The Real Truth of new 'flat rate' pension (where everybody gets different amounts)

jamesd

agarnett wrote: »

Prime Minister Cameron said just three short months ago:

[SIZE=-2]We’re saying that whoever you are…
…provided you’ve put into the system, you will get out…
…you will get a decent, Single Tier Pension.
Instead of a pension at £115.95 plus Pension Credit, you will get at least £151.25.[/SIZE]

Smoke and mirrors. The amounts given are what those who haven't put into the system but just claimed benefits or credits get under current rules. Those who did pay in and weren't contracted out or self-employed are likely to have a substantial cut, not an increase.

agarnett wrote: »

The single-tier reforms were apparently to restructure current expenditure on the state pension into a simple flat-rate amount, to provide clarity and confidence to better support saving for retirement.

That may be the smoke and mirrors version but what ti actually did is cut pensions for employees to pay higher pensions for those not paying in or self-employed, to cut the means tested Pension Credit bill that is paid for out of general taxation, not NI money. It's a stealth increase in general taxation to be funded by the cuts for workers' pensions.

agarnett wrote: »

Is the amount a flat rate? ... Is the amount simple - I think this and the tens of other MSE threads and other media articles on the subject confirm it is not. Does it provide clarity and confidence ?

During transition it's not clear or one rate. Nor wil it ever be one payment level because it depends to some extend on number of years worked. The lack of clarity is required to ensure that the majority of employees, who lose out under the new system, don't realise this.

jamesd

gadgetmind wrote: »

Yes, that's the way it will be. But 1) people who have already earned more get to keep it

No, they don't. They lose it all to the flat rate cap on how much is paid out unless they are over the flat rate level. Have £130 a week accrued now? You'll just reach the flat rate cap sooner and stop accruing more faster than someone who today has accrued £50.

To avoid taking money away the transitional arrangements would have had to allow people who have more accrued to continue increasing their flat rate entitlement above the cap until they reach 35 years of paying in.

By the numbers they don't "lose" money accrued, they just stop getting more faster than others. Same effect, different wording.

gadgetmind wrote: »

Would you have done things differently? Would you have taken S2P away from those who'd already earned it

The flat rate plan does this in effect, by just imposing the cap sooner on them than others. Where's the reward in the state pension system for working 80 instead of 40 hours a week when all it means is that retroactively the government has stripped you of the extra state pension gain from doing it, if you're not yet over the flat rate level? The current system rewards work or hard work with more state pension, the flat rate system doesn't.

gadgetmind wrote: »

would you have given those who'd contracted out "double bubble" by pretending that they hadn't for SP purposes? Really?

The flat rate system does this because all that happens is that their foundation amount is lower then their future years worked get them to the cap while those not contracted out get nothing for those extra years.

gadgetmind

jamesd wrote: »

No, they don't. They lose it all to the flat rate cap on how much is paid out unless they are over the flat rate level.

Yes, so people who have already earned more get to keep it. As it happens, I've earned enough S2P to get close to the new single tier pension, so would be "losing out" due to not accruing beyond this, which is a "problem" I will solve by withdrawing from the labour market.

How would others have handled it? Seriously, it was a big complex mess, and the aim is to greatly simplify, but how do you handle the transition?

Where's the reward in the state pension system for working 80 instead of 40 hours a week

Absolutely nowhere. Should there be? The SP is a safety net to prevent those no longer able to work from starving and/or freezing to death, and the new single tier takes this a step further by boosting the basic. Even though I'm a capitalist at heart, I see the moves as positive.

The current system rewards work or hard work with more state pension, the flat rate system doesn't.

But the complexity of tracking this, and the need for means testing to prevent the starving freezing thing just wasn't working.

I''m amazed that anyone left leaning would object to the changes. Those further towards the centre right are probably making their own provision - funded from the sweat of their brow - so state pension is a nice to have rather than a core part of their pension, so I'd hope they could also see the advantages.

uknick

xylophone wrote: »

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/424121/dwp040b-apr-2015.pdf

Have you seen the above?

I took early retirement a couple of years ago and I won't qualify for my state pension for another 14 years. I wasn't too worried about getting a pension forecast under the new single tier system as I'm sure the pension system will change again well before I reach SRA; it’ll probably be means tested by then.

I was aware I wouldn't get the full amount of £155 under the single tier scheme as I’ve been contracted out in a final salary pension for the great majority of my working life. I only contracted in for the first 4 of my current 30 qualifying years. As such the £155 would be abated to take this into account. I have no issue with this. Why would I as I chose to opt out of SERP over the years.

However, I did think the abatement would take it no lower then the level of the current state pension, about £115 per week.

But, looking at the PDF linked to above I seem to have got it wrong. The example on page 16 clearly indicates the £115 will be reduced by some formula taking into account my contracted out years. Unfortunately, the example doesn't say how the deduction of £32 used is worked out. However, at present my additional state pension entitlement is £5 a week and I can’t see this exceeding the abatement for my contracted out time.

This now worries me as I can't see any subsequent changes to the SSP scheme increasing my state pension.

Am I correct in my reading of the example and I won't get the full current £115, or whatever it's inflated equivalent will be, when I get to SRA?

gadgetmind

uknick wrote: »

Am I correct in my reading of the example and I won't get the full current £115, or whatever it's inflated equivalent will be, when I get to SRA?

Your foundation amount will be the greater of "under old system" and "under new", so you'll get full basic under old.

You can then (under current rules!) register a self employed and keep adding years using class 2, but I expect this one to be blocked at some point as it's a screaming bargain.

jamesd

gadgetmind wrote: »

Yes, so people who have already earned more get to keep it.

They keep the number, they lose the benefit because they just stop accruing more state pension before reaching 35 years. The benefit of their work is being stripped from them.

gadgetmind wrote: »

How would others have handled it? Seriously, it was a big complex mess, and the aim is to greatly simplify, but how do you handle the transition?

I'd have wanted to avoid stripping people of benefits that they have already accrued. One way to do that is to allow accruing up to 35 years even if a person reaches the flat rate sooner due to their existing additional state pension entitlement.

gadgetmind wrote: »

Absolutely nowhere. Should there be? The SP is a safety net

The state pension isn't a safety net. It's a contributory pension paid for by those who pay in to the system, received in exchange for their payments, paid for out of the NI funds and payable as a result of their contributions regardless of how high their income is in retirement.

gadgetmind wrote: »

a safety net to prevent those no longer able to work from starving and/or freezing to death

The safety net is the means tested Minimum Income Guarantee delivered through Pension Credit and paid for out of general taxation.

gadgetmind wrote: »

and the new single tier takes this a step further by boosting the basic.

The new system is set at a level just above Pension Credit so that instead of Pension Credit being paid for out of general taxation, it's replaced with payments from the pension part of NI, by reducing the state pensions of paid workers. It's not adding much, it's a stealth tax rise paid for by cutting the state pensions of workers.

gadgetmind wrote: »

But the complexity of tracking this, and the need for means testing to prevent the starving freezing thing just wasn't working.

It's generally working just fine, though some additional heating provision might be useful, perhaps paid to heat providing companies. If someone thinks it's not enough it's easy enough to campaign for the level of means tested benefits to be increased and see how well society agrees.

jamesd

uknick wrote: »

I only contracted in for the first 4 of my current 30 qualifying years.

You'll quite probably start below the flat rate cap level but you can increase to that by paying for additional years after it comes in. You should be able to get to the cap level by doing that.

coyrls

If you have 30 qualifying years, your foundation amount cannot be lower than the current basic pension. As others have said you can then add to your qualifying years to build on the foundation amount.

gadgetmind

jamesd wrote: »

They keep the number, they lose the benefit because they just stop accruing more state pension before reaching 35 years. The benefit of their work is being stripped from them.

This will affect me too, but 1) I accept it as part of essential changes, 2) if I don't think the benefit of my work is being rewarded, then I'll stop working all together or work overseas.

One way to do that is to allow accruing up to 35 years even if a person reaches the flat rate sooner due to their existing additional state pension entitlement.

That could work but TBH is really just kicking the can down the road. The sooner everyone is on the new system, the less people like the OP will yammer on about what they see as inconsistencies.

The safety net is the means tested Minimum Income Guarantee delivered through Pension Credit and paid for out of general taxation.

OK, I concede that, but most people find claiming benefits as utterly abhorrent so it's great that we're moving away from this.

It's not adding much, it's a stealth tax rise paid for by cutting the state pensions of workers.

Yes, there is a redistribution element to it, but one that I can personally live with due to the good things that flow from it.

gadgetmind

jamesd wrote: »

it's easy enough to campaign for the level of means tested benefits to be increased and see how well society agrees.

Agreed, but it's missing the point. Any solution that relies on means testing is a disincentive for people to make their own retirement provision.

A single tier pension that provides those who've put in the years with an income they can *just* live on, with anything they save on top of this being theirs to keep, makes a lot of sense to me. Removing the just plain mad complexity so people know what they'll get doubly so.