Would allowing State Pension to be drawn flexibly (with an actuarial reduction) make sense?

woolythoughts

michaels wrote: »

But with auto enrolment won't the vast majority have additional pension income going forward?

The majority of auto enrolled pensions will pay a pittance in retirement.

Personally, unless earning a decent wage I can't see the benefit to the individual. People with a decent wage, would probably have a better pension anyway.

The small retirement income you would get would only succeed in reducing what state benefits/help you can get - you wont be better off.

If I was on a low wage, I doubt I'd be keeping auto enrolled.

nigelbb

nigelbb wrote: »

In a limited way this is how the French state pension systems is implemented. You can retire from age 62 onwards but unless you have 165 quarters (trimestres) of contributions your pension is reduced. You get your full pension at age 67 whether or not you have 165 trimestres. The reduction is 1.25% per quarter i.e. 5% for each year. The minimum pension you can draw is 75% of what your full pension would have been.

The French state pension is vastly more generous than UK state pension as it is earnings related (the contributions are vastly larger too). The basic scheme aims to provide up to a maximum of 50% of the retiree's income during their highest earning years up to a limit of €35,000 annually (in 2010). There is also a compulsory occupational pension scheme to supplement the state pension increasing income of retirees from the 50% level to between 70% and 80%.

Thrugelmir wrote: »

The French people are unhappy about proposed reforms. France like all the other developed countries faces the challenge of an ageing population. With fewer people in work to support those that aren't. Likewise there's little private pension provision to supplement the state's.

The reforms are basically the same as in other countries i.e. pay in more & for longer before you can draw your pension. The French pension system is phenomenally complicated compared to the UK but is also more flexible in terms of allowing earlier retirement for those with physically more demanding jobs e.g. fishing industry & agricultural workers. There are over 30 different state pension schemes managed at arm's length for different industry sectors. Thankfully they are simplifying it. At one time you had to separately submit claims for what could be 5 or 6 different pensions but now there is supposed to be a single claim made & then all the figuring out how much each different scheme contributes to the individual's pension goes on transparently in the background.

There is little need for private pension provision to supplement the state's when the state pensions are so well designed. Contributions are high but compulsory unlike the pitifully low auto-enrolment pensions in the UK that can be opted out of. People get what they pay for & I'm immensely grateful to have worked in France for 15 years. I might have grumbled about all the deductions for social charges when I looked at my pay slip but the pensions I receive for those 15 years of contributions are larger than the combined total of my state pension & DB pensions from the other 25 years of my working life spent in equally well paid jobs in the UK.

Silvertabby

woolythoughts wrote: »

The majority of auto enrolled pensions will pay a pittance in retirement.

Personally, unless earning a decent wage I can't see the benefit to the individual. People with a decent wage, would probably have a better pension anyway.

The small retirement income you would get would only succeed in reducing what state benefits/help you can get - you wont be better off.

If I was on a low wage, I doubt I'd be keeping auto enrolled.

Before single tier pension and auto enrolment the unofficial rule of thumb was that if you lived in rented accommodation you should only pay into a pension if that was guaranteed to pay more than £6K per annum. Otherwise, you would get that in the form of pension credit top ups, housing benefit, etc etc.

Going forward, assuming that most people will eventually get the full single tier pension, there will be no more pension credit. Will there still be housing benefits for those on just the single tier pension? Who knows. Possibly not for a couple on £168 per week each (nearly £18K per year tax free) but may be for a single person. However, even with rent taken care of, £168 per week hardly makes for a comfortable retirement.

ADD: My curiosity won and I ran a hypothetical claim through one of the benefits calculators.

Couple, both on £168 per week State pension. No other pension/income/savings.

£500 per month rent. Council tax band B

The result was £13.99 council tax benefit and £72.87 housing benefit. Both weekly amounts.

So, out of their combined £336 per week, this couple would still have to pay £44 rent plus £13 council tax, leaving them with £279 per week to pay for everything else. Do-able, but not a lot for lifes little comforts.

pensionpawn

colsten wrote: »

I don't think your idea would work, for several reasons, including

• how would anyone identify who has lower life expectancy? If by region / county / city etc, how would stop people from just moving to that region / county / city etc?
• people underestimate their own life expectancy
• those desperate for money could plunge themselves into life-long poverty
• many of the eligible people wouldn't accept that their SP should be lower than those who are likely to live longer
• for people whose only income is the state pension, it's already tough to life off the full SP amount. Reducing it for early drawing would almost certainly require another benefit to bridge the gap
• perversely, the scheme could be most attractive to those who are better off

I would not expect this to be means tested nor am I suggesting that people could start taking their pension prior to 65*, even at the lower rate. I don't believe that this will cause poverty because if someone is struggling in the years running up to 65 receiving a slightly reduced pension at 65 has to be a more attractive proposition than receiving no pension until 66, 67, 68 etc.... So, for someone who is seeing their pension age raised from 65 to 67 they could elect to receive 90% of SP at 65 or 95% of SP at 66. Just the mirror of receiving 105% at 68 or 110% at 69! This has to be fairer than continually increasing the pension age closer and closer to life expectancy, which unlike the SP rate, is not uniform around the country.

* there is an argument to be made that WASPI's could also have their SP proportionately reduced to 65 rather than denied. Although not ideal (from their perspective) potentially agreeable.

colsten

pensionpawn wrote: »

I would not expect this to be means tested nor am I suggesting that people could start taking their pension prior to 65*, even at the lower rate.

We weren't talking about means testing - I responded to your post which suggested that it would be available to "those members of society with a lower life expectancy". You are now saying it should be available to all - which is effectively lowering SPA to 65 for all. My arguments remain, especially my concern about the most desperate people putting themselves into life-long poverty.

I should add that I am of the opinion that those unable to sustain themselves up to their SPA should have access to decent working age benefits - in the same way that younger people should have access to decent working age benefits. That's where reform is needed, not in the state pension system.

pensionpawn wrote: »

* there is an argument to be made that WASPI's could also have their SP proportionately reduced to 65 rather than denied. Although not ideal (from their perspective) potentially agreeable.

WASPI are not being denied their state pensions. They just have to wait until they reach their SPA, just like everyone else. It can't be said often enough that the WASPI actually have lower SPAs than the people who pay their state pensions. It would be hugely unjust and discriminatory to men their age and to everyone born after 1959 if anyone caved in to the WASPI demands. Besides, they will not agree to anything other than their full demands, which essentially is state pension from age 60 for them but not for anyone else.

pensionpawn

colsten wrote: »

We weren't talking about means testing - I responded to your post which suggested that it would be available to "those members of society with a lower life expectancy". You are now saying it should be available to all - which is effectively lowering SPA to 65 for all. My arguments remain, especially my concern about the most desperate people putting themselves into life-long poverty.

I should add that I am of the opinion that those unable to sustain themselves up to their SPA should have access to decent working age benefits - in the same way that younger people should have access to decent working age benefits. That's where reform is needed, not in the state pension system.



WASPI are not being denied their state pensions. They just have to wait until they reach their SPA, just like everyone else. It can't be said often enough that the WASPI actually have lower SPAs than the people who pay their state pensions. It would be hugely unjust and discriminatory to men their age and to everyone born after 1959 if anyone caved in to the WASPI demands. Besides, they will not agree to anything other than their full demands, which essentially is state pension from age 60 for them but not for anyone else.

Not means tested insomuch that no one would have to prove that they have a lower life expectancy. So yes available to all, just like deferring SPA, however this is not the same as lowering the SPA as the amount is reduced accordingly.

I'm not being drawn into a benefits discussion and I only suggested that this could influence the WASPI situation, which I'm also not being drawn into thanks.

hugheskevi

It is worth remembering that the State Pension system is unfunded. If it were a funded pension (and ignoring issues about future means-tested benefit entitlement), then it doesn't matter when people take their benefit as long as it is appropriately actuarially adjusted.

But that isn't the case in an unfunded system. If someone takes their pension early, the cost of that early access has to be met immediately, either via more tax or more borrowing. Across all people aged 65, 66, etc, that amounts to a large potential exposure. Over a long period it would be actuarially neutral, but in the short-term it is a cost pressure which would need to be funded.

There would be initial uncertainty about the effect on future cashflow forecasts, but soon data would show the typical proportions claiming early and cashflows could be estimated with greater certainty. However, it is likely that in economic downturns with increasing unemployment, the proportion taking pension early would increase, potentially very significantly. Whilst this could be a useful fiscal stimulus, it could also be an unwelcome unexpected expenditure at a time of pressure on tax receipts.

Given the huge sums involved with State Pension, I think introducing uncertainty into the cost forecast is something that has to be considered very unwelcome, and there would have to be a compelling need to justify.

jamesd

kangoora wrote: »

Does anyone know the justification for why a pensioner seems to only need 50% of the income of someone working

The minimum wage includes amounts for pension contributions, work-related costs, mortgage and raising children that are not usually needed in retirement.

pensionpawn

hugheskevi wrote: »

It is worth remembering that the State Pension system is unfunded. If it were a funded pension (and ignoring issues about future means-tested benefit entitlement), then it doesn't matter when people take their benefit as long as it is appropriately actuarially adjusted.

But that isn't the case in an unfunded system. If someone takes their pension early, the cost of that early access has to be met immediately, either via more tax or more borrowing. Across all people aged 65, 66, etc, that amounts to a large potential exposure. Over a long period it would be actuarially neutral, but in the short-term it is a cost pressure which would need to be funded.

There would be initial uncertainty about the effect on future cashflow forecasts, but soon data would show the typical proportions claiming early and cashflows could be estimated with greater certainty. However, it is likely that in economic downturns with increasing unemployment, the proportion taking pension early would increase, potentially very significantly. Whilst this could be a useful fiscal stimulus, it could also be an unwelcome unexpected expenditure at a time of pressure on tax receipts.

Given the huge sums involved with State Pension, I think introducing uncertainty into the cost forecast is something that has to be considered very unwelcome, and there would have to be a compelling need to justify.

What about the uncertainty then caused by deferrals and the system then having to find larger payments? Consider this, 5 friends are eligible to claim their state pension in the same month. If they all claimed their SP at 65 by their 68th birthday they will have in total been paid 15 years worth of SP. However one decides to claim 90% from 63, one 95% from 64, one 100% at 65, one 105% at 66 and the last friend 110% at 67. By their 68th birthday the state will have paid out 14.5 years worth of SP. The state is better off. Perform the analysis over a ten year period and the state still pays less.

Thrugelmir

pensionpawn wrote: »

What about the uncertainty then caused by deferrals and the system then having to find larger payments? Consider this, 5 friends are eligible to claim their state pension in the same month. If they all claimed their SP at 65 by their 68th birthday they will have in total been paid 15 years worth of SP. However one decides to claim 90% from 63, one 95% from 64, one 100% at 65, one 105% at 66 and the last friend 110% at 67. By their 68th birthday the state will have paid out 14.5 years worth of SP. The state is better off. Perform the analysis over a ten year period and the state still pays less.

Have you factored in annual increases plus cost of funding?