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

somethingcorporate

State provision is likely to get worse as life expectancy increases.

I'd rather have something I can rely on falling back on rather than gambling on the state being able to pick up the tab.

zagfles

gadgetmind wrote: »

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

So you wouldn't save for your retirement then. That was the point.

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

Why? Is that what you think all people on low incomes spend their money on?

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.

You really don't understand benefits at all, do you? Perhaps you can explain which are being "phased out" (rather than replaced/renamed/rolled into UC). A few are being reduced, but some are being increased. The welfare budget is not taking the hammering that was expected, despite what a lot of the media is saying.

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

We've side-tracked off the poll question. The issue here is the effect of means tested benefits on pensions and whether it's worth someone on a low income saving in a pension. Rather than whether it's just worth it for higher rate tax payers who own a house.

laurel7172

zagfles wrote: »

How many people have had their state pension/benefits cut? .

I'm no expert, but I'm fairly sure the last Tory government cut the link between average earnings and the state pension, setting the scene for over a decade of decline into relative poverty for poorer pensioners. And this government has already cut RPI increases to CPI. I don't think we're in a position to say yet what the trend is. Perhaps the introduction of Pension Credit was an anomaly in the face of long term decline. It might take a couple of decades to tell.

My views on pensions were formed when every winter reaped its harvest of older people who simply froze to death. And I'm only 44-I'm not talking about the Depression era. I do not want to play the guessing game regarding what benefits might be available a quarter of a century from now, not while I'm still in a position to choose dignity and security, whatever happens.

zagfles

laurel7172 wrote: »

I'm no expert, but I'm fairly sure the last Tory government cut the link between average earnings and the state pension, setting the scene for over a decade of decline into relative poverty for poorer pensioners. And this government has already cut RPI increases to CPI.

All fairly trivial compared to company pension schemes closing/going bust, equity investments losing value etc.

I don't think we're in a position to say yet what the trend is. Perhaps the introduction of Pension Credit was an anomaly in the face of long term decline. It might take a couple of decades to tell.

My views on pensions were formed when every winter reaped its harvest of older people who simply froze to death. And I'm only 44-I'm not talking about the Depression era. I do not want to play the guessing game regarding what benefits might be available a quarter of a century from now, not while I'm still in a position to choose dignity and security, whatever happens.

So, what are you investing in, which will give you security whatever happens?

dunstonh

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?

Have you considered that they will still have a need in retirement but will be paid less than they are now?

I stand by my comment that £36pw and £10,000 in the bank is better than nothing.

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

yes

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?

4% is high? How do you work that out?

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.

Inflation was covered in both.

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.

And what has that got to do with this thread?

Perhaps you can explain which are being "phased out" (rather than replaced/renamed/rolled into UC).

Pension credit is proposed to be abolished.

zagfles

dunstonh wrote: »

And what has that got to do with this thread?

Somebody mentioned them as an example of people being advised using unrealistic expected returns. I was told there was no doubt whatsoever the endowment would pay off my mortgage, with a nice cash lump sum on top :rotfl:

Pension credit is proposed to be abolished.

Not quite, it's intended to be rolled into the new higher basic state pension (ie replaced).

laurel7172

zagfles wrote: »

So, what are you investing in, which will give you security whatever happens?

Sigh. Yes, we didn't know that there's no such thing as risk-free investment. Thank you for your superior insight.

dunstonh

Somebody mentioned them as an example of people being advised using unrealistic expected returns. I was told there was no doubt whatsoever the endowment would pay off my mortgage, with a nice cash lump sum on top

Going back to the days of endowment sales as a measure of today is hardly useful information. What other events in history do you want to dig up to give as an argument?

Not quite, it's intended to be rolled into the new higher basic state pension (ie replaced).

No it is being abolished and replaced with a single state pension. The point is to avoid means testing and have personal savings/investments/pensions impact on provision.

real1314

dunstonh wrote: »

Have you considered that they will still have a need in retirement but will be paid less than they are now?

Most people have less in retirement. If you haven't got the money to invest, what do you do?

I stand by my comment that £36pw and £10,000 in the bank is better than nothing.

Nice assertion, but it doesn't answer the key point. Would you think that £10k in the bank and [STRIKE]£36[/STRIKE] erm, nice try but it was only £7 better off, so £10k and £7pw is "better than nothing" if it cost you £20 per week over 40 years to get it

yes



4% is high? How do you work that out?

See below.

Inflation was covered in both.

It wasn't in the £41k based on £27 pcm; that needs 5% above inflation. Do you expect inflation to average 1% for 40 years?

Why did you change £7 to £36? Playing with the numbers to create a different outcome?

Can you link to a provider paying 6% as an annuity for the average 65 year old? :cool:

jamesd

zagfles wrote: »

You missed the point.

I didn't miss the point. I deliberately answered the question that you asked about the last hundred years and which could be relied on during that time.

I do wonder if when asking the question you realised that the basic state pension only started in 1948 and was only expected to pay out for low single digit numbers of years before someone died of old age in their latish sixties, the relatively low proportion compared to now who even lived to the ripe old age of 65.

I don't think it's sensible to assume that we will continue to have a relatively generous pension with relatively generous earnings-linked increases. Compared to levels that it has been at in the past.

real1314 wrote: »

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)?

Not agreed because you ignored the additional state pension. It currently accrues at a rate of £1.70 per week for each full year worked for those on incomes up to £14,700 who get NI deductions taken. So someone who'd worked on minimum wage for 40 years would have 40 times that added to their pension.

How do the numbers look when you run them for a person who really does work on minimum wage for 40 years and gets the state pension that it'd entitle them to under the current rules? Both basic and additional parts?

The £1.70 a week number comes from DWP. I phoned them to check the current accrual rates a couple of months ago.

Here's a table of annuity rates. I reduced the percentage down to 3% because I assumed that life expectancies will continue to increase so the percentage will reduce from the current 3.5% of the capital amount spend. If you don't care whether the income increases with inflation after retirement you only need to pay in a bit over half as much.

real1314 wrote: »

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:

Both dunstonh and I have pointed out this potential to people close to retirement who end up realising what they have set themselves up for and want to try to do something about it. Sometimes it's just too late, others end up in a more fortunate position.

The proposal is clear but the numbers don't add up - you end up with a higher income if you work for minimum wage for 40 years than you're suggesting. With a working life expected to be more like fifty years from 18 to a state pension age of 68 you're understating the number of years to save and overstating how much it costs to do that.

For investments, someone unwise who stuck to UK equities instead of going global the last 20 years to 2011 produced 6% plus inflation. The last 50 years, 5.4. The full 111 years in the Equity gilt Study were 5.1%.

I'm not going to slip into 80s mode with Thatcher, strikes, poll tax riots and such. Those were pretty dire years to be unemployed. Endowments have never been part of my own life. Kind of you to write about dunstonh and I in the same way as though I was also a very capable IFA like him. Fortunately for me I do well at my own job so I don't have to do his except to try to be helpful here.

zagfles wrote: »

We've side-tracked off the poll question. The issue here is the effect of means tested benefits on pensions and whether it's worth someone on a low income saving in a pension. Rather than whether it's just worth it for higher rate tax payers who own a house.

You might try reading MadeToFit's question again. It's not about low earners, it's about people of all incomes except higher rate and whether they own a house or not. Considering low incomes is an interesting part of the topic but it's far from all of it. there's a huge range of incomes between minimum wage and those on other incomes up to higher rate.

For those on minimum wage a more pressing question than saving for a deposit might well be trying to get into a council or other non-market cost form of housing. Plenty of challenges in trying to do that these days as well. Minimum wage isn't great

There are also those on less than minimum wage, like huge numbers of people who have difficulties working or being accepted as workers for a wide range of reasons. Such situations and just general bad luck are why I'm glad we have a benefits system.