MSE News: The great pensions shake-up: What you need to know

Former_MSE_Helen

This is the discussion thread for the following MSE News Story:

"Joss Harwood from Eldon Financial Planning explains what workplace automatic pension enrolment means for you"

Read the full story:
The great pensions shake-up: What you need to know

jobdone1

Right let me get onto my soap box with this one, I work and have paid into a private pension and believe you and me i could do with this extra money right now but i plough on as you do, I have paid in for around 18 years, My point is this why this government want to attack workers in this way is in my view WRONG the low paid can barely afford the basic essentials at home let alone have their pay deducted to some shark pension company that will probably in the future go bust and well the government will have some excuse for that but further to this what about the ones that choose not to work and i am not talking about the ones that have lost their jobs through the recession they still get a state pension when they retire how about taking some of their handouts away and put that into their private pension set up by the government they might then get an idea what it is like to keep having more of your money taken from your income ( benefits } and not to mention the pay freezes for the many over the last three years and more to follow. Its about time this government backed off and let people make their own choices in life or they may find themselves with a bigger benefit bill as the low payed may find more money out of work.

jem16

jobdone1 wrote: »

Its about time this government backed off and let people make their own choices in life

Nothing stopping people making their own decisions as they can choose to opt out of NEST.

However at least it's trying to encourage the employers to pay something which many don't.

jamesd

The correct question to ask your employer is "What will the pension investment options be and can I transfer my pension pot to a more appropriate pension for me from time to time if I want to?"

If the employer answers that the pension is NEST then the appropriate steps are:

1. Ask your employer to reconsider using the worst of the pensions designed for auto-enrolment and consider using NOW:Pensions or one of the alternatives that are likely to arrive in the not too distant future.

2. If your employer insists on using NEST, consider your age and investing experience or interest. If you are close to retiring it's likely to be best to stay opted in anyway. If you are an experienced investor or are relatively young the better investment options available elsewhere may make it a better idea to opt out of this workplace scheme so that you can benefit from the better investment options you can get. It's sad to lose any employer contribution but in this case it can be the best choice.

3. Consider whether investing within a pension is in your best interests at the moment. If it is not, opt out.

4. If you do decide to be part of a NEST pension it'll probably be best to pay in only the absolute minimum required to get any employer matching. Pensions are a long game and you can wait until you get a decent deal before using a pension for your investments. Use a stocks and shares ISA or a personal pension of your own until then so you don't lose out on the years of compound investment growth.

If your employer is not using the NEST pension scheme the next steps are:

1. Consider whether investing within a pension is in your best interests at the moment. If it is not, opt out. If your pension is one of the public sector pensions it's likely to be one of the best deals available. It's very unlikely to be in your best interests to opt out.

2. Ask about the investment options, ability to transfer money out without leaving the scheme, the costs and whether your employer is adding any employer NI savings to pension contributions above the minimum. Then ask for guidance here on whether this is a good or bad deal compared to what else is available. Putting in enough to get the full employer match is likely to be a good deal in most cases provided you have a reasonably normal life expectancy.

3. If the pension turns out not to be a good deal, don't delay your retirement planning, just invest inside a stocks and shares ISA instead with any money that you would have put into the pension. Ask here if you're unfamiliar with investing and need help. Retirement planning is a long term game and it's fine to wait until you're working in a job with a good pension scheme so long as you are investing your money for retirement somewhere else.


Why auto-enrolment?

Inertia affects people's decisions. When people have opting in as the base choice they are much more likely to join a pension scheme than if the base choice is opted out with an explicit option to opt in. It's just like car insurance renewals: it's automatic and the hope is that you'll take the easy course and be part of it.

The Turner Pensions Commission under the last Labour government reports suggested that auto-enrolling into a basic pension would be a useful part of long term planning to reduce the number of people on means tested benefits in the future. This would save the government and tax payers money because at the time it was projected that more than 70% of households with a pensioner in them would be entitled to means tested benefits by 2050, because the guarantees increase with earnings. The proposed changes reduced this to a little over 30%.

The Pensions Commission also proposed these changes:

1. Increasing state pension age as life expectancy increases - done by the current government, with automatic increases.
2. Changing the S2P (formerly SERPS) system to be flat rate, taking money from average and higher earners and giving it to lower earners. Partly done by Labour, planned to become more aggressive under the anticipated proposals from this government for a flat rate pension of around £140 a week.
3. Abolishing contracting out. Done by the current government from April 2012.

So in a long term context this is part of budget cuts that were being implemented by Labour and which are being implemented by the current government as well, shifting the costs of retirement to those currently in work and away from future tax payers.

jamesd

"This year will see the biggest shake-up to pensions most of us can remember". I'm not sure about Joss Harwood but my memory goes back as far back as the huge simplifications and improvements introduced in 2006 under the last Labour government under the A-day changes:

1. Abolished the need to buy an annuity by their 75th birthday. (Yes, that's right, the same thing that the current government claimed to have done as well: it had already happened, it just changed the rules to make it better for inheritance tax avoidance and worse for those who die early in retirement).
2. Let people have an unlimited number of pensions, removing the ban on having a personal pension as well as a work pension that applied to those earning more than £30,000.
3. Let people pay in up to 100% of their earned income.

It was a huge simplification and improvement of the system compared to the relatively trivial introduction of auto-enrolment that is happening gradually over the next few years.

There was also at other times:

4. Introduction of S2P, starting to increase the taking of money from average and higher earners to subsidise lower earners.
5. Introduction of the cap on S2P contributions to gradually make it even more of a cross -subsidy from those entering higher rate tax levels, gradually falling over time to affect those on lower incomes than higher rate.
6. Abolition of contracting out.

MothballsWallet

So, how's this going to affect people like me who have a personal scheme? I don't want to be auto-enrolled into anything, so are there any standards set out for the schemes that are NEST-compatible?

mswan

I joined a pension 10years ago, paid in every month for a year until the company went bust, this year I received a settlement for my pension, a nice cheque for £10 woop. My hubby was on a final salary pension until the company decided to change the rules, he still pays in but won't get a great deal for his retirement.

In my view paying into a pension is far too risky, from my experience I have had more from a lottery ticket and the most I have had of them are 3 numbers but I paid in a lot less!

Biggest con in modern times I just don't know how they get away with it.

Well this is my view based on my experience.

jobdone1

hear hear mswan someone has been with me on this one and i would like to thank the person for thanking me on my original post i bet this was another Cameron's many dinner guest's trying to had over donations for workers cash into their pension schemes or that's what they would like to call it for now. Strange that in the last budget approx 3 weeks ago they said that they would introduce a re viewable pension retirement age so for many of use with years ok decades before we might be told its now ok for you to retire you can park your zimmer frame for a bed lol

Mishomeister

What i really can't stand happening at the moment is that people in their fifties are telling me in my late 20ies about contributions to the pension. I would not have any problems with this if I was able to take a state retirement at the age say 55. But I suspect now that I would need to be around 75 to retire at the state pension with the employers possibly bringing their retirement age in line with the state's one.

Cameron and co probably will retire a bit earlier than this.

If I will survive by then(which taking in to account that I am male and live stressful life and have unhealthy lifestyle) not obvious at all, I will suffer from Dementia, Parkinson's etc, will be able to come out of my home on mobility scooter only or needing a full time care.

I feel that it makes more sense either to save money in your savings or investments or investing in property, rather than keeping it in the pension which you are not guaranteed ever to get(as you can die early) or even if you get in to that age due to poor health you might not be able spend it.

Example:

Pensioner Nr1 Gets £500 state pension and £400 private pension.
He pays rent of £400 per month therefore his Net Disposable Income is £500.

Pensioner Nr2 Get's £500 state pension, has no private pension however as he is on a low income government also pays his rent via housing benefit for him. So his NDI is also £500.

I therefore simply don't see the point to save in to the pension unless you can afford a really huge amount of money in to the pot otherwise I will just end up in the shoes of pensioner 1.

It is therefore in the government interest for people to contribute but not always in people interest.

Bigmoney2

Mishomeister wrote: »

What i really can't stand happening at the moment is that people in their fifties are telling me in my late 20ies about contributions to the pension. I would not have any problems with this if I was able to take a state retirement at the age say 55. But I suspect now that I would need to be around 75 to retire at the state pension with the employers possibly bringing their retirement age in line with the state's one.

Cameron and co probably will retire a bit earlier than this.

If I will survive by then(which taking in to account that I am male and live stressful life and have unhealthy lifestyle) not obvious at all, I will suffer from Dementia, Parkinson's etc, will be able to come out of my home on mobility scooter only or needing a full time care.

I feel that it makes more sense either to save money in your savings or investments or investing in property, rather than keeping it in the pension which you are not guaranteed ever to get(as you can die early) or even if you get in to that age due to poor health you might not be able spend it.

Example:

Pensioner Nr1 Gets £500 state pension and £400 private pension.
He pays rent of £400 per month therefore his Net Disposable Income is £500.

Pensioner Nr2 Get's £500 state pension, has no private pension however as he is on a low income government also pays his rent via housing benefit for him. So his NDI is also £500.

I therefore simply don't see the point to save in to the pension unless you can afford a really huge amount of money in to the pot otherwise I will just end up in the shoes of pensioner 1.

It is therefore in the government interest for people to contribute but not always in people interest.

With a company or personal pension you can still take pension early (with a reduction), may be able to take an il health pension earlier than normal retirement date, may have death in service benefits attached ( getting rarer I know).

The example you quote assumes that housing and council tax benefits wil still be available when you get to retirement age. With the way benefits are being cut this is a risky stratergy in my opinion.

The only way to guarranttee a reasonable standard of living in old age is to make your own provision, either via pensions or some other means.

ashleypride

Mishomeister wrote: »

Example:

Pensioner Nr1 Gets £500 state pension and £400 private pension.
He pays rent of £400 per month therefore his Net Disposable Income is £500.

Pensioner Nr2 Get's £500 state pension, has no private pension however as he is on a low income government also pays his rent via housing benefit for him. So his NDI is also £500.

This assumes that benefits will exist in current form, and the state pension will still exist in its current form. Neither safe bets at all. Our ponzi pension system will burst at some point (or radically change) and benefits continue to get pulled.

Bigmoney2 wrote:

The only way to guarranttee a reasonable standard of living in old age is to make your own provision, either via pensions or some other means.

This.