MSE News: MPs highlight pensions confusion

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"The Government must act quickly to stamp out confusion over its looming state pension shake-up, a committee of MPs warns..."

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MPs highlight pensions confusion



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gadgetmind

The documents that explain pretty much everything have been published in both short and long form here.

http://www.dwp.gov.uk/policy/pensions-reform/state-pension/

I'm not sure what other information people need, and it's all there on the internet.

It's even available in Welsh!

SnowMan

The difficulty is that the move is from an incredibly complex system to a simple system.

Before 2016 people will get a simple transition statement showing what they will have built up to 2016 and how much more they can build up after 2016. At this point people are able to plan and will have some idea whether they are better off or worse off under the new system. The complexity disappears into the simple transition pension statement when it all becomes clear at an individual level.

Whether someone is better off or worse off depends on so many individual factors (such as employment history, contracting-out history) that it is difficult to generalise. So without examining individual circumstances at a fine detail level it is very difficult to say to most people that you will be better or worse off. So until the transition pension statements are produced (and they can't be produced now of course because of unknown contributions up to 2016) it can't be made clear. In reality most people aren't interested whether the reforms are fair, they are only interested in whether they themselves will be better off or worse off.

Unfortunately the tabloids and broadsheets have published ridiculously wrong information about the reforms and that is what has caused people for example to think that reaching SPA the day before or after implentation is the difference between receiving £107 or £144. The pensions minister has been commendably open and honest about the real affect of the changes (I say this as someone who detests this current government). His line has been some will gain some will lose but past rights will be protected.

But if the press continue to publish nonsense generalisations about who are losers he is going to be on a losing battle.

Listening to the discussions in parliament suggests to me most MPs don't understand the reforms at even a basic level. The nonsense 'women lose' arguments in Parliament are an example.

However I do think a clearer communication about the position on paying additional national insurance contributions prior to 2016 is required. Steve Webb has indicated on BBC Moneybox and in a parliamentary statement that the rules and deadlines will be relaxed to allow people to defer a decision on paying voluntary national insurance contributions until they have their transition pension statement around 2016. The DWP are supposedly working out the details on this. However I doubt many are aware of this, evidenced by forumites talking of paying contributions to get their years to 2016 up from 30 to 35 years. In most cases this will not increase their state pension and is just wasted money.

gadgetmind

SnowMan wrote: »

Unfortunately the tabloids and broadsheets have published ridiculously wrong information about the reforms

And the government have published the right information. That people choose to believe the redtops and their mates in the pub rather than going to a primary source is a crying shame, but what can the government do? No matter what they publish, people will want the sensationalised 15 second version rather than taking the time to read accurate documents.

that is what has caused people for example to think that reaching SPA the day before or after implentation is the difference between receiving £107 or £144.

That can be the case but only for those who would have been getting the lower number under the current system. Very, very few people will get less under the new systems, and the differences will be small even in these cases. However, some will see others getting more and complain bitterly.

jamesd

Biggest group of losers are employed people who work a reasonably full lifetime, with a loss of perhaps [STRIKE]£80,000[/STRIKE] £54,000 of their own pensions savings for even a [STRIKE]minimum wage[/STRIKE] low paid employee to make up for what they are losing in state pensions.

I'd like to see clear numbers published that tell employees just how much they will lose from the state pensions and how much it will cost them in their own pension investing to get back to what they would have had if the current system had continued.

That sort of thing is what is needed before any parliamentary vote on this, so people can see just why their MP might vote against this proposal. That could be particularly troublesome for the Conservative party, which prefers to portray itself as the one in favour of those working hard, not taking huge amounts of money from them.

gadgetmind

jamesd wrote: »

I'd like to see clear numbers published

Perhaps you'd care to share your calculations for a minimum wage employee to demonstrate how you think they might lose out?

bilbo51

gadgetmind wrote: »

Perhaps you'd care to share your calculations for a minimum wage employee to demonstrate how you think they might lose out?

+1 Yes please James

jamesd

Checking where I first did that calculation.... Couldn't find it at the moment. Maybe later.

Looking at the FT table, sourced from HL, I see a single life RPI annuity with 5 year guarantee paying 3.516% of the capital. (£190 - £144) * 52 / 0.03516 = £68,031 today. That'll do instead of £80k until I can see where I got that from.

If you've some alternative numbers for how much a person working a full working life on minimum wage might get under the current system and how much it would cost to replace the difference between that and £144 I'd be interested in them. I'm also interested in less pessimistic cases, like those making more than minimum wage, perhaps median wage, where people would lose even more.

I don't think there's been anywhere near enough discussion or disclosure about how much individual employees can lose out under this proposal so the more data there is about how individuals are expected, the better I'll like it. Ideally I'd want to see general statistics and things like an 18 year old being able to put in their anticipated career and et before and after pensions and capital cost and monthly pension cost to replace whatever they lose in state pensions. Or whatever they gain if their intended activity is a life as house husband or wife, or half life doing that and maybe gaining or losing, depending on how much time they spend employed or not.

gadgetmind

I'd like to know how you calculate that £190 under the current rules.

jamesd

I didn't, I relied on the IFS I think for that, from some of the work they did around the time the plan was announced.

If you want to try getting your own number, here's a report of part of what the IFS said: "It says that in its calculations benefits accrue at £5.05 of additional state benefit for every year worked for lower earning groups and at a higher rate for higher earners". That links to the IFS giving that £5.05 number.

So maybe you might want to take that low earner level and multiply it by a full working life and compare that to £144 and find out what it'll cost to buy a single life RPI annuity to cover the difference.

I don't think that'll be perfect but it's not a bad start. Proper tools could undoubtedly do a better job and I'd like to see them. I'm not sure it's allowing for things like the gradual decline of S2P via not increasing the upper accrual point, say, though a low earner would be less affected by that than a median earner.

Beats no information at all, though.

Perelandra

FWIW, my calculations for my own position were similar to those that Jamesd calculated above, but then I went on to calculate the extra that I would need to put away in my pension in order to recover this new reduced amount- on the assumption that my SIPP will grow, on average, by 3% more than CPI.

On this basis, and with ~ 30 years to go before drawing a state pension, I'll need to put away an additional £1400 p.a. over those 30 years, or £6000 p.a. if I want to increase those contributions for the next 5 years (on the basis that whilst I can afford higher contributions now, I might not be able to when I'm older).

So, to my mind, this change will cost be about £30k, rather than £68k, since I do at least have time on my side.