STATE Pension ALERT !

2014

The winners are those who were on benefits for life or didn't work much or only in low paid jobs and the self-employed. They get the same entitlement as those who work a full working life in a high paying job.

Totally and utterly agree. Just need to add the winners who also come into the country never pay into the system as much as those who have worked all of their working life yet receive the same entitlements.
I wish I could turn the clock back !! No way would I have worked so hard.

jamesd

If you retire soon you'll probably get more under the current rules foundation amount calculation than the flat rate, because of your additional state pension entitlement. That part continues to increase as long as you're working and paying NI contributions under current rules. It's abolished under the flat rate system.

I will probably be a winner. Nobody could think that I'm anything but British but I spent a lot of time working outside the UK and not accruing state pension entitlement. Now I'm also working on retiring early. I also contracted out while I could for a few years after returning. That means that I won't have enough additional state pension entitlement to beat the flat rate level on my contributions. As it is, I'm only going to get to 35 years a little before state pension age, by buying extra years with voluntary self-employment NI payments after retiring. I already bought a lot a few years ago. Of course before I can retire I will have been saving at least 60% of my income for a decade or more and that means that I'll never be dependent on means tested benefits.

A key part of the flat rate pension system is a financial scam. At the moment there's something called the minimum income guarantee for those over state pension ate that is paid for out of the means tested benefits budget. Projections are that many people - many tens of percent of the retired - would qualify for that if nothing changed. The scam is that many of those will be winners under the new system, which lifts their income just over that benefit level. This shifts the cost from means testing benefit general taxation to the pension fund paid for by NI contributions. In effect it's a hidden tax rise on future generations who will get less to prevent an increase in the means tested benefit cost.

Bravepants

You should plan your retirement strategy like a three legged stool...Private or Company Pension, State Pension, and also Personal Investments and Savings...that means that if one of them fails or falls short of your expectations, you still have two other legs to perch upon!

Snakey

Thanks James, that's really helpful. So as long as I pay 35 years at the full rate they won't make any deduction for the years (above the 35) in which I was contracted-out, and this means those extra contributions to my own pension fund were freebies?

I'm planning for early retirement so I might look in to paying extra years to get the full whack. Not a decision I need to make just yet though. At 42 I'm expecting the rules to change a few more times before I get close (when I started my first pension, you could retire at 50. My adviser said "oh, they won't change the rules - imagine the effect that would have on public confidence about paying in to pensions!" Innocent days... well, that and he was probably on commission).

chucknorris

Yes - I also have a works pension

nearlyrich wrote: »

retirement is like Christmas we all know it's going to happen and panicking at the last minute is not the solution...

Exactly, people have decades to prepare for retirement, it is just plain dumb to not plan for it. I have prepared for my retirement by paying NI for the state pension, into a SIPP, into a DB scheme, investing in property, ISA's (cash and SS) and additional shares outside of ISA's for dividend income.

gadgetmind

Snakey wrote: »

My adviser said "oh, they won't change the rules - imagine the effect that would have on public confidence about paying in to pensions!"

All the advice I've ever had is that the rules for state, private and DB pensions could change at any time. I've certainly been knocked back several times regards my plans with my private pension - I guess I should have gone on strike and walked around with a stupid placard!

jamesd

Snakey, your foundation amount will start you a little lower than otherwise but you won't have a 35 year cap, you'll just carry on accumulating until you reach the full flat rate income level.

The adviser may well have been telling you that before the relatively big recent increases in life expectancy. They definitely will change the rules these days but in general they tend to give enough time to adapt. Not always so, just usually. The contracting out change is one where a lot of care seems to have been taken not to undo the benefit of being contracted out.

Snakey

Yeah this was back in the late 90's. Everyone has always told me not to expect a State pension by the time I get there, but things like the private pension retirement age and the tax-free lump sum felt like they were set in stone because "imagine the outcry" if they made such a big and negative change after people had spent decades making their investment decisions/retirement plans in reliance on it.

With hindsight, it's clear that many people have been eyeing the tax-free status of the lump sum for a long time and I probably just didn't research widely enough to pick that up. This was (just about) before the internet really took off and so all my knowledge came from asking around among people I knew. Retirement age, though, I don't ever remember there being discussion about moving that goalpost. It must have been before the life expectancy thing. I vaguely recall getting a projected annuity if I retired at fifty that was around seventeen grand - based on contributing 17.5% of a £21k salary for 23 years! I wonder what that calculation would project for me nowadays.

My "problem" is that I began my planning too far in advance. It seems that when the government of the day changes any of these things, they think that a transitional period of a few years is more than enough and that anyone under fifty has all the time in the world to rip up their plans and start again and is being ridiculous if they complain. It should be a couple of decades, in my (very biased) view!

jamesd

Today I'd expect that level of contributions to give about £6,300 a year from investments, increasing with inflation. This is using 5% plus inflation UK stock market growth, which is the long term average for more than a century. Official projections have to use a growth rate that's well below that so they make things look worse than the likely result.

Starting early makes it cost a lot less because you get more years of compounded growth from the investments.

dunstonh

but things like the private pension retirement age

There isnt really a private pension age. it is effectively anything between 55-75. However, the Govt has said that the minimum age will be linked to 10 years prior tot he state pension age.

With hindsight, it's clear that many people have been eyeing the tax-free status of the lump sum for a long time and I probably just didn't research widely enough to pick that up.

It was first targeted by some groups as early as 1988. It is still here. Also worth noting that in that time, we have seen the tax free cash entitlement expanded. Not reduced.

Retirement age, though, I don't ever remember there being discussion about moving that goalpost.

The average retirement age has been relatively static around 62 and 63 for a very long time. It has slowly been creeping up in months over the last decade but not at a fast pace.

I wonder what that calculation would project for me nowadays.

The same if you used the same assumptions. The assumptions have come down though as low inflation, longer life and more investment volatility have led to lower assumptions being more suitable. However, today, the assumptions are actually probably too low. Indeed, you now have a number of pension providers using a negative figure for the low level projection.

My "problem" is that I began my planning too far in advance. It seems that when the government of the day changes any of these things, they think that a transitional period of a few years is more than enough and that anyone under fifty has all the time in the world to rip up their plans and start again and is being ridiculous if they complain. It should be a couple of decades, in my (very biased) view!

The problem is not planning in advance. That is good. The issue is whether you keep plans under review or not.

Plus, the Govt hasnt changed much in the short term. The move from 65 to 66 for state pension was quick for some people. However, the actual change to 66 was put in place a very long time ago