Are pensions only for high rate taxpayers who own a house?

real1314

But what's the actual effect of the £42k on a savings credit award? And what's the impact on any Guarantee Credit Award?

Simply saying that you can get "up to £18.54 a week" doesn't demonstrate any knowledge of the impact.

e.g if you just had £105 a week state pension, and no savings versus £105 a week and £42k savings? I reckon you'd lose about £30 a week in pension credit, against a gain of what?

And does the employer have to pay half under auto-enrollment or can they opt out (which most min wage employers might well do)?

£6.25 a week paid in over 40 years to lose £30 a week state support, and a gamble of getting an income to replace that £30 a week from a £42k savings pot?

Is it really stacking up?

dunstonh

£6.25 a week paid in over 40 years to lose £30 a week state support, and a gamble of getting an income to replace that £30 a week from a £42k savings pot?

Is it really stacking up?

And the gamble that state benefits will still be there in 40 years time?

zagfles

jamesd wrote: »

And the extra special bonus with that plan is that you end up having to live on means tested benefit levels of income that you have no control over for the final third of your life.

How much control do you have over annuity rates or drawdown investment returns? Pension credit on the other hand goes up in line with earnings.

It's a desperation move when planning has failed or when someone just didn't think much about their future, not an objective.

Yes, if you have a reasonable income and can afford to provide well above means tested benefits rates. But you need to be able to save a reasonable amount. There's little point just saving a small amount.

Don't count on those rules remaining the same. This government has plans to reform pensions in a way that will eliminate that possibility.

It plans on incorporating pension credit and S2P in a higher basic state pension, but I've not seen anything about housing related benefits, which are far more significant generally than pension credits.

It's already good for those on low incomes to accumulate some pension money because they can get income and savings from about £40,000 worth before it hurts means tested benefits too much, courtesy of the Savings Credit.

Don't think this is right at all. Pension credit with the savings credit results in an effective 100% "tax" on any additional income below the basic state pension level (for those without a full state pension) and 40% tax on any income above BSP level.

In the case of capital, the first £10k is disregarded and a return of over 10% is assumed on the rest (an income of £1 per week per £500 capital is assumed)!!

If you have a full BSP, then you won't get any HB/CTB/LHA if you have £40k in savings, as the assumed 10% return plus the BSP takes you above the guarantee element of PC, which cuts entitlement completely.

You could get some if your state pension is under about £80pw, but then you'd be "taxed" at 70%+ on the assumed £60pw (yeah, right) you're making on your £40k plus your HB/CTB will be reduced by (together) 85% of income over the applicable amount, so you'd end up with very little extra EVEN IF you managed to achieve a 10% return on your capital!!

It's those above that level that can end up losing out in benefits for having more pension under current rules and that's part of what the government is planning to try to tackle.

No, it's above £10k, now at least. It will be different if/when the new higher BSP comes in, but we'll have to see how they intend to deal with housing. I guess this won't basically change.

zagfles

dunstonh wrote: »

And the gamble that state benefits will still be there in 40 years time?

Or the gamble that tax rates won't be 97% on pensions? Which is just as likely as state benefits being abolished.

Over the past 100 years what has proved more reliable, state support for pensioners or any other type of financial support for pensioners like company pensions, private pensions, savings institutions?

real1314

dunstonh wrote: »

And the gamble that state benefits will still be there in 40 years time?

Will the income from the £42k fill the £30 gap though? It might well not do so - it won't on current returns, nor on current annuities.

So, to end up with less income at retirement, you'd have sacrificed 3% of your much needed income.

Just to be clear, the pension plan (based on current benefits) would leave you with less income.
Therefore the salesman (and all the people who took a small % during the course of the 40 year investment) would have done better than the saver.

Both are gambles, but in one, you retain a significant % of your income. :cool:

gadgetmind

About all I can agree on here is that saving far too little is roughly the same level of stupid as saving nothing at all.

It's rather like the choice between being stabbed or shot. Err, neither please!

zagfles

gadgetmind wrote: »

About all I can agree on here is that saving far too little is roughly the same level of stupid as saving nothing at all.

It's rather like the choice between being stabbed or shot. Err, neither please!

How much would save if you were on minimum wage? Saving a little (because that's all you can afford) can be worse than not saving at all.

Also timing of savings can make a big difference, eg it can be worth saving in cash while single or a couple with no kids, then making substantial pension contributions when you have a family as this will increase tax credits as well as tax relief, over 70% effective tax relief is possible. (however the new universal credit will make this a bit harder - but probably still possible).

gadgetmind

zagfles wrote: »

How much would save if you were on minimum wage?

I'd save outside a pension until I had enough to afford some training in a more valuable skillset.

Saving a little (because that's all you can afford) can be worse than not saving at all.

How you define "a little"? Feel free to answer in terms of packets of fags per week and/or which Sky TV package.

(however the new universal credit will make this a bit harder - but probably still possible).

All means tested benefits and top-ups tend to favour those who choose to do little for themselves, which is why they are being reduced and/or phased out.

BTW, the results of the poll are looking pretty conclusive so far.

jamesd

real1314 wrote: »

But what's the actual effect of the £42k on a savings credit award? And what's the impact on any Guarantee Credit Award?

You can read a summary of the rules that should answer that question. The £18.54 a week is extra money and you don't have the full £42k because most of it was spent to buy an annuity paying out the £18.54.

real1314 wrote: »

e.g if you just had £105 a week state pension, and no savings versus £105 a week and £42k savings? I reckon you'd lose about £30 a week in pension credit, against a gain of what?

Have a read of my posts again. You don't have £42k in savings. You have £18.54 of pension income a week plus £10,000 of savings that are ignored in the calculation. The £42,000 is what you can put away in a pension pot to get the money to buy that Savings Credit income level and have the £10,000 left over.

That page I linked to gives a handy Pension Credit Calculator, so lets see what it says about someone who is getting £105 state pensions a week plus £18.54 private pension a week, using 1/1/1942 as date of birth, male, living alone and with £10,000 of savings. The answer: £26.21 Pension Credit a week.

If instead of using part of the £42,000 to buy an annuity to get that £18,5 a week (which you can't really do) then the £105 state pension income with £42,000 in the bank produces a Pension Credit of £8.02 a week.

real1314 wrote: »

And does the employer have to pay half under auto-enrollment or can they opt out (which most min wage employers might well do)?

The law mandates it but the roughly half doesn't all come from the employer, some is tax relief on income tax, employee NI and employer NI. A the starting level, 1% of pay comes from the employer and the other 1% from a combination of the employee, tax and NI savings so the net cost is actually less than 50%.

jamesd

zagfles wrote: »

It plans on incorporating pension credit and S2P in a higher basic state pension, but I've not seen anything about housing related benefits, which are far more significant generally than pension credits.

No idea what they are planning to do about that in their contemplated scheme either.

zagfles wrote: »

In the case of capital, the first £10k is disregarded and a return of over 10% is assumed on the rest (an income of £1 per week per £500 capital is assumed)!!

If you have a full BSP, then you won't get any HB/CTB/LHA if you have £40k in savings, as the assumed 10% return plus the BSP takes you above the guarantee element of PC, which cuts entitlement completely.

Sure, but there isn't £42k of capital, because 3/4 of it is used to buy an annuity and the rest is within the savings limit. real1314 just ignored the bit about most of that being used to buy the extra annuity income.

zagfles wrote: »

You could get some if your state pension is under about £80pw, but then you'd be "taxed" at 70%+ on the assumed £60pw (yeah, right) you're making on your £40k plus your HB/CTB will be reduced by (together) 85% of income over the applicable amount, so you'd end up with very little extra EVEN IF you managed to achieve a 10% return on your capital!!No, it's above £10k, now at least. It will be different if/when the new higher BSP comes in, but we'll have to see how they intend to deal with housing. I guess this won't basically change.

Best to ignore the pretense that I suggested that you could have £40k of savings and get those. I didn't. I've a brother who's on means tested benefits and likely to get an inheritance of that sort of level... and will lose most of it to the means tests until he gets down to the savings limits. Unless he chooses to buy a place to live instead, which is possible if he's willing to accept the compromises it involves.

I've also personally spent that sort of savings on living expenses while not working.

Means tests can seem quite unkind sometimes but that's OK because they are supposed to be providing basic levels for those who have nothing else.