STATE Pension ALERT !

okydoky

Bit confused here!
I worked from age 17 to 56, most of this earning a salary around the start of the higher rate tax, so NI contributions were always at the upper end. Fell I'll at age 56 and took early bath and am now 58 and taking drawdown from my pension. State Pension Forecasts indicate a pension of about £188pw in 8 years time but not sure if I believe this! I was contracted out for about 12 years from age 40 to 52.
So my question is, can I depend on the Stare Pension forecast or are all bets off given the changes mentioned earlier in this thread?
Thanks
PS Have got the three legged stool, with pension pot of about £250k and savings about the same but don't wish to go into later life without a decent index linked SP!

BobQ

Yes - I also have a works pension

okydoky wrote: »

Bit confused here!
I worked from age 17 to 56, most of this earning a salary around the start of the higher rate tax, so NI contributions were always at the upper end. Fell I'll at age 56 and took early bath and am now 58 and taking drawdown from my pension. State Pension Forecasts indicate a pension of about £188pw in 8 years time but not sure if I believe this! I was contracted out for about 12 years from age 40 to 52.
So my question is, can I depend on the Stare Pension forecast or are all bets off given the changes mentioned earlier in this thread?
Thanks
PS Have got the three legged stool, with pension pot of about £250k and savings about the same but don't wish to go into later life without a decent index linked SP!

The confusion is created by the first post which mixes known fact with speculation in an unhelpful way.

You will have 35 years so qualify for the full state pension and get the state second pension earned while working but contracted out. Whether you accrue any more after 2016 depends if you are not fit to work and so treated as unemployed.

Have you tried going on to the https://www.gov.uk site and asking for an up to date state pension forecast?

BobQ

Yes - I also have a works pension

The question of means testing SP raised by the OP is of course wrong based on available information about the new post 2016 scheme. It is also unnecessarily alarmist.

However, there has been some speculation about such a policy and some suggestions of such a policy from the pensions industry. Obviously if that is in the Government's mind they are hardly going to announce it before an election or if they do it will be well disguised like the health reforms. In Australia the state pension is means tested.

Since the 1980 in Australia people can build up three pension entitlements (1) a basic tax funded scheme, means tested when paid and funded by taxation (2) a compulsory occupational pension fund built up from working years. It is a DC scheme that employees pay into and employers and the government supplement and (3) Personal pensions similar to what we have.

Both (2) and (3) attract tax benefits for investors. This incentivises saving for a pension but the catch is that the compulsory element of (2) means that most fail the means test for (1). Those retiring in the past 10-15 years without much pension provision qualify for the means tested pension. While those with a good DB/DC scheme did not. Progressively all of those retiring will not pass the means test until their other pensions have been depleted enough to qualify.

http://www.pensionfundsonline.co.uk/content/country-profiles/australia/80

So it is quite possible that in the next 10 years we move further towards the Australian model.

For those who love moaning about unfunded public sector pensions, the Australians solved this problem too. Whereas we frittered away the proceeds of privatizations on tax cuts, they used them to build up Future Fund which is converting them into a funded scheme.

gadgetmind

dunstonh wrote: »

There isnt really a private pension age. it is effectively anything between 55-75.

Of course, that 55 used to be 50. Following a particularly troublesome bowel moment, some minister changed this number with a flick of the pen, and without so much as a second thought. Well, why not; it didn't affect him personally one single jot.

Meanwhile, someone I know who'd done all of his retirement planning based on that 50, had started construction of his retirement home in a distant country.

Flick, flick, rules changed; flick, flick, many plans left in ruins; flick, flick, what's next? Your plans? Probably.

jamesd

okydoky wrote: »

I worked from age 17 to 56, most of this earning a salary around the start of the higher rate tax, so NI contributions were always at the upper end. Fell I'll at age 56 and took early bath and am now 58 and taking drawdown from my pension. State Pension Forecasts indicate a pension of about £188pw in 8 years time but not sure if I believe this! I was contracted out for about 12 years from age 40 to 52.

How were you contracted out? Was it into a personal pension or in a work defined benefit pension? The end effect is the same but the way it's done is a little different.

If you contracted out into a personal pension your state pension forecast will be correct and you will not have a deduction from it. This is because the SERPs and S2P part of the contributions were never added to your totals there, just the basic state pension part.

If you were contracted out into a work defined benefit pension then it is more likely that you were credited with the whole additional state pension entitlement and will see that reduced by a contracted out deduction. In this case the additional state pension part of the statement is too high. The basic state pension part will still be correct. You can roughly correct the ASP part by pro-rating for the number of years contracted in. So £80 shown, 20 contracted in and 10 contracted out, a closer ASP portion is £80 * 20 / 30 or £53.33. This is only an approximation because the amount of ASP accrual for each year depends on your earnings in that year.

okydoky wrote: »

So my question is, can I depend on the Stare Pension forecast or are all bets off given the changes mentioned earlier in this thread?

Depends on how you contracted out. The basic state pension part will be correct, the ASP part might not be.

okydoky wrote: »

PS Have got the three legged stool, with pension pot of about £250k and savings about the same but don't wish to go into later life without a decent index linked SP!

I'm not too keen on having so much in just savings. I'd be trying to run them through a pension once the rule changes next year happen. It's extra money for you and you won't end up losing flexibility any more. probably, we don't know the rules yet. I'm doing this myself, running ISA money through my pension then back into the ISA at the other end.

okydoky

jamesd wrote: »

How were you contracted out? Was it into a personal pension or in a work defined benefit pension? The end effect is the same but the way it's done is a little different.
.

It was a personal pension. Can I depend on the projection ive received then?

On the subject of non-pension assets, since I'm not working and retired now, other than paying £2880 net into my pension what else can I do? My wife has modest remuneration and is currently paying all of it into her pension SIPP.

greenglide

Can I depend on the projection ive received then?

Yes you can.

The calculation of the starting amount of STP uses the current rules to calculate the amount you would get if you were pension age now. If also uses the new rules which includes the rebate derived amount to arrive at amount B and the starting amount is whichever is higher.

If your forecast now is £188 then that would be the starting amount. This amount would be increased by inflation until it is paid.

nearlyrich

2014 wrote: »

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.

They may get the maximum state entitlement but as long term benefit claimants they probably didn't buy a house, travel, know success at work, feel their life has been worthwhile and have a pot of cash saved to make retirement more exciting. I am very glad I have worked hard and saved and paid into a pension when I didn't have to..

jamesd

okydoky wrote: »

It was a personal pension. Can I depend on the projection ive received then?

Yes, for a personal pension your state pension statement will be correct in all respects.

okydoky wrote: »

On the subject of non-pension assets, since I'm not working and retired now, other than paying £2880 net into my pension what else can I do? My wife has modest remuneration and is currently paying all of it into her pension SIPP.

You might consider VCT use if micro companies are of interest. You appear to have sufficient assets for some of this. 30% initial tax relief from HMRC, has to be repaid if you sell within five years, capped at the income tax you actually pay in the year. HMRC can adjust your tax code to deliver this within the year if you're a PAYE employee, else it's done after the year ends. Tax free income, 5-8 % or so available. It's handy for basic rate income without salary sacrifice since it delivers a greater tax benefit than the pension in that case.

What I'm about to do is start to run most of my ISA and other non-pension money through VCT and pension once the changes to that are in place. Then back into ISA on the way out of those later.

Snakey

When I started making plans for my retirement you could take pension benefits at 50. Now, for me it will be 58. Eight years is significant in the context of a human lifespan, and there's been no statement that the proposed changes are going to be the last.

Of course plans are made to be changed, but with pensions you're limited in the extent to which you can re-jig everything - I cannot say "oh well in that case, I'd like to turn back time and put those early years contributions into a PEP instead of into my pension so that I can still access them at 50". That's why a lot more advance warning (i.e. a longer transitional period) would be nice.

Private pensions don't cost the State one penny extra regardless of when benefits are taken, they aren't being paid by the taxpayer. So making people wait for longer must be a policy decision, but I don't understand what the policy is. Why would it be age and not (for example) a minimum income amount? There never was any requirement that the individual must actually retire, and so it isn't a question of fifty being "younger than it was" because it never was considered to be that old.