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

xylophone

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?

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/181237/single-tier-pension-fact-sheet.pdf

uknick

coyrls wrote: »

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.

Thanks for this and to all the others who answered.

As I said, my worry was the example quoted didn't explicitly say any abatement for contracted out years would not take the amount to less than the current £115.

I've now gone online and tried the Gov.uk pension calculator which does clearly say the minimum be the current state pension. I'm now wondering if they'll index the £115 from April 2016.

With regard to qualifying years for the new scheme, I intend to review this nearer my SRA when it is clearer what is required for me to have once I reach SRA.

jamesd

gadgetmind wrote: »

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.

Currently the median household income for pensioners is about £17,500. The proposed flat rate is perhaps £151 a week leading to a state pension of £15,784 for a couple, all tax free. That's 90% of today's median pensioner household income for a couple neither of whom may have done a day's work in their life. That's a pretty strong disincentive for some people to provide for themselves in retirement.

gadgetmind wrote: »

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.

To me as well, which is why I'm unhappy that the new plan doesn't do this but instead has a level set so high that it will make a couple who did no paid work at all about as well off as today's median couple. The current system with a basic state pension plus earnings-related addition based on work and backed up by means tests does what you have described: delivering an incentive to pay in more because it's clear that it will not be sufficient for a good living if relied upon.

The current system has been harmed by failures to do things like provide statements/estimates every five years and context in the form of median income and household income of retires so that people can see how they are doing. No plan to improve that in the new system.

gadgetmind

jamesd wrote: »

That's 90% of today's median pensioner household income for a couple neither of whom may have done a day's work in their life. That's a pretty strong disincentive for some people to provide for themselves in retirement.

But they would have got that anyway under means testing. What removing means testing does is allow those who've saved something into a private pension to keep it. If you don't do this, who'd bother?

The current system with a basic state pension plus earnings-related addition based on work and backed up by means tests does what you have described: delivering an incentive to pay in more because it's clear that it will not be sufficient for a good living if relied upon.

But why would someone pay anything into a DC pension if the resulting income was just deducted from benefits?

Don't get me wrong, I haven't suddenly come over all socialist, but I just need things to make sense.

greenglide

uknick wrote: »

I've now gone online and tried the Gov.uk pension calculator which does clearly say the minimum be the current state pension. I'm now wondering if they'll index the £115 from April 2016.

If the £115 you are talking about is you Starting Amount then yes, it is index linked from April 2016.

Up to the nSP maximum amount is indexed by the triple lock, the rest (what will become a Protected Payment) is indexed by the CPI. This is exactly the same as the nSP in payment.

jamesd

gadgetmind wrote: »

But they would have got that anyway under means testing. What removing means testing does is allow those who've saved something into a private pension to keep it. If you don't do this, who'd bother?

"Savings Credit is an extra payment for people who saved some money towards their retirement, eg a pension". The current system already protects those who have made their own provision, so that they get to keep much of what they have prudently put away even if they need means tested benefits.

The single person Savings Credit level is up to £770.64 a year, for a couple it's £906.36. At 4% drawdown rate those are equivalent to pension pots of £19,266 and £22,659.

If you think that more protection is needed you could seek an increase in the Savings Credit level so that it can lift people further above the means tested Pension Credit level.

gadgetmind wrote: »

But why would someone pay anything into a DC pension if the resulting income was just deducted from benefits?

For those likely to need means tested benefits the Savings Credit system already addresses that. For the rest of us who have provided for a sufficient income, we don't have a right to means tested benefits on top of our own provision, that's not what means tested benefits are for.

gadgetmind wrote: »

I just need things to make sense.

So do I. Paying a couple who've been in prison or otherwise not working for their whole working life 90% of today's median pensioner household income makes no sense to me. That's incentivising not working.

gadgetmind

So, any income above that and you do start losing out?

As for incentivising not working, yes, I'd love to avoid doing that, but we've got it anyway with the current means testing. As a society, rightly or wrongly, we don't like people starving and freezing on the streets, not even those who are simply not prepared to work.

jamesd

gadgetmind wrote: »

So, any income above that and you do start losing out?

Yes. The current level for pension Guarantee Credit is £151.20 for a single person or £230.85 for a couple. The Savings Credit top-ups take those to either £166.02 or £248.28 a week if the full amount applies.

£248.28 is £12,910.56 a year, well below the median pensioner household income at 74% of it, so does provide a more clear incentive to make more provision, unlike two flat rate maximums that would pay 90%. Except that under both current and flat rate systems the plan is not to bother to tell people regularly what they can expect, so the incentive is there but people aren't told about it. They also aren't told things like the simple calculations I do here that show how even a little paid in by a low earner can make a big difference. Incentives that people don't know about aren't likely to be very effective!

gadgetmind wrote: »

As for incentivising not working, yes, I'd love to avoid doing that, but we've got it anyway with the current means testing.

We've got it but the principle of means testing is that it is just sufficient as a safety net, not much more than that. Many people can have a desire not to have just what society thinks is the minimum level.

gadgetmind

Well, I was surprised that the more radical option of the single tier was chosen, but it does away with all of the complexities you've given, let's someone easily know what they'll get (most people can count how many years they've worked!), and to know that they can keep anything extra that they put away.

BTW, I accept your point about the current guarantee being less generous for couples that the new single tier will be. I must admit I'd just been looking at the individual figures.

Linton

jamesd wrote: »

.......
We've got it but the principle of means testing is that it is just sufficient as a safety net, not much more than that. Many people can have a desire not to have just what society thinks is the minimum level.

People with a desire to have more than minimum provision can achieve that now with private or company pensions removing the need for the state to provide what was of necessity a highly inflexible system. When SERPS was first implemented that option wasnt available to much of the population.