Changes to State Pension - deferring pension

Be_Happy

I haven't noticed any mention of this, but well towards the end of the White Paper is info on new rules for deferring state pension.

Those on the new pension will only have the option of an increased pension after deferring - no lump sum, and rate is assumed to be calculated at 1% for every 10 weeks, not every 5 weeks as present (actual rate will be announced nearer the time).

Change will not apply to those still under the present pension system.

Have seen the following mentioned, but worth noting:

When new pension comes in, there will no longer be inheritance of SP and SERPS, etc for widows/widowers. Won't apply to those on present pension.

Jaycee_Dove

That is an interesting find and I suspect will lead to a rush of deferments from soon to be pensioners who miss the new rate and want to 'top up' their pension towards the new level using these more generous current rates.

I intend to try to do this myself.

Jack_Griffin

Jaycee_Dove wrote: »

That is an interesting find and I suspect will lead to a rush of deferments from soon to be pensioners who miss the new rate and want to 'top up' their pension towards the new level using these more generous current rates.

I intend to try to do this myself.

Check out what the pensions minister said on R4 moneybox this afternoon,deferrment was discussed and they confirmed some loophole like that was closed off, but I'm not sure if it is the same one as you're talking about.

kidmugsy

It reminds me what fantastic value the current pension deferment yields if you opt for the extra pension as your reward. I was reluctant to advise my wife to opt for the extra pension until I saw that the system will be retained under the new order.

Jaycee_Dove

Jack_Griffin wrote: »

Check out what the pensions minister said on R4 moneybox this afternoon,deferrment was discussed and they confirmed some loophole like that was closed off, but I'm not sure if it is the same one as you're talking about.

I did, and thanks for the suggestion.....but all he said about deferral was that someone due to retire before 2017 with just £107 pw could not defer taking their pension until after 2017 and then get the new £144.

This I understood and there was no mention of closing loopholes or of changes to the rate of accrument. Indeed on the phone I was told just today that if I defer my pension I would accrue at just over 10% per year that I deferred. Which in my case (as my forecast is £122 pw) I gather means deferring by just over 2 years to reach the same level as the new post 2017 pension.

The minister did claim on the programme there was no big clff edge as being suggested because those getting £107 on the old scheme will be those with contracted out pensions.

In fact the cliff edge applies to self employed people who are massive losers/gainers and do have a big cliff edge.

Because, if you were self employed and retire pre 2017 you get no second state pension If you retire from 2017 this is removed and you get the same as everyone else. So - for instance - someone with 40 years NIC payments retiring one day with low earnings so no great self bought pension/savings (say £20,000)will get the £107 and someone with 5 years less payments retiring the next day with savings and pensions of £10 million will get £37 pw more for life via an accident of birth.

THAT is a cliff edge and in my opinion patently unfair as both will have paid the same NIC contributions - though the one with the better state pension will have actually paid them f0r fewer years.

Jack_Griffin

Sounds harsh for sure, but what was the loser in this situation you describe thinking? He should have made some provision instead of burying his head in the sand. I think he will still be able to get means tested pension credit once the savings run down.

The new policy stops this situation arising in the first place.

Judwin

Jaycee_Dove wrote: »

Because, if you were self employed and retire pre 2017 you get no second state pension If you retire from 2017 this is removed and you get the same as everyone else. So - for instance - someone with 40 years NIC payments retiring one day with low earnings so no great self bought pension/savings (say £20,000)will get the £107 and someone with 5 years less payments retiring the next day with savings and pensions of £10 million will get £37 pw more for life via an accident of birth.

To my way of thinking, being self-employed means you defacto contracted-out of SERPS/S2P. The Self Employed paid less NI than everyone else, and were supposed to be making thei own arrangements for extra retirement funds using the NI savings.

Similarly, those that contracted out into a Personal Pension expect to get No/Less SERPS/S2P entitlement than those that stayed contracted in.

If these new proposals really do mean that Self employed post 2017 are entitled to a full flat rate, then not only is it not fair on the pre-2017 self employed, it also isn't fair on those that contracted out.

My solution - apply a self employed contracted out reduction to the self employed whenthe foundation amounts are calculated in 2017 inthe same way as there is a yet to be announced adjustment to those that contracted out into a PP or other plan.

Cheers
Judwin

Jaycee_Dove

Of course, the simple solution is to raise the basic pension over the next 4 years so that it is at the level of the new system when this kicks in. To pay for it put a ceiling on state pensions for those already getting large sums via second pensions.

That way you prevent any anger from existing pensioners or those retiring over the next 4 years (except the rich ones, of course).

Not likely to happen, of course. But I bet some tinkering does.

BTW, though self employed myself, I do agree that because of lower class 2 NIC payments there should not be full equivalency except for those who pay in for say 10 years after 2017 at what I imagine will be a new higher NIC contribution for those who are self employed in order to fund their equivalency.

A sliding scale towards equivalency post 2017 would also remove or lessen the cliff edge created here and be fairer and I suspect something like that will get proposed

As to the suggestion that someone self employed with miminum savings - what were they thinking? You can be self employed on very low income with not much chance to save...or you can be self employed and then a carer for many years with no provision to save further. The net result is modest savings through no fault of your own but you are worse off by having done the right thing and tried to save, because that modest sum will debar pension credit to top you up to the £142 pw that someone will get who was self employed and saved nothing at all.

kidmugsy

Jaycee_Dove wrote: »

Of course, the simple solution is to raise the basic pension over the next 4 years so that it is at the level of the new system when this kicks in. To pay for it put a ceiling on state pensions for those already getting large sums via second pensions.

Well, at least you say who should be stolen from to fund your preferred system, which is more than most of the whiners on MSE threads manage to do.

Jaycee_Dove

Just to put some context onto my 'whining'. Here is my situation.

I was self employed for many years on modest income but did save what I could as I knew that with lower NIC payments I had to self fund a top up to my SP.

I have in total more than 40 years NIC (including a small S2P from several years where I worked a second job whilst getting my self employment up to a level where I could afford to go full time.

Eventually I had to become a full time carer and in doing so could only keep my self employed work ticking over owing to my round the clock caring demands. As a result my income plummeted preventing any further saving.

But having this income debarred me from claiming carer's allowance until the point where I had no choice but to stop working when my care demands got more severe.

So for the last couple of years I have got carer's allowance (£58 pw).

The consequence of this is that I had to use some of my long term savings accrued over 35 years just to survive in the period when I could not really earn much and could not get Carer's Allowance because I wanted to try to keep working not just claim benefits.

Now as I approach retirement age I will get the basic SP with only a little atop that after being mostly self employed. I still have some savings which prevent getting pensions credit to top up to the £142 safety net. Though the economic climate mean that any annual income from these savings - if I used it as a second pension - goes nowhere close to topping up my SP to the amount given to those taking benefits.

So I want to defer my pension to try to build it up towards that level over 2 - 3 years. But in order to do so have to manage for these years by not taking the pension AND also losing my carer's allowance.

You cannot keep that if you want to defer your pension - or, rather, you can, but if you do so then the government in effect steals the difference between the £58 pw CA that you take and the £107 SP every week that you would have took - ie in toto over 2 years you lose £5000 and do not gain anything on your pension after forgoing it!


I do approve of the new pension system and see all of its benefits in preventing unfairness in future but it has exacerbated my own frustration because trying to work and trying to save has resulted in considerable disadvantage.

I realise I am just unlucky and many others will share similar problems and frankly the fact that I have been able to help my loved one in their time of need is way more valuable than any money. But I wanted to show how the phrase winners and losers over this new pension has many unseen nuances.