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

real1314

jamesd wrote: »

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.

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.

So, for all the contributions you end up with £11.50 less pension credit (using the £37.70 below - which is for £105 pension only, no savings, no other income). Therefore you end up £7 a week better off for 40 years of sacrifice, based on numbers you can't really work out and assuming returns occur at the rates you have used.

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 £37,70 a week

You didn't put the savings in to get this figure. You need to take it down by £30. The figure you have quoted only applies if you have no savings. You should have got about £8, not £37.

Yes. The law mandates it.
Not quite true though - employers amount is currently a minimum of 1% and will rise to 3%; and this is not based on full income, but only income over £5.6k.

So, the employer pays in 1% of the £5k over the wage limit. £1 a week. So of the £6.25 a week needed, the employer pays £1, the employee pays £5.25, to end up £7 better off than if they didn't bother.

All in all a pretty poor demonstration of the benefits of a pension for low income households.

Oh and if you need £42k to get the £18.54, where do you get the £10k* of savings from?
Your linked post refers to £32k + £10k ignored, not £42k + £10k ignored.
I think your linked post is based on some sort of mis-appropriation of the £10k savings limit into the field of pension funds. :cool:

jamesd

zagfles wrote: »

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?

The final three, helped greatly by the Basic State Pension not existing at all for the first 38 of those years:

"The UK state pension system originally consisted only of means-tested non-contributory benefits that were introduced by the Old Age Pensions Act 1908 (Gilbert, 1966). The first contributory benefits scheme emerged in the Widows, Orphans and Old Age Contributory Pensions Act 1925. This scheme was not universal in coverage, however, and was only compulsory for manual and other low-wage workers. It was the 1942 Beveridge Report – Social Insurance and Allied Services – that marked a major break with the past because of the introduction of universal coverage based on a social insurance model.

From the outset, the objective was not to provide a high replacement income for most wage-earners but to provide a safety net against old-age deprivation. Beveridge’s proposal was that individuals would be provided with a flat-rate income in old age that would be just sufficient to lift them above an absolute measure of poverty.
...
The National Insurance Act 1946 introduced the BSP, with effect from 1948"

Workplace pensions typically did better, particularly the final salary types that are contributing to the early baby boomers being the richest retiring generation yet.

It's particularly of note that the workplace and private pensions didn't have just preventing absolute poverty as their objective. The benefits system for those over state pension age today doesn't either, but that's a development that happened quite a way into the 100 years period.

It's also worth considering just how low life expectancies were at the start of state pensions, with only single digit life expectancies after starting to receive it. Very different these days.

jamesd

real1314 wrote: »

Oh and if you need £42k to get the £18.54, where do you get the £10k* of savings from?

The 25% tax free pension commencement lump sum. The annuity cost isn't the full £42,000.

real1314 wrote: »

Your linked post refers to £32k + £10k ignored, not £42k + £10k ignored.
I think your linked post is based on some sort of mis-appropriation of the £10k savings limit into the field of pension funds. :cool:

Quoting from that post "At 3% of capital available for income, roughly assuming an RPI annuity, that's equivalent to a pension pot of £32,000. In addition the first £10,000 of savings is ignored, taking it to around £42,000 worth of retirement savings."

Take a quarter out as a lump sum, up to the savings limit, and use the remainder to buy the annuity. It's what people normally do when they take money out of a personal or modern private sector work pension.

real1314 wrote: »

You didn't put the savings in to get this figure. You need to take it down by £30. The figure you have quoted only applies if you have no savings. You should have got about £8, not £37.

I did but perhaps the back button use confused it, I've corrected my post, thanks.

real1314

jamesd wrote: »

The 25% tax free pension commencement lump sum. The annuity cost isn't the full £42,000.

Quoting from that post "At 3% of capital available for income, roughly assuming an RPI annuity, that's equivalent to a pension pot of £32,000. In addition the first £10,000 of savings is ignored, taking it to around £42,000 worth of retirement savings."

That makes it a bit clearer. So, can you get an £18.54 weekly annuity for £32k? What's the current annuity pay out for an average 65 year old ont hat sum?

Take a quarter out as a lump sum, up to the savings limit, and use the remainder to buy the annuity. It's what people normally do when they take money out of a personal or modern private sector work pension.

I did but perhaps the back button use confused it, I've corrected my post, thanks.

So, we're agreed that you end up £7 a week better off in retirement (assuming you can get £18.54 from £32k) for a payment of £5.25 a week over 40 years of working life, (but you'd also have £10k in the bank)?

Do you think that is a sound investment? :cool:

dunstonh

The desire that it appears that some have in their 20s to live in poverty for the last 30 years of their life is staggering.

When your aspiration in your 20s is to live on benefits then you know something is wrong.

So, we're agreed that you end up £7 a week better off in retirement (assuming you can get £18.54 from £32k) for a payment of £5.25 a week over 40 years of working life, (but you'd also have £10k in the bank)?

Do you think that is a sound investment?

Compared to not having £10k in the bank and £7 pw more? Yes. It is sound.

assuming you can get £18.54 from £32k

6% of £32k is £1920 a year which is £36 a week.

margaretclare

The desire that it appears that some have in their 20s to live in poverty for the last 30 years of their life is staggering.

When your aspiration in your 20s is to live on benefits then you know something is wrong.

This is something that I can't understand. It's not an idea that my generation grew up with. Those of us who were poor in childhood could never have had a desire to live out our days, following a working life, in poverty. I'm definitely living in the wrong century.

DH and I are not rich but we're quite some distance from being poor, thank goodness!

real1314

dunstonh wrote: »

The desire that it appears that some have in their 20s to live in poverty for the last 30 years of their life is staggering.

When your aspiration in your 20s is to live on benefits then you know something is wrong.

Not everything is about me you know. It's a hypothetical situation, but one that many people find themselves in.


Compared to not having £10k in the bank and £7 pw more? Yes. It is sound.Is that how you devise an investment strategy? Seriously, is that the extent of your ability to rationalise the investment against the return? Have you considered the present need for the money for people on low incomes?



6% of £32k is £1920 a year which is £36 a week.

Can you get an annuity that pays out at 6% at the moment?

You don't seem to be able to see past the dogma of "must save for a pension", preventing you from carrying out any real appraisal of the proposal. :cool:

real1314

Incidentally, the rates of return you have both (Dunstoh & James) been using - they seem a bit high - are they based on any sort of historical information?

5% above inflation seems a bit high, which is what you'd need to get on £27 a month, to arrive at £41k, so you'd have to have that on top of inflation.

You seem to be slipping in to 1980s mode - tell them it'll work and let them snap it up - get out of town before the **** hit the fan. Have you had experience of endowments? :cool:

zagfles

jamesd wrote: »

The final three, helped greatly by the Basic State Pension not existing at all for the first 38 of those years:

"The UK state pension system originally consisted only of means-tested non-contributory benefits that were introduced by the Old Age Pensions Act 1908 (Gilbert, 1966). The first contributory benefits scheme emerged in the Widows, Orphans and Old Age Contributory Pensions Act 1925. This scheme was not universal in coverage, however, and was only compulsory for manual and other low-wage workers. It was the 1942 Beveridge Report – Social Insurance and Allied Services – that marked a major break with the past because of the introduction of universal coverage based on a social insurance model.

From the outset, the objective was not to provide a high replacement income for most wage-earners but to provide a safety net against old-age deprivation. Beveridge’s proposal was that individuals would be provided with a flat-rate income in old age that would be just sufficient to lift them above an absolute measure of poverty.
...
The National Insurance Act 1946 introduced the BSP, with effect from 1948"

Workplace pensions typically did better, particularly the final salary types that are contributing to the early baby boomers being the richest retiring generation yet.

It's particularly of note that the workplace and private pensions didn't have just preventing absolute poverty as their objective. The benefits system for those over state pension age today doesn't either, but that's a development that happened quite a way into the 100 years period.

It's also worth considering just how low life expectancies were at the start of state pensions, with only single digit life expectancies after starting to receive it. Very different these days.

You missed the point. It wasn't about which provided the best benefits, it's about which can be relied on to still be there when you retire. The PP suggested you can't rely on the state.

State pension provision has improved over the years, private and company pension provision has worsened. How many people have had their company pension scheme terms worsened? How many people have had their private pension predictions lowered due to falling annuity rates, bad investment returns etc ?

The worst that's happened with state pensions is you may have to wait a year or 2 longer to get it.

zagfles

real1314 wrote: »

Incidentally, the rates of return you have both (Dunstoh & James) been using - they seem a bit high - are they based on any sort of historical information?

5% above inflation seems a bit high, which is what you'd need to get on £27 a month, to arrive at £41k, so you'd have to have that on top of inflation.

You seem to be slipping in to 1980s mode - tell them it'll work and let them snap it up - get out of town before the **** hit the fan. Have you had experience of endowments? :cool:

A couple of dodgy financial advisors tried to sell me an endowment about 15 years ago. Luckily I understood them better than they did and told them where to shove them. :rotfl: