MSE Blog: How the Government wants to encourage pension saving

PensionTech

Paul, you've downplayed two major benefits of EET vs TEE - i.e. the PCLS and the likelihood that many will be in a lower tax band in retirement than during working life - and you've also completely missed NI savings for salary sacrifice schemes, which are pretty common.

The PPI have done a good report that goes into more detail about comparing the two regimes: http://www.pensionspolicyinstitute.org.uk/publications/reports/ppi-comparison-of-pension-outcomes-under-eet-and-tee-tax-treatment

Former_MSE_Will

Spidernick wrote: »

Hmm, isn't that the pension consultation that ended on 30 September? If so, then this article has rather missed the boat.

The government certainly isn't encouraging everyone to save for a pension, quite the opposite at the top end in fact, where for some people the annual allowance will just be £10,000 come 6 April 2016.

Thanks, we thought people might be interested to know what the Government's thinking about before it announces the outcome of the consultation. I'll post an update once that's out.

Playing_with_Fire_2

Paul_Herring wrote: »

55? Potentially not if you're under 41 (born in or after 1973...)

Yep, I know the age is likely to change. My point is that there is no need to raise the personal pension age to 57 and beyond, because if you can be disciplined enough to save up before 55, you are probably sensible enough to be trusted to spend your money, and if you are going to spend it all on a holiday or lollipops at 55; you'll probably do the same thing at 57, 59 or whatever age.

Paul_Herring

Playing_with_Fire wrote: »

...there is no need to raise the personal pension age to 57 and beyond, because if you can be disciplined enough to save up before 55,...

What's that got to do with it? This is governmental meddling we're talking about - bringing reasoned arguments into it isn't going to help.

Fitzmichael

Is it not a pretence? Govt has been panicking for decades at people not saving enough for retirement, yet the solution is entirely in their hands - increase State Pension Tax (NICs) and oblige employers to provide DB pensions at a realistic level (and ignore their protests, telling them it's a business expense like any other and to factor it into their business plan). Self-employed would be obliged to pay into one of a number of approved pension providers.
And how does allowing people to withdraw their funds and spend them on other things fit in with this aim of making all but the poorest not entirely dependent on the State Pension? It's illogical, irrational, but that's nothing unusual about govt actions.
It's good having the chance to comment and hope that by chance someone knowledgeable will post, but one would suppose MSE has on hand at least one expert on this, so could we please have an explanation?

Paul_Herring

Fitzmichael wrote: »

increase State Pension Tax (NICs)

Perhaps if the government didn't tax us so much to start with (20% basic income tax, 12% employees NI, 13.8% employers NI, and that's before we get to things like 20% VAT, 55% fuel duty) we'd have more money to save privately...


No, raising tax is never the right answer.

Fitzmichael

Yes, I know it would be sooooo much better if (Nietzsche's cold monster) the State provided every necessity that can only be universally provided by the State and didn't demand money to pay for it. But actually that's not possible, you see, so those running the State, who have lots of other things they like to spend money on, take more, but spend less, than they need to provide your necessities, and spend the rest on the things that are fun for important people like them.
However, the only thing that voters seem concerned about, and you seem like a prime example, is paying less tax, though they then go on to complain that their services are not good enough, never seeming to have a list of priorities for what they would be quite prepared to do without (huge military spending, tax subsidies to shareholders in businesses? - you add to the list), NOT so they would pay less tax but so their tax would go where they wanted it - NHS, Soc Sec, Education, you name it.

PasturesNew

Pensions are for people who lead stable lives, in good jobs they expect to keep.

They need to sort out employment really. Better wages, better terms.... so more people feel that their job might still exist in a year, or even 10 years' time.

Airborne1

You missed a "T". Please don't forget G Brown's tax on pension fund earnings (that he forgot to tell us about during his preceding election campaign). That reduced the final value of everyones' DB and DC funds.

Moving from tax incentivised savings schemes to an ISA style scheme is just a tax saving measure, but one that will seriously reduce the attractiveness of pension saving and thus future retirement incomes.

DB schemes have an element of certainty about them that is seriously lacking with DC schemes. As we have very recently seen with Tata Steel UK and BHS, sizeable pension fund deficits can build up and they may well be an issue to the employer, but at least there is the Pension Protection Fund to help if things go pear shaped.

As far as I can see, if the stock market crashes and takes down your DC savings fund, you are on your own. If we have another Lehman Bros type event that affects millions, no-one will have a pension fund of much value, then what happens when those people reach retirement?

If future retirement incomes are inadequate (for any reason), the public won't accepts pensioners starving or living on the streets, so in the end the Govt of the day (which means the taxpayers of the day) will have to pick up much of the tab.

jamesd

Airborne1 wrote: »

Please don't forget G Brown's tax on pension fund earnings (that he forgot to tell us about during his preceding election campaign). That reduced the final value of everyones' DB and DC funds.

It's eminently forgettable. The tax it provided relief for was abolished shortly after that.

Airborne1 wrote: »

DB schemes have an element of certainty about them that is seriously lacking with DC schemes. As we have very recently seen with Tata Steel UK and BHS, sizeable pension fund deficits can build up and they may well be an issue to the employer, but at least there is the Pension Protection Fund to help if things go pear shaped.

Unless a pension is already being paid a person loses 100% of their pension above the PPF cap of £37,420.42 and 90% of the amount below the cap, leaving them with £33,678.38 if they start out at say £40,000 or £75,000 or whatever.

Airborne1 wrote: »

As far as I can see, if the stock market crashes and takes down your DC savings fund, you are on your own. If we have another Lehman Bros type event that affects millions, no-one will have a pension fund of much value, then what happens when those people reach retirement?

Few people will be foolish enough to have all of their money invested in a single investment bank. The Financial Services Compensation Scheme will pay up to £50,000 per provider so the first £50k invested in Lehman would have been protected. Other funds not invested with Lehman would have just carried on, even if Lehman was the pension provider for the overall pension.

Planning for market downturns is the sort of thing that cfiresim does and you can find some walk throughs from me if you search the board for that term. Downturns and recoveries are just routine for retirement planning.