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

zagfles

dunstonh wrote: »

One benefit is not being replaced with another. The state pension is not means tested. Pension credit is proposed to be abolished. The basic state pension is proposed to be converted to a single state pension. The single state pension will not be means tested.

So, clearly people cannot rely on pension credit being there when it is already proposed that it is abolished.

Yes, how tragic for them. Instead of getting a state pension plus pension credit to top it up, they'll get exactly the same amount in total but all as state pension instead! That'll teach them not to save for their retirement!

dunstonh

zagfles wrote: »

Yes, how tragic for them. Instead of getting a state pension plus pension credit to top it up, they'll get exactly the same amount in total but all as state pension instead! That'll teach them not to save for their retirement!

The key thing is that they will get full benefit of their own savings and investments and pensions or whatever which gives the incentive to do more for oneself.

Perhaps you should shut up and actually try to understand what we're discussing here. Hint - it's not about me, or probably you. It's about people on low incomes and whether it's worth them saving in a pension or not.

That is not what this thread was started as. It certainly took that turn but the OP made no mention of planning to live in poverty in retirement.

zagfles

dunstonh wrote: »

The key thing is that they will get full benefit of their own savings and investments and pensions or whatever which gives the incentive to do more for oneself.

Not true, unless they make radical changes to way housing benefit and council tax benefit work.

doubleJackD

like it or lump it, for the low paid saving can be a waste of time.

when people are unemployed the state doesn't give JSA to people with savings. maybe the low paid should just spend their money.

margaretclare

doubleJackD wrote: »

like it or lump it, for the low paid saving can be a waste of time.

when people are unemployed the state doesn't give JSA to people with savings. maybe the low paid should just spend their money.

I believe they do (spend their money, that is). On essentials.

My eldest GD frequently finds that 'there's too much month left at the end of the money'. It wouldn't be the first time that I've sent her a bit of money for food.

zagfles

jamesd wrote: »

No, because once you add £68 a week for the 40 times 1.70 to the basic state pension's £107.45 you end up on £175.45 a week.

Try running the numbers to see what starting with that income and no savings does to Pension Credit entitlement and you'll probably see why I didn't agree with you about it being useless for someone working on minimum wage for a full working life or even just 40 years to make more pension contributions.

But £175.45 is above the applicable amount, so housing benefit will be tapered by 65% of any extra income, and council tax benefit will be tapered by 20%, an 85% marginal deduction rate!! That's after the effect on pension credit, while there is still some pension credit the marginal rate is 91% !!

So any small additional pension savings would be "taxed" at between 85% and 91% :eek:

If we were discussing someone close to retirement it's likely that we'd find areas where we would agree that making personal pension contributions won't make sense under the current rules, but the new rules may change that. So in part it'd depend on how optimistic each of us is that the new rules will eliminate some of the means testing to make extra pension contributions a pure win for all.

One really radical thing they could do is lower the applicable amounts for pensioners to the same as people under 60, ie £71 today for a single person (rather than £161.25). This would make those who still have to pay rent in retirement a lot poorer if they don't save, since HB/CTB/LHA would drastically reduced, but it wouldn't cause massive hardship since such pensioners will be no worse off than someone under 60 who is out of work.

hugheskevi

Not true, unless they make radical changes to way housing benefit and council tax benefit work.

This is significantly overlooked in all commentary about the proposals, and focus is on the number in receipt of Pension Credit (which does indeed fall to very small numbers).

This report by the PPI shows on page 60 (table 19) that under the current system 60% of pensioner households currently receive some means-tested benefit. If nothing were to change, by 2030 that would fall to 50%. And under the proposed single-tier changes, it falls to 45% (so close to no change).

For my 2 penneth...

Having said the above, looking at specific policy over anything more than about the next 5 years is a bit pointless as there will be significant change at least once, if not twice or more by 2030.

There will always be some some sort of means-tested system by necessity, but it can never be too generous otherwise you get incentive problems. There will probably be some sort of non-means tested State pension unless there is compulsory pension saving introduced for the same incentive problems. But that may well be from a very old age - 70 would be sensible to plan for, perhaps more.

I think the 'triple lock' gets far more credit than it deserves - under the Labour administration the State Pension increased roughly in line with earnings, and if the previous uprating regime had been left in place, State Pension would be higher today than it actually is. That will change in the future, assuming that the triple lock policy isn't changed - but personally I apply a high discount rate to political promises.

The Turner Report has been rather overtaken by events - all the projections from 2004 didn't factor in the recession and GDP now being something like 10% below where it may have been thought to be back then, nor the planned single-tier pension reform, and the private reforms are not really being implemented in the way Turner envisaged.

I don't think anyone can say whether or not saving for the poorest is right or wrong definitively, as it is a gamble on future policy. That in itself is enough for me to argue that it is certainly worth saving enough to get the best returns (ie enough to get employer contributions), after that, personally I would hedge my bets and use S+S ISAs to keep flexibility over what I can do.

But in reality it will not be a choice between saving in a pension and ISA, but between pension and spending. In reality, in such a position personally I'd spend it, no question. Might not be the right thing to do, but I wouldn't be living on next to nothing just so that in the future I might be able to have a little bit extra, but at the risk that I am no better off, or even possibly worse off depending on the political climate when I reach old age. Of the many investment strategies I've heard, one that was mentioned to me a decade ago -"Spend it all and rent" certainly gives the best returns, if not the best outcome

jamesd

zagfles wrote: »

Have you read the Turner report? Do you really think he didn't consider these things?

I've read all three of the reports of the Turner Pensions Commission. On page 249 of the Second Report they proposed that it would be reasonable to consider an increase of spending on state pensions from about 6.1% to between 7.5% and 8% of GDP.

The UK currently has taxes of about 39% of GDP. So an increase to say the higher 8% figure would mean an increase to the taxes paid by (8-6.1)/0.4 = 4.75% added to say the basic rate of income tax if the working population stays the same.

For those who don't know how the demographics look, today there are around 30 pensioners per hundred working people. By 2050 without later state pension age the expectation was 54. So 54/30 = 1.8 times the tax cost per worker.

So adding in that effect we end up with an increase in the basic tax rate of 4.75 * 1.8 = 8.55% before allowing for the effect of [STRIKE]index[/STRIKE] earnings linking pensions and a flat rate pension.

I don't think it's a sound thing to do to plan on those following two generations being willing to pay the substantially higher taxes that current and proposed plans are going to ask of them. Try asking people now if they want to pay 28% instead of 20% basic rate tax to produce higher state pensions and see how you get on. Don't expect an enthusiastic response, it'll take smoke and mirrors to do it.

zagfles wrote: »

But £175.45 is above the applicable amount, so housing benefit will be tapered by 65% of any extra income, and council tax benefit will be tapered by 20%, an 85% marginal deduction rate!! That's after the effect on pension credit, while there is still some pension credit the marginal rate is 91% !!

But this discussion is about not putting some money into pensions for a while to save to buy a place instead and that would eliminate the need for Housing Benefit for those who do it. It's also about not getting stuck having to rely on means tested benefits.

zagfles wrote: »

One really radical thing they could do is lower the applicable amounts for pensioners to the same as people under 60, ie £71 today for a single person (rather than £161.25). This would make those who still have to pay rent in retirement a lot poorer if they don't save, since HB/CTB/LHA would drastically reduced, but it wouldn't cause massive hardship since such pensioners will be no worse off than someone under 60 who is out of work.

One really radical thing that they could do is work out how much it will cost and tell people so they can make a properly informed choice. And then include one year olds in the voters pool because they will be paying a significant part of the cost, while eliminating those 50 and up on low incomes because they will be receiving the benefits but not paying for them.

What we're really likely to see is more of the usual political lies like the current Prime Minister claiming that he's doing all he can to reduce energy costs while his government is diligently working to increase wholesale energy costs with higher subsidies for some types of fuel.

gadgetmind

zagfles wrote: »

actually try to understand what we're discussing here. Hint - it's not about me, or probably you. It's about people on low incomes and whether it's worth them saving in a pension or not.

The first message here, the one with the poll that started the discussion, doesn't mention low incomes, unless you count not paying HR tax as being a low income.

BTW, 85% of people disagree with the proposition of the poll.

hugheskevi

On the topic of future expending, this OBR report made interesting reading - state pension costs going up by 2.5% of GDP, but healthcare and social care costs rising by even more (bit over 3%) by 2060.

These are offset by a fall in public service pension payments, but even so, that is a lot of extra spend.