000591

I hope the public sector unions will tell their members what a good deal this is for them. Because it is, they really couldn't have hoped for anything better. But what are the odds they'll just whinge about having to pay an extra 1.4% NI...

StevieJ

marathonic wrote: »

I'm 30 in a private pension with just over 6 years contracted out and a pension of £8,600 based on the NI rebates.

Taking the standard assumptions on H-L's pension calcualator, this equates to a pension of just over £30 at a retirement age of 70 (it'll be at least this high by the time I get there).

I'll be able to build up entitlement to the full flat rate pension via post-2017 contributions.

Is this unfair? .

No! as I said the ones with a lot less than the 35 years contracted out it is not really an issue, you will have paid 40 years into the state pension in the end. I am talking about someone say, 55 who qualifies for a full final salary pension and then can easily qualify for a full state pension as well. At least in your position you will also be paying many barren NI contributions during your career.

marathonic

StevieJ wrote: »

No! as I said the ones with a lot less than the 35 years contracted out it is not really an issue, you will have paid 40 years into the state pension in the end. I am talking about someone say, 55 who qualifies for a full final salary pension and then can easily qualify for a full state pension as well. At least in your position you will also be paying many barren NI contributions during your career.

Sorry, I misunderstood you....

At the end of the day, I don't know why I spend so much time reading the pensions board - the rules will change multiple times before I reach state pension age.

JoeCrystal

marathonic wrote: »

Sorry, I misunderstood you....

At the end of the day, I don't know why I spend so much time reading the pensions board - the rules will change multiple times before I reach state pension age.

I spend so much time reading this pension forum to fully understand private pension schemes and so on. And hopefully to beat some sense into other young people that paying into a pension in sufficient amount can do wonders for your retirement.

Cheers,
Joe

marathonic

JoeCrystal wrote: »

And hopefully to beat some sense into other young people that paying into a pension in sufficient amount can do wonders for your retirement.

Yeah, the same could probably be said for me. Based on reading this board, at 23, I increased my pension contributions to 26% (+ 4% employer) until the age of 28. At that point, my employer scheme had a change in rules that forced me to drop it to 20% + 4% employer.

Now, at 30, I'm dropping to the minimum 3% + 6% employer contribution (they increase theirs at 30). I'm doing this as I've just bought a house.

So, as it stands, my pension fund represents 1.63 times my annual salary and I'm now contributing 9% per year total.

I'd estimate that, if I were only starting now, I'd have to contribute about 17-20% to achieve the same outcome as I would with my current 9% contribution.

FWIW, I'm a lower rate taxpayer but am in a salary sacrafice scheme to which the employer contributes their entire national insurance savings back to the scheme - effectively, 20% tax + 12% employee NI + 13.8% employer NI relief.

My plan was always to reduce contributions when more expenses such as mortgages and children came along. Although there's no children yet, mortgage overpayments will take precedent for the next 2-3 years so that I can remortgage on a good LTV.

gadgetmind

marathonic wrote: »

Y
FWIW, I'm a lower rate taxpayer but am in a salary sacrafice scheme to which the employer contributes their entire national insurance savings back to the scheme - effectively, 20% tax + 12% employee NI + 13.8% employer NI relief.

Very nice! And well done on starting so early.

I'd mention to usual cash pot, and perhaps also S&S ISAs, but I suspect you've got all your bases covered.

Out of interest, does your employer run an SAYE scheme? These are a great way to start funding an ISA.