An alternate to the State Pension - blue sky thinking.

peterg1965

I don't know why that with a view to saving money the Government does not consider a scheme to offer State Pension sacrifice to those with significant guaranteed pensions. I would be in favour of this if foregoing the State pension completely could be exchanged for decent tax concessions to those with guaranteed pensions above, say, £25K. This should also apply to free TV licences, buss passes, fuel concessions etc. Opt out and receive tax advantages in return from State Pension age of course.

Views? Would this be workable?

Maybe increasing the tax free allowance to £5K above the going rate, increasing the LTA.....

hugheskevi

A voluntary scheme would presumably cost money, as those who gain choose to take it up. The gainers would be those in higher income deciles, as they would be the only ones able to take up the choice. There might be a bit of altruism, but probably not enough to outweigh the gaming aspect (especially as altruistic folk simply do not need to draw their pension at all under the current system if they are feeling especially altruistic).

But most crucially:

Tax concessions=less revenue now

Sacrificed State Pension=less expenditure in the future

A long-sighted Government might consider measures which increased the deficit now to save money in the future (spend to save measures) but with the current focus on reducing the deficit it is difficult to see the current Government being in favour of such a scheme even if the short term loss was outweighed by long term gain.

Policies which led to an overall loss, but which increased short-term revenue at the expense of a longer term loss would be more likely to be implemented.

peterg1965

Good point, but we alledgedly have a Government that thinks for the long term. I don't think it could be introduced over night, but planning to introduce it in, say, the next 5-10 years could work. Anything to reduce the burden on the State must be a good thing and if it further incentivises pension saving as a side effect, that would be no bad thing as well.

hugheskevi

Anything to reduce the burden on the State must be a good thing and if it further incentivises pension saving as a side effect, that would be no bad thing as well.

That rather depends on what you define as being a burden on the State.

Anything that involves a choice, particularly for the wealthiest, will be gamed (ie selected against). Therefore offering something like this would be an overall cost to the Exchequer. By definition, if the Exchequer ends up worse off, the burden on the State has been increased, not decreased.

In this case, it might be that the State saved £100,000 per person taking up on State Pension spend, but that reduction in burden came at the expense of losing £120,000 per person in tax revenue. It isn't clear to me why the Exchequer would think this a good thing?

bilbo51

peterg1965 wrote: »

... we alledgedly have a Government that thinks for the long term.

Don't make me laugh. None of them (politicians as a whole) thinks any more long term than their next election prospects. They just give the appearance of doing so.

real1314

peterg1965 wrote: »

Maybe increasing the tax free allowance to £5K above the going rate, increasing the LTA.....

So HMG loses £2k per annum over a working life, to save £5k (maybe £7k) per annum over a retired life?
Even though HMG can control how long the working life and, to a degree, how long the retired life will be?
Hmm - 50+ years of £2k invested vs 20+ years of £7k on an annuity basis?

How would you assure that the individual would really be self supporting? Wouldn't they need some sort of guaranteed pension to do this?
At what age could they take this status? 21? 30? 40?
How would you know with reasonable certainty at any of those ages, that you would get sufficient retirement income to be eligible?

I think you have lacked any lateral thinking, and long term thinking, as you haven't considered all of the issues that might arise. :cool:

srcandas

real1314 wrote: »

So HMG loses £2k per annum over a working life, to save £5k (maybe £7k) per annum over a retired life?
Even though HMG can control how long the working life and, to a degree, how long the retired life will be?
Hmm - 50+ years of £2k invested vs 20+ years of £7k on an annuity basis?

How would you assure that the individual would really be self supporting? Wouldn't they need some sort of guaranteed pension to do this?
At what age could they take this status? 21? 30? 40?
How would you know with reasonable certainty at any of those ages, that you would get sufficient retirement income to be eligible?

I think you have lacked any lateral thinking, and long term thinking, as you haven't considered all of the issues that might arise. :cool:

Real1314 I think you have misunderstood the first post

I can see this being worthy of consideration on several fronts.

For sure option systems cost for administration,

but:

It would aid planning
It would I think encourage altruism. Especially if the savings were targeted at say the NHS :cool:
It could raise money

Yes it would need to be well thought out but I like it

peterg1965

real1314 wrote: »

So HMG loses £2k per annum over a working life, to save £5k (maybe £7k) per annum over a retired life?
Even though HMG can control how long the working life and, to a degree, how long the retired life will be?
Hmm - 50+ years of £2k invested vs 20+ years of £7k on an annuity basis?

How would you assure that the individual would really be self supporting? Wouldn't they need some sort of guaranteed pension to do this?
At what age could they take this status? 21? 30? 40?
How would you know with reasonable certainty at any of those ages, that you would get sufficient retirement income to be eligible?

I think you have lacked any lateral thinking, and long term thinking, as you haven't considered all of the issues that might arise. :cool:

Maybe you misunderstand, or I didn't make myself clear. My proposal is that at the point of being able to receive a State Pension (ie SP retirement age) having paid the requisite amount of NI in your working life, you could opt out of taking the SP in return for tax concessions or other attractive alternatives. I would suggest that to do this you would need to prove you have a guaranteed pension, as you do for flexible drawdown, and I would suggest using the same figure of £20k pa, maybe higher.

The cost of doing this needs to be neutral, or in fact marginally beneficial to the Individual (initially) but attractive enough to a pensioner to make them want it. The benefit to the State is a reduction, maybe slight, of people living off the State benefits (mute point maybe). Maybe even a £10k increase to the tax allowance and/or reduction in saving tax for pensioners, increase in the LTA or a combination of other, incentives.

Maybe it would work only for the wealthiest pensioners, maybe it won't work at all, but I have to say that the State Pension is not something I factor into my retirement planning necessarily. Possibly you could make the deceleration of opt out at an age earlier than SP age, when the individual has generated suffcient guaranteed pension from other means.....

As I said in my original post, just a bit of blue sky thinking...

peterg1965

bilbo51 wrote: »

Don't make me laugh. None of them (politicians as a whole) thinks any more long term than their next election prospects. They just give the appearance of doing so.

To be fair to the current Coalition they are trying to tackle some long term issues when previous administrations just kicked the can down the road - public sector pensions, care provision for the elderly etc. Hardly vote winners at the next election but gritty issues that have so far been subjected to previous Governments sticking their heads in the sand.

CLAPTON

peterg1965 wrote: »

Maybe you misunderstand, or I didn't make myself clear. My proposal is that at the point of being able to receive a State Pension (ie SP retirement age) having paid the requisite amount of NI in your working life, you could opt out of taking the SP in return for tax concessions or other attractive alternatives. I would suggest that to do this you would need to prove you have a guaranteed pension, as you do for flexible drawdown, and I would suggest using the same figure of £20k pa, maybe higher.

The cost of doing this needs to be neutral, or in fact marginally beneficial to the Individual (initially) but attractive enough to a pensioner to make them want it. The benefit to the State is a reduction, maybe slight, of people living off the State benefits (mute point maybe). Maybe even a £10k increase to the tax allowance and/or reduction in saving tax for pensioners, increase in the LTA or a combination of other, incentives.

Maybe it would work only for the wealthiest pensioners, maybe it won't work at all, but I have to say that the State Pension is not something I factor into my retirement planning necessarily. Possibly you could make the deceleration of opt out at an age earlier than SP age, when the individual has generated suffcient guaranteed pension from other means.....

As I said in my original post, just a bit of blue sky thinking...

Are you saying that in exchange for say £1000 less state pension then you would get 1,005 worth of tax cuts?

grey_gym_sock

this doesn't make sense at all. in order to be worth while for anybody to take it up, the tax reduction would have to be greater than the state pension given up. so either it would cost the public sector money, or nobody would take it up.