MSE News: Government outlines flat-rate state pension

edited 30 November -1 at 1:00AM in Pensions, Annuities & Retirement Planning
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  • edited 17 January 2013 at 12:38PM
    gadgetmindgadgetmind Forumite
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    edited 17 January 2013 at 12:38PM
    Can't find anywhere on Google where band 1 fixed at £1.70. They're still using 40% in their 2012/3 examples

    You might be right. However, I think that any earnings over LEL are treated as being earnings at LET, which makes it the same amount for everyone over LEL.
    From my research it looks as though an average-waged person will be currently accruing S2P at around £2-£2.50per week for each year of being contracted in.
    Sounds about right. I think that £1.70 is the min and about £2.65 the max, but this latter amount depends on individual retirement ages.
    Seems a bit unfair that contracted out are allowed to buy back in at £4.11 post 2017

    Post 2017 I don't think there will be anyone still contracting out.
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
  • Old_SlapheadOld_Slaphead Forumite
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    gadgetmind wrote: »
    Post 2017 I don't think there will be anyone still contracting out.

    I'll rephrase - "those in final salary schemes who were contracted out pre 2017"
  • gadgetmindgadgetmind Forumite
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    Yes, it does look like they'll be able to keep building up to full flat rate and have some extra on top.

    However, those who never contacted out will in most cases be over the £144 too, often significantly over.

    I reckon it's going to be broadly neutral for me as I have an in/out mix. Maybe I could have done better by never contracting back in, but with just over a decade to retirement when I did it, I wanted the S2P rather than the added investment risk.
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
  • edited 17 January 2013 at 2:23PM
    Jack_GriffinJack_Griffin Forumite
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    edited 17 January 2013 at 2:23PM
    No still can't see that. It does say....

    Can't find anywhere on Google where band 1 fixed at £1.70. They're still using 40% in their 2012/3 examples

    £1.70 mentioned in here as applicable to carers/long term incapacitated http://www.direct.gov.uk/prod_consum_dg/groups/dg_digitalassets/@dg/@en/@over50/documents/digitalasset/dg_202348.pdf
  • gadgetmindgadgetmind Forumite
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    Thanks for that. Relevant text is -

    "From April 2012 you will get a standard flat-rate amount of
    State Second Pension, worth £1.70 a week, for each qualifying
    year. Also, people earning above the Low Earnings Threshold
    are entitled to an extra earnings-related payment. We’ll
    gradually withdraw this earnings-related payment so that by
    about 2030, State Second Pension will be made up of the flat-rate amount only."
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
  • gadgetmindgadgetmind Forumite
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    Some may find the Green Paper responses document interesting.

    http://www.dwp.gov.uk/docs/state-pension-21st-century-response.pdf

    It gives many insights into the issues behind some of the decisions made regarding these changes.

    Given the complexity of the problem, I think the transitional scheme that's in the White Paper is quite impressive really. Of course, not everyone is happy, but that was inevitable.
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
  • There is a calculation on pages 46 and 47 of the document to work out your 'foundation amount' (the effective amount you will have accrued by 2017).

    The simpler calculation is if you've never contracted out:

    [the number of years of full NI contributions] / 35 * £144

    The same calculation applies to the years you were contracted in, if you did contract out.

    For your contracted out years, the formula is the above, with a 'rebate derived amount' subtracted for which there is (that I can find):
    1) No clear definition
    2) Certainly no numbers given
    It is worth looking at the example of Matt presented on page 51 of the White Paper, whose 10 contracted-out qualifying years gains him a pension under the new scheme of £35. It seems to me that this has been calculated as:

    £144 x 10/35 x 0.85 = £35.

    Thus, the rebate derived amount could be in the region of 15% of the contracted-out years, which is far too obscure to represent a commitment, but might just be an indication! ;)
  • edited 18 January 2013 at 10:27PM
    SnowManSnowMan Forumite
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    edited 18 January 2013 at 10:27PM
    FitzRover wrote: »
    It is worth looking at the example of Matt presented on page 51 of the White Paper, whose 10 contracted-out qualifying years gains him a pension under the new scheme of £35. It seems to me that this has been calculated as:

    £144 x 10/35 x 0.85 = £35.

    Thus, the rebate derived amount could be in the region of 15% of the contracted-out years, which is far too obscure to represent a commitment, but might just be an indication! ;)

    And here is my attempt at guessing what the rebate derived amount is:-.

    The rebate derived amount calculation is specified in the draft pensions bill on page 33, look at the wording numbered 5 on that page. It calls it 'contracted out deduction' there but it is obvious it is the same thing

    Now think about a typical state pension statement. I think the wording is along the lines of (where £50 is the additional pension the person would have received if notionally they had been contracted-in during periods of contracting-out)
    You have an additional state pension estimated at £30 per week. This is made up as follows

    Total additional state pension £50
    Less contracted out deduction £20
    Total estimated additional state pension £30.
    Is it possible that the draft pensions bill wording is saying that the contracted out deduction is very similar to the £20 from this, so the adjustment set out in two parts on page 33 of the draft bill could be

    30 less 50 = minus 20

    Incidentally the additional pension for the guarantee that benefits will be at least the same as accrued on the old basis uses the figure 30 from the statement in the above example?

    So all the amounts required for the foundation amount calculation are taken from the pensions statement?
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  • LintonLinton Forumite
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    SnowMan wrote: »
    .......
    Is it possible that the draft pensions bill wording is saying that the contracted out deduction is very similar to the £20 from this, so the adjustment set out in two parts on page 33 of the draft bill could be

    30 less 50 = minus 20

    Incidentally the additional pension for the guarantee that benefits will be at least the same as accrued on the old basis uses the figure 30 from the statement in the above example?

    So all the amounts required for the foundation amount calculation are taken from the pensions statement?

    I think this is how it must be. It would have the effect that if one's contracted out investments performed so that the income generated just happened to equal the state pension lost by contracting out then the net effect would be the same as if one had been contracted in. Anything else would give rise to unjustifiable anomalies.
  • TancredTancred
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    Madd wrote: »
    I don't know why anyone under 55 is taking any notice of this, it will all be changed again and again before you get to retire. If you look at it logically, the current generation paying in are the baby boomers, it's a blip, a larger workforce, who have been paying the pensions of the older generation. Of course the older generation have been happy to take full advantage of this, retiring early, getting a bigger pension than they really earned etc. even though they still moan.
    But...when the baby boomers come to retirement age, the generation after us is smaller, so we have the opposite - a smaller workforce supporting a larger amount of pensioners.
    Of course we can't expect the same as the greedy generation before us. They didn't pay for their own inflated state pensions, we did!
    Now our children will be paying for our pensions, but we can all see how our children are struggling as it is. So the only thing the government can do is move the goal posts, they haven't saved any money ready for the blip they knew was coming, in fact quite the opposite, they've borrowed money to make their lives even cushier, and run up the biggest National Debt we've ever had.
    And what is debt? It's a legal contract providing money today in exchange for repayment in the future…with interest, of course.
    Is it really proper for one generation to consume well beyond its means and expect the following generation to forego their consumption to pay it all back? That is precisely our current situation.
    So face the facts - the Country is broke, there is no money for our state pensions other than can be milked out of the next generation (our children). You are going to have to work many many more years. For everyone before us that retired at 50, 15 years early, we are going to have to retire 15 years later. For everyone that got a good pension from the government, which it borrowed to fund, we will get less, as we now have to pay back the debt for their 'prosperity' that they did not earn.
    If you're under 55, expect to work until you die, and blame your parents for it. They were a greedy generation that spent well beyond their means to live a lifestyle they didn't earn and didn't deserve, and left their children to suffer because of it. I am of course speaking generally.
    Government after government has seen this coming and ignored it, preferring instead to leap on the gravy train and look after themselves, and if you need proof of that look at the Lib Dems. Do they give a stuff about their pledges, promises or political beliefs? Not if abandoning it all means they too can jump aboard the gravy train and be in government too. One thing you can be sure of, they won't have to worry about their pensions now. They're all right Jack.
    The gravy train has come to the end of the line. The government of course won't admit it, because they want to stay on it for another couple of years. But it has. They tell us inflation is 1 or 2% but walk into a supermarket and see - it's over 10%, they just fiddle the figures. So promising a bigger pension (linked of course to their inflation) in 5 years time is just another con. By the time you get there, in real terms it will be no more than it is currently in real terms, but they will have moved the goal posts again by then so what does it matter.
    Divide the National debt and government liabilities between the total population of the country and you will find each and every one of us has about £130,000 of debt attached to us. Think about that. Your 5 year old daughter, the busker in the Underground, the young lad going off to Uni, the shop assistant in Boots - every one of them has a £130k debt courtesy of previous generations, and we've just arrived at payback time. Last one out turn off the lights please, if there's any electric left that they're still on. :)

    I mostly agree with what you say, but you are making too much of this national debt issue. This country had a massive debt as a result of WW2 and still managed to settle it around 30 years later. No great austerity was required to accomplish this. You also keep saying that the new generation will be smaller, but this is not true - with the massive immigration influx that is happening there will be plenty of new people, especially given that the immigrants have many more children than the native British.
    In my view there is no need to keep moving the pension age up and up. it could be kept at 65 for decades to come and the state pension could be £180 a week instead of £144. What is missing is the political will to do this. Pensioners are an easy target because they have little political clout, but touching the money of the upper-middle class is strictly not allowed. What we are witnessing is a subsidised working class, an overtaxed lower and middle-middle class, a protected upper-middle class and an upper class that can basically do what it likes. In other words, 75% of us are in a state of enforced povety in order to protect the upper 25% of so-called 'wealth creators'. Labour's idea of a 50% top rate of income tax was fine, but the threshold should have started way down - around £75k or so - proving that even Labour was too afraid to upset the chattering classes. Taxing the top 2% will never bring in much money, taxing the top 20% will - but no party seems willing to pay the political cost of this, and thus the country suffers as a result.
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