Purpose of State Pension and Pension Credits

labp04

Just wondering about a couple of things around this. Saw some stuff over the past couple of days which says UK State Retirement Pension is lowest in EU at about 30% of National average wage (NAV) whilst rest of EU averages 60% of NAV. The reason thought to be UK treats Retirement Pension as a way of stopping old people starving to death whilst most of rest of EU sees it a way of funding a reasonable lifestyle for valued retired people. I'd be interested in others views about this state of affairs?

Next thing is about women's retirement pensions and Home Responsibility Allowances. Seems HM Govt has decided to search it's records and backdate pension credits for women who had stopped working to bring up children from 1978 onwards and had their names on the Child Benefit book (or as I remember it "The Family Allowance Book"). Apparently women who stopped working before 1978 or did not have their names on the Child Benefit Book will not benefit.

Dunno what I ate last night but I seem to have got up in a not very happy mood about either of these 2 issues (I'm male and not retired) but wonder how other people view the situations?

seven-day-weekend

The value of the British State Pension went down when Margaret Thatcher index-linked it to prices instead of average wage. I think this may change in around 2012, but only if the Government can afford it. (May have misunderstood this though, someone will correct me if I am wrong).

Your other statement : I agree with women who had not been granted the Home Reponsibilities Protection being given what they are entitled to. Why should they lose out over something that is not their fault?

What I do have problems with is those who knowingly chose to pay the Married Womans' 'small' stamp' (which didn't qualify them for any pension) grumbling now they are coming up to retirement that they dion't have any pension in their own right. A lot say they didn't know they wouldn't have any and while I feel this may be the case for a few, I would imagine most people did know and chose to have more wages instead.

To me it seems like they made a choice at tthe time and if it was a genuine choice (i.e. they knew what the alternatives were) I don't see why they should now get a full pension. They can claim 60% off their husband when he reaches retirement age, which is the choice they made when they decided to pay the 'small' stamp.

I am female, retirement date January 2010 and I will get a pension in my own right (26 years paid, 13 years HRP).

margaretclare

seven-day-weekend wrote: »

What I do have problems with is those who knowingly chose to pay the Married Womans' 'small' stamp' (which didn't qualify them for any pension) grumbling now they are coming up to retirement that they dion't have any pension in their own right. A lot say they didn't know they wouldn't have any and while I feel this may be the case for a few, I would imagine most people did know and chose to have more wages instead.

To me it seems like they made a choice at the time and if it was a genuine choice (i.e. they knew what the alternatives were) I don't see why they should now get a full pension. They can claim 60% off their husband when he reaches retirement age, which is the choice they made when they decided to pay the 'small' stamp.

I agree that if these women made a genuine choice, knowing all the issues, the possibilities, and what the end result of their choice would be, I too have little sympathy for them. I do know of women who were like that, who actually laughed at me for paying full NI contribution and for paying into the NHS pension scheme - they deliberately kept their hours below full-time so as not to be members. I know for a fact that these women are not laughing now.

However, I also know of others who say they didn't know, weren't told, it was never explained to them, and that I can believe, because it was the climate of the times when I got married (1957). 'You just changed to small stamp, nobody told you why, you just did' is what I've heard. It was the merest luck that I changed back again after a few months, and that was only because my marriage broke up within months, I left, and needed to claim unemployment benefit. That was when it was all explained to me, and I changed back. The change was not a 'once and for all' - any woman could have changed back again at any time, and I am surprised that more did not do so when the option to pay 'small stamp' was stopped for women who married after April 1978. The issues then were very much clearer.

When my mother retired in 1971 it was possible to live on the state pension. She had never been so well-off, doing low-paid menial jobs all her life, but she was determined to retire at 60 and did so, although, sadly, she didn't survive long to enjoy it. I think she was getting about £10 a week (the present Christmas bonus amount!) and she'd never earned more than a few pounds a week in her entire life. Inflation gradually bit into the amounts paid, then, as 7DWE said, the uncoupling of the link between pensions and average wages.

Women now rightly demand a pension in their own name and their own right, but 50 years ago it was accepted that if married, you got it through your husband. As it takes nearly 40 years to build up a pension entitlement, this is the reason for the historical background.

Margaret

seven-day-weekend

Margaret, from what I've read, things were obviously very different in the 50s and 60s than in 1971 when I gort married and made this choice. Some of my friends chose the married womens' stamp, but they did know they wouldn't get a pension.

Perhaps things had changed and become more 'open' in that 15-20 years.

jamesd

labp04, the higher pensions also mean higher pension contributions or taxes. In the UK the plan to introduce a minimum money purchase pension with mandatory employer contributions will reduce the difference, at the cost of an extra 8% of salary paid by employer and employee plus rebated tax.

At the national minimum wage of 11,481 a year for 52 40 hour weeks that contribution of 76.54 a month could produce a pension pot of 291,800 if it grew by inflation plus 7% for 45 years. That would produce an income of 14,600 a year or 280 a week if 5% a year is used for income. To retire at 60% of salary before adding the state pension it would need to produce a pot size of 137,800, which would take an investment return of 4.6% more than inflation.

So, the new pension plan plus the basic state pension looks likely to provide someone on minimum wage as much to live on as when they were working. Quite possibly more.

dunstonh

Did your reading indicate whether they were looking at just the basic state pension or were they including the second state pension/SERPS and/or pension credits?

Given the problems many European countries have with state funding of their pension schemes, I woud rather be in the UK than the others. Remember someone has to pay the pensions. The UK position is mainly that rather than increase tax to pay the pensions, you can use that money saved to fund your own retirement. Something that will increase in intensity in 2012 with the introduction of the NPSS.

We cannot really look at pension provision 20 years ago, let alone 50 years ago (when the average life expetancy into retirement was just 2 years). Things have moved on too much. We have to look at now and balance out the needs of the pensioner and the needs of the taxpayer.

The more you increase state pensions, the less likely people are going to fund for themselves and the more tax they will have to pay throughout their working life. Balancing that is damned hard.

EdInvestor

dunstonh wrote: »

Did your reading indicate whether they were looking at just the basic state pension or were they including the second state pension/SERPS and/or pension credits?

These reports exclude the second state pension/pension credit.If they are included the UK comes midway down the table for state provision.

The reports also ignore the fact that the UK's overall pension provision through private and company schemes is hugely larger than the provision in the rest of Europe, which is now scrambling to follow our lead, because the cost of funding retirement through taxes is impossibly expensive.

Our system is very flexible,with most people having a mix of state and private/company pensions plus other savings/investments and a mortgage free home which can now also be used to generate income. Our policies on immigration (though disliked by some) are also helpful in funding the state pension, benefits and health system now that the large babyboomer generation is beginning to retire.

You only have to look at the current problems in France to see what a terrible task they face in promoting reform. Some people there get to retire at 50 on a 90% pension. Nice work if you can get it:not so nice for the poor benighted taxpayer.

Milarky

I think that any searching examination of the overall picture would conclude that 'not enough' has or is being done at any stage.

The basic state pension (even if you get it in full) is not enough. This is, as seven-day-weekend explains, due in part to the de-indexing from earnings that occurred in 1980. The government has finally agreeing that re-indexing should commence from 2012 - only 15 years after they won power and spent a long time in opposition calling for precisely this. And anyway the damage is done - re-indexation merely caps the relative decline in value over 32 years.

Thus the 'state second pension' (formerly 'SERPS' (Mk2) formerly 'SERPS' (Mk1) formerly 'graduated pension') assumes a new importance - even at as a 'flat rate' addition it is due to become to the BSP. (The government cunningly forgot to mention this when they said everyone with 30 years contributions after 2010 would get a 'full basic state pension'.) The S2P is a trojan pension in reality - with some people paying for it through National Insurance and others getting it mostly free and still others not getting it at all.

Finally a 'good employer pension' (which the proposed NPSS isn't - because the contribution levels are set too low and because it is only 'advisory' to individuals to carry on with one in most circumstances) is essential. Since this is a government idea, you'd think it would have 100% coverage but, again, it doesn't and therefore doesn't quite do the job either.

What all this elides of course is 'equity' - how much is a decent minimum and how do you make sure that everyone ends up on (at least) that decent minimum? The government answer - generated over a succession of iterations of policy and secretaries of state - is respectively: "Not much" and: "With a bit of luck". They don't take this frankly Heath Robinson approach to their retirement plans do they?

Pension Credits (beefed up and renamed from Income Support) have also been added to the mix.

dunstonh

The NPSS in itself is not good enough unless you happen to be under 30 (maybe a little younger). However, it is a step in the right direction and does force employers to make a certain level of contribution. Which is better than many do at the moment.

I read somewhere that they are expecting around a 75% employee take up on the NPSS (for those that do not already have access to an occ scheme of equal or better quality).

If indeed, that is the case, then they really ought to consider reducing the pension credit down for those people unless they are earning under a certain amount (or make it compulsary for those earning over a certain amount - although that is apparantly against EU rules).

jamesd

Milarky, putting everyone on a decent minimum fails the equity test during the working years: those who are prudently providing for their pension income are made to suffer from lost spending power without any gain if the two receive the same income in retirement.

For an equity test to be passed it needs to avoid depriving the prudent of all of the gains of their prudence, perhaps by retaining some of their extra income on top of whatever the minimum pension level should be. Then everyone has some incentive to provide for themselves, without being concerned that they would receive no benefit from it in the end.