what's the worst that can happen?

jamels2

Just wondering, take somebody who doesn't bother to plan for retiring. Somebody who works all their life to survive, but doesn't put anything aside for later?

What would happen to them when they could no longer work?

srcandas

Once they stopped working (by choice, health or opportunity) they would have an income of the state pension and any benefits that they could grab off the state. In the future these might be somewhat less than they are today

Things like holidays, nice cloths, eating out, a few pints, etc. would all be things of the past. A nice steak on offer at the butchers might become the cheapest supermarket sausages. They'd have to think carefully about every penny.

Of course there are people who can live very frugally. My brother can. But he has options as he has a house and savings. He chooses to live like that but if he had a problem and needed say private dentistry in an emergency he could pay.

And of course they would have to live where the authorities chose to put them. Look at what is happening to some with the so called bedroom tax. Forced to move away from their friends and home to somewhere remote and smaller

Don't get me wrong I know people who survive but it is not where I would want to be if I had a choice.

redbuzzard

There is income support. I have just spoofed an example on the direct.gov.uk website, assuming a 59 year old tenant, with no savings, in my area living alone and unemployed (but not unable to work - presumably disability attracts higher benefits). His council tax is £500 a year.

The estimated benefits are:

Housing benefit £115.39
Council tax benefit £ 9.62
JS allowance £ 71.00 (contribution based)

Total £196.01 pw.

The housing benefit is based on an entitlement to one bedroomed accommodation using the local housing allowance, here £121 pw.

I'm sure it gets a whole lot more complicated for most people, specially if they have health issues of their own, or are a carer, et cetera.

E&OE.

redbuzzard

I have just spoofed another example on the direct.gov.uk website, assuming a 64 year old female tenant, with no savings, in my area living alone and retired on state pension of £107pw (but not unable to work). Her council tax is £500 a year and her rent is £400 a month.

The estimated benefits are:

Pension Credit £35.70
Housing benefit £92.31
Council tax benefit £ 9.62
State Pension £107

Total £244.63 pw.

E&OE.

Interesting.

I suppose the cynical way of looking at this is that if this lady couldn't reasonably expect to create materially more than say £7,000 a year from saving for her retirement, then she might as well not bother.

As a former pension trustee, encouraging people to use the company pension scheme, I have come across several people who have come to a similar conclusion. On a purely financial basis, it's difficult to disagree with them, though I don't think one would actually have 100% of one's occupational or personal pension income deducted from benefits.

stinktankcynic

It all depends on if you own your home, have assets etc. The state pension in future is being reduced for workers in general, annuities not great, means testing will play a big part. There may not even be a state pension, the age may be increased to 75, in the meantime, the idle will be on means tested benefits.
Pensions are an easy target for the Government, change rules, tax grabs, perhaps a private pension will disqualify you from the state pension ... We already know people who have contracted out will get a lower state pension in future compared to people who don't work. This country is in it, waist deep.
Will the government grab all pension funds and pay really poor value government backed annuities at the new retirement ages, keeping the balance of cash. That would go some way to helping the deficit.

mania112

There a plenty of people who retire with nothing but state benefits.

It's not the end of the world, but if you're used to a certain standard of living from a reasonable working wage, you'll be making a lot of sacrifices.

There are state benefits, but they're largely not enough to maintain a normal standard of living.

jamels2

It sure is interesting, as I'm thinking when I'm old one day will I really be materialistic? Will I really need lots of money? I already think this way, and I'm only in my 30s. All I really need is warmth, food, exercise and socialising. Is it worth working like mad now to try and save something up to have a slightly better quality of life later on?

zagfles

Yes, benefits for pensioners are much higher than for working age adults. For a single person, pension credit would top up the state pension to £142.70, for a couple £217.90, plus rent and council tax would be paid by HB/LHA/CTB. The idea that you couldn't afford a few pints is rubbish - you'd probably be better off than the average student!

grey_gym_sock

if you have very low earnings, there is something in the argument that you won't gain much by saving for retirement. or not beyond having an emergency fund in savings accounts - as that's always useful, and the 1st few thousand don't affect benefits anyway.

but you do have more control of your own life when it's your own money. you're not vulnerable to rules on benefits being changed. you don't have to argue your case for receiving benefits with officials.

the government's answer to the lack of incentive for lower earners to save into a pension is automatic enrolment. perhaps this will eventually turn into compulsory enrolment.

bear in mind that pensioners on benefits get more money, and are generally treated a bit better, than younger ppl on benefits. e.g. it's only younger ppl who end up being forced to work in a fake training scheme if they want to keep their benefits. but as the state retirement age rises, perhaps the maximum age for that kind of mistreatment will rise, too. do you want to be a 70-year-old stacking shelves so that you don't lose your winter fuel allowance?

also, if you're earning a decent amount now, then retirement on benefits would probably be a huge shock. if you're on a very low wage now, much less so.

redbuzzard

redbuzzard wrote: »

I have just spoofed another example on the direct.gov.uk website, assuming a 64 year old female tenant, with no savings, in my area living alone and retired on state pension of £107pw (but not unable to work). Her council tax is £500 a year and her rent is £400 a month.

The estimated benefits are:

Pension Credit £35.70
Housing benefit £92.31
Council tax benefit £ 9.62
State Pension £107

Total £244.63 pw.

E&OE.

Interesting.

I suppose the cynical way of looking at this is that if this lady couldn't reasonably expect to create materially more than say £7,000 a year from saving for her retirement, then she might as well not bother.

As a former pension trustee, encouraging people to use the company pension scheme, I have come across several people who have come to a similar conclusion. On a purely financial basis, it's difficult to disagree with them, though I don't think one would actually have 100% of one's occupational or personal pension income deducted from benefits.

Re running this with £100pw net of occupational pension suggests a total income of £257.52 per week. So £87 of the self-provision is 'lost' in benefits (the pension credit, council tax benefit, and £42 of the housing benefit).

This is a bit of a shocker to me, even though I suspected it. This imaginary lady could have built up a £200,000 pension pot and exchanged it for a £5,000 RPI linked annuity, only to find herself £13pw or c. £700 per year better off as a result.

Of course she could have taken £50,000 tax free lump sum, but would presumably have lost further benefits for having the savings.

No wonder Iain Duncan Smith is bald.

E&OE.

Camdoon

This is what the next pension reform is trying to sort out. With Brown's model unless you were going to earn £15k per annum and contribute for over 30 years (probably worse now as annuities have worsened since then) then it was not worth saving in a pension as you would receive the same amount in means tested benefits.
I believe that everyone should be saving for their retirement and not penalised if they have done so.