GMP, COD and Single Tier Pension

zagfles

Martin51 wrote: »

Zagfles
That's a very impressive analysis, thanks.

Almost invariably when a new system is introduced there are losers, neutrals and winners -- and various flavours thereof. The IFS's excellent study pointed out that in the long term, once all of the current generation of mixed flavours is shaken through, those coming into the single tier will, of course, be all contracted in and their benefits will be capped under the single tier, and so in fact overall will be getting less than is possible under the current system. So, from Government's perspective less will be paid from the State's coffers -- with a the double benefit of lower administration costs, although DWP say that overall it will be cost neutral.

Thanks - yes there have been long threads here discussing this, the current rules will give many people more state pension than the single tier, someone with a full working life on NMW will get considerably more under current rules than new rules. But then someone self employed all their working life is much better off under single tier.

One thing I should have added to my anaylsis above is the effect of franking - ie where schemes can offset the GMP element against the rest of the benefits. This is particularly relevant for those who want to take early retirement...see http://ompensions.co.uk/media/255935/kb-franking.pdf
and so is another circumstance where GMP and COD don't necessarily cancel each other out.

hugheskevi

I would like to see far more public statistics on who gets what currently on state pensions. An interactive pie chart would be great for starters showing state pension totals by bandings and by numbers in those bandings, and with the facility to click and drill down into genders and age groups too, and into membership of principal occupation groups as mapped from the lion's share of an individual's qualifying years - so not their retirement occupation, but the occupation in which the majority of their qualifying state pension years were earned. This is such an important welfare cost to the UK that we should all be able to see it presented that way right now. Maybe government insiders think we aren't able to handle the truth?

You can get quite a bit from DWP's tabtool for State Pension.

One of the large number of stats available from this is that there are 3.8 million individual pensioners receiving more than £150 p/w of State Pension.

agarnett

Thanks for that hughskevi ... yes there is data in it, but not quite as handy as would be nice

This simple table looks ominous if I am reading it correctly ...
State Pension Caseload (Thousands) : Time Series by Category of pension

An increase in total state pensioners on the books from ~11.5M in late 2004 to ~13M in late 2014 - a 13% increase in just 10 years. That isn't a new trend - it has persisted at least 20 years already. Other statistics on that site indicate that the State Pension caseload was only ~10.2M in late 1994.


Another set of ONS statistics shows that in tax year 2012/13, no less than 13.8M Households received more in state welfare benefits than they paid in any sort of tax. I am guessing that maybe half of those households were those of persons in receipt of state pensions. For the other half, it is a plain crazy statistic, not that they should receive benefits which they never habitually pay for, but that their incomes are artificially so low that they never learn the pride of being a net contributor to the economy in which they enjoy their livelihood. Psychologically it is all wrongly balanced.

The first red chart of Mid 2013 UK Population by Year of Age that I presented last night begins to look not so much like any particular threat of a ten year hump of late baby boomers beginning to hit like some pesky iceberg in our path, but more as a tsunami being driven our way by some complete meltdown of mortality rates that simply will not recede! We can see three humps or waves 25 years apart (so three distinctly linked "generations"), but it is not so much the waves we might worry about. It matters not if the second and third humps in that chart might themselves a ripple of the post WW2 baby boom - (children and grandchildren of baby-boomers). What really really matters of course is the unknown depth of their longevity plus that of the 13M who are already drawing state pension. We surely have to tip our system of taxation its head in order to maintain fairness with that threat almost upon us.

To get the overall revised distributions we need in order to counter the extra longevity we are encountering which will never go away, we can only commence to tax real wealth much more effectively . Did I read something the other day about the floating of new law to make tax rises illegal ? That's completely bonkers. That'd sink us for good.

So I think I am broadly in favour of the extra taxation that 2015 Pension Freedoms might bring, but actually, we all know that will just be a short term finger in the dyke.

We must immediately start to tax the trappings of real wealth in order to get the balance right. If you want to own a very expensive house then you should pay a very expensive tax to get it. If you wish to own and flaunt a very expensive car, or perhaps even an entire very expensive football team, or suddenly arrive on the scene and buy 2,000 acres of prime farmland, then the same applies. Those are the sorts of things which most conspicuously identify where wealth resides. We need a tax regime which conspicuously will quickly flatten the wealth distribution curve.

We perhaps need to immediately double the National Minimum Wage, halve the personal income tax allowance and bring the basic tax rate up to 30%. It does no good to let people think that low income tax is good for them, and groom them into thinking that state welfare and pensions cost them nothing to qualify for so they should be grateful for every penny. We need people to have the money their labour deserves, but to be proud to pay taxes because they are proud of what the state provides e.g. seriously fair state pensions for those who were neglected and exploited by past employers, and for the self-employed who create jobs, and a much more supportive welfare system generally that doesn't treat unemployed like toerags. And we need free university educations. We do not need stupid City Bonuses for any purpose and if they continue they should be taxed at no less than 80%.

We do need all those people who wish to flaunt wealth, but we don't need them siphoning ours off and avoiding tax. We need them to be both happy flaunting wealth, and simultaneously happy to agree and be seen to contribute much much more tax because of it.

Sorry, were we talking Guaranteed Minimum Pensions ?

I fear that's not even the half of it, I think we need Guaranteed Minimum Taxes on the things that Personal Wealth is typically used.

Meantime, we need tounderstand much better who we think we are as a country, and who we mean to single out when we are trying to be fair. Single Tier State Pension was supposed to be a leveller, but now we know it ain't no such thing. We aren't just private sector or public sector, or taxpayer and non-taxpayer, or contracted out (as was), or contracted in. We aspire to lead with our economy, not just argue that we are "winning" with it.

There are some very interesting and immediately questionable breakdowns available in some ONS statistics which might take weeks of work to get to grips with. We need to be careful to be inclusive, but equally careful that we don't discrimate. Some classifications used by ONS and hence by government I do not find at all helpful.

I just downloaded one breakdown of populations by region, age gender, and public or private sector employment and stumbled upon some fields of data labelled "Output Area Classification Group" and perhaps fascinatingly they were these:

oacg:1a Terraced Blue Collar
oacg:1b Younger Blue Collar
oacg:1c Older Blue Collar
oacg:2a Transient Communities
oacg:2b Settled in the City
oacg:3a Village Life
oacg:3b Agricultural
oacg:3c Accessible Countryside
oacg:4a Prospering Younger Families
oacg:4b Prospering Older Families
oacg:4c Prospering Semis
oacg:4d Thriving Suburbs
oacg:5a Senior Communities
oacg:5b Older Workers
oacg:5c Public Housing
oacg:6a Settled Households
oacg:6b Least Divergent
oacg:6c Young Families in Terraced Homes
oacg:6d Aspiring Households
oacg:7a Asian Communities
oacg:7b Afro-Caribbean Communities

Don't ask me if you can live in an area classified under more than one of these, or if it can be shown to affect your GMP chances because I just don't know - yet!

I would quite like to know what the definitions are of each - they might make interesting reading!

I have a nasty suspicion however that these might be classifications devised more for election vote lobbying purposes than anything else!

Martin51

Some thought-provoking statistics and comments on recent threads.

AGarnett, you have posed some interesting projections based on the data provided. Certainly by raising the tax threshold we appear to be helping those at the bottom levels of income on the one hand, but on the other hand as you observe, these people become more detached from any sense of contributing to the tax coffers and hence to the benefits' system. Perhaps this is the quixotic world of unintended consequences that we are all finding whenever the authorities tinker with infrastructure?

If I may return to (certainly from my own/others similarly affected's 'selfish' aims), any further data/interpolations to try to pinpoint casualties under the early term of the single tier would be useful.

From some earlier threads it would appear that the annual reconciliation between GMP and COD can longer take place under single tier. Indeed, Mr Webb has confirmed this to me. But when you reach SPA under single tier, your contracted-out history will still exist on HMRC's database. As you can no longer accrue contracted-out NICs henceforth, there'll be a cutoff at 6 April 2016. Surely DWP/HMRC can calculate a notional 'final' Additional State Pension equivalent at that point which could be used to generate inflationary increases for those who have GMP?

Obviously Government is trying to simplify the system 'at a stroke', but you must recognise those that have built up rights. The Government (DWP/HMRC) got a lot of flack when it was alleged that they had no obligations to uphold the GMPs for those whose pension schemes were wound up when their companies crashed.

xylophone

http://www.pensionsworld.co.uk/pw/article/defined-benefit-gmp-reconciliations-12332771

https://www.teacherspensions.co.uk/members/your-scheme/your-retirement-years/guaranteed-minimum-pension.aspx

The above took my eye - "a GMP in the state scheme"?????

xylophone

The "small group" refers to those for whom the overall impact of single tier is negative - which according to the actuarial analysis I've seen, is confined to those who reach state pension age in the couple of years post April 2016.

http://pensionsworld.co.uk/pw/article/pension-reform-short-changed-12334936

"The government is aware of this issue and in a response to a Freedom of Information request, it has estimated that “around a quarter of individuals with [pre-88 GMPs] relating only to private sector employment will … receive less state pension over their lifetime than they would have done under the current system”. Yet the point is barely mentioned in the raft of technical papers the government has published on the impact of the new regime. It is therefore unsurprising that the point has gone unnoticed by many."



And how many people does "around a quarter" represent.....

http://www.dwf.co.uk/news-events/legal-updates/2014/09/abolition-of-state-top-ups-to-gmp-increases/

"Legislation – as of 6 April 2016

From 6 April 2016, all persons reaching state pension age will be subject to the single tier pension. Paragraph 55 of Schedule 12 to the Pensions Act 2014 amends section 44 of the Social Security Contributions and Benefits Act 1992, so that the state pension provisions (including increases) under that Act will not apply in respect of persons reaching state pension age on and from 6 April 2016. The legislation does not contain any mechanism for topping up the increases currently funded by the state for persons with GMPs who reach state pension age on and from 6 April 2016.

Whilst it is expected that most schemes will have standard GMP rules, such that schemes will only be required to fund increases in respect of post-88 GMP up to a maximum of 3%, employers and trustees of DB pension schemes may want to check that there is nothing in their rules that has the effect of providing that the pension scheme picks up those increases that will no longer be funded by the state"

Employees might also want to check?

zagfles

xylophone wrote: »

http://pensionsworld.co.uk/pw/article/pension-reform-short-changed-12334936

"The government is aware of this issue and in a response to a Freedom of Information request, it has estimated that “around a quarter of individuals with [pre-88 GMPs] relating only to private sector employment will … receive less state pension over their lifetime than they would have done under the current system”. Yet the point is barely mentioned in the raft of technical papers the government has published on the impact of the new regime. It is therefore unsurprising that the point has gone unnoticed by many."

Which makes my point. Even among those who have private sector pre-88 GMPs, three-quarters will be better off under the new rules.

Whereas those of similar age but who have been contracted in since pre-88, I'd bet it's the other way round, likely over three-quarters will be worse off under single tier.

agarnett

"Even among those ..." ? What kind of language of excuse is that ?

We know for a fact that close to 800,000 reach SPA every year. I used that figure to estimate 4M in the next 5 years or the five years from April 2016.

We know that in the seventies when these pensionists started work, 2 out of three DB schemes were in the private sector (not as now where the proportions are completely reversed and more).

Actually, we also know that there was contracting out in many DB schemes before 1978 - of the 1959 introduced state Graduated Pension arrangements - around 40% of private sector schemes - was the estimate in the Government Actuary's Department third survey on occupational pensions published in January 1969. I've seen no mention of how that one plays (for better or worse).

I don't think any point is yet made well enough to dismiss the change to Single Tier and abdication of GMP funding as trivial to anyone's pocket. Far from it - the estimate that some will be £23,000 worse off still stands whilst the estimate zagfles refers to actually remains without an exact number.

However, I am just reminded (thanks to Google yet again!) that Citywire reported in January that the number expected to lose out is around 2 million of those reaching state pension age over the first 5 years of the new scheme, which is not a quarter of that cohort. As we can see, it was originally reported as more than half !

Arguments for the new scheme (that's not the 59, the 69, the 78, or the 97 or the 06, but the 2015!) seem intent on divide and conquer.

Martin51

AGarnett,
Thanks for this.

The CityWire article mainly refers to those who will only get part of the Single Tier. Those who, like me, contracted out would not expect to get the full bounty because we get our GMP instead. The problem will be that with our COD removed (ouch!) DWP say that it is no longer possible to perform the reconciliation with that part of the Single Tier that would have been the Additional State Pension equivalent under the current rules, and henceforth deliver the inflationary increases. Admittedly, when the Single Tier was announced, I was hopeful that I might get a bit extra; instead, I'll be getting less!

I suppose that we need to drill down through the broader numbers to get a feel for how many will lose out because they are in the private sector. And, thus to put together an estimate of the total amount that will be saved by DWP in not paying these inflationary increases.

There are probably other losers in this whole wash-through cycle!

zagfles

agarnett wrote: »

"Even among those ..." ? What kind of language of excuse is that ?

Eh? It's not an "excuse", it's addressing the point that it's a "small group". Which it is.

We know for a fact that close to 800,000 reach SPA every year. I used that figure to estimate 4M in the next 5 years or the five years from April 2016.

We know that in the seventies when these pensionists started work, 2 out of three DB schemes were in the private sector (not as now where the proportions are completely reversed and more).

Actually, we also know that there was contracting out in many DB schemes before 1978 - of the 1959 introduced state Graduated Pension arrangements - around 40% of private sector schemes - was the estimate in the Government Actuary's Department third survey on occupational pensions published in January 1969. I've seen no mention of how that one plays (for better or worse).

I don't think any point is yet made well enough to dismiss the change to Single Tier and abdication of GMP funding as trivial to anyone's pocket. Far from it - the estimate that some will be £23,000 worse off still stands whilst the estimate zagfles refers to actually remains without an exact number.

However, I am just reminded (thanks to Google yet again!) that Citywire reported in January that the number expected to lose out is around 2 million of those reaching state pension age over the first 5 years of the new scheme, which is not a quarter of that cohort. As we can see, it was originally reported as more than half !

That isn't two million who are going to worse off as a result of single tier!! That's 2 million who won't get the full single tier! It says nothing about how many are worse off compared to the current scheme.

Whereas it's pretty obvious that the vast majority who have been contracted in since before 1988 till now will be worse off under the new scheme, since they will almost certainly have a state pension (basic + SERPS/S2P) of greater than the single tier amount, so won't be able to accrue further state pension. Under the current scheme, they would accrue further S2P.