State Pension

pensionpawn

Silvertabby said:

pensionpawn said:

Silvertabby said:

pensionpawn said:

Silvertabby said:

pensionpawn said:

Silvertabby said:

nigelbb said:

pensionpawn said:

nigelbb said:

pensionpawn said:

One issue to consider before delaying taking your state pension. Your state pension stops when you die and can't be passed to family, your personal pension(s) can. If you are no longer in employment why erode your personal pension (future estate) more than necessary (and reduce your personal pensions growth potential)? For example, a couple who both started their state pension this year will be receiving ~ £18k tax free (if no other income). Not a fortune however neither poverty. One of the couple decides to defer their state pension 5 years, using their personal pension instead. If they had a personal pension of £100k after 5 years that is will now be worth around £80k at a growth figure of 8%. That person sadly dies shortly after starting to draw their increased state pension. The surviving partner now has £80k passed to them to add to their standard state pension. Had they not elected to defer one of their state pensions the personal pension passed to them (if not accessed) would now be worth around £147k! 

Some will argue that if you continue to receive income post their state pension age then that is the trigger to defer taking it. I would argue that it may be better to continue to take your state pension and continue to pay into your private pension, (until 75) via salary sacrifice or SIPP. Certainly SS if your income plus state pension makes you a tax payer. That way you could effectively receive a 20% uplift on (part / all of) your state pension in addition to boosting your personal pension (to pass on).

I can't see a reason to defer. I just need two more qualifying years (realistically one as I've probably just met this years threshold) and will want my SP as soon as I can get it, which is presently 67 for both me and my wife.

The example above uses a lot of assumptions, however only to illustrate that deferring the state pension needs to be thought through. In fact I would like to see the reverse of deferral and let people (which would also cushion the blow for Waspi's) to take their pension earlier than SP age by reducing the pension payments in line with the formula for increasing them. With the pension age being pushed further up, some sectors of society may not live long enough to start claiming their hard earned pension. Perhaps that's the plan...

This is what happens in France you can take your pension at a reduced rate from age 62 & receive full rate pension at age 67. There are also other circumstances where you get full pension earlier than 67 if you worked in a particularly tough occupation like fishing or farming & currently when you have contributed for 167 quarters ie working life of just under 42 years. 

I wouldn't expect the reduced state pension to rise over the years just as the increased state pension doesn't reduce. If you go early you get less for life (however long that may be), go later and you get more (for a shorter period).

This is exactly what happens in France I might not have explained it clearly. If you wait until you are 67 or have 167 trimesters (quarters) of contributions you get it at full rate but you can claim your pension from age 62 at a reduced rate but that reduced rate is locked in for life.

I believe America has a similar system.  However, I think I'm right in saying that neither have our minimum income guarantee (MIG) at SPA.  This would mean that those most likely to want to access their (reduced) pension early - those with no other pension income - wouldn't be allowed to do so, as it would take them below the MIG at SPA.

The only way round this would be to abolish the MIG.  Be careful what you wish for.

ADD: The closest the UK comes to this is in respect of occupational pensions with high GMPs.  The pension scheme HAS to pay at least the GMP (in lieu of SP2/SERPS) at State pension age - so if the early reductions for early payment take the pension below the GMP, then payment cannot be made until SPA (or close to it).

To preserve that 'minimal income protection' from taking SP early there should be a lower limit of 5 years prior to standard SPA, for both men and women. A maximum reduction of 29% (derived from the formula for increasing payment due to deferral). So instead of at £9110 at 65, £6478.50 from 60 adjusting according to the triple lock and the gradual increase in SPA. So for example, I can't receive my state pension until I'm 67 however could elect to take it from 62 at the appropriate lower rate.

Yes, but as the pension in payment increases each year, so does the MIG.  Using your figures of £9110 from 65 or £6478.50 from 60, £6478.50 (plus cost of living increases) from SPA will still be less than the MIG of (approx) £9K plus cost of living increases. 

I believe that this system was actually considered for the UK - but discounted due to the MIG.  Those who have no other income in retirement wouldn't be able to partake, as they would need means tested benefits to take them back up to MIG at SPA, leaving the offer only open to those of us who will never qualify for additional benefits.  Cue cries of 'one law for the rich, another for the poor'.

Surely electing to take an earlier reduced pension is a decision for the individual? Yes there must be limits (e.g. I'll take just 42% of my state pension at 55 is obviously not going to fly) as the whole idea of the pension is to provide enough money to cover the basics (accommodation, food, utilities, basic transport) when you can no longer work and that threshold must be set and not breached. However in exceptional circumstances, where life expectancy is lowered due to social environment conditions / health etc, or the lack of income would otherwise throw the individual deep into welfare support, the individual should be allowed to access funds earlier, albeit at an lower rate (or same rate if life expectancy is medically judged to be considerably shorter that average post SPA). Protection for the government could be that taking a SP below any MIG does not trigger any additional support payments. People should be able to calculate their finances. No doubt the Treasury have done their sums regarding average life expectancy post SPA multiplied by pension amount and know how much money has to be set aside. What we are suggesting here is extending that state pension 'withdrawal' window to the left and lowering the amount. Think of it as two rectangles of the same area (pension amount x average life expectancy post SPA) with differing dimensions. I wasn't aware of this MIG prior to this thread, considering it in my reply as a (sensible) concept only.

See Bolded.  That's the 'problem' (for want of a better word).  It is currently the law that someone must have at least £X to live on at SPA.  Allowing people to take a reduced pension early, on the basis that they will not then be entitled to any additional support payments, would mean abolishing the MIG.

As for those with limited life expectancy, my heart goes out to them and I can see that taking reduced/early  benefits on ill health grounds would be a popular move - but I expect that it would be too difficult to administer.

This MIG idea is obviously new to me. Just Googling MIG suggests to me that it's a financial lower safety threshold that care costs are assessed against to ensure that people have money left to survive on after paying for care costs? I'm not sure how I see MIG being an issue for people who do not have to contribute to care costs though would like to take a reduce state pension early?

Apologies.  I used the term MIG with my (retired) pension administrators head on.  Perhaps I should have used 'pension credit limit'.  Basically, someone with no other income but a State pension and no (or very little savings) could be entitled to a pension credit top up to £174 per week, being about £1 under the full single tier level. Nothing to do with care costs. 

So what you are saying is those people posting on this forum about NI payments shortfalls potentially impacting their state pension need not worry as the government will top it up for them? 

Silvertabby

pensionpawn said:

Silvertabby said:

pensionpawn said:

Silvertabby said:

pensionpawn said:

Silvertabby said:

pensionpawn said:

Silvertabby said:

nigelbb said:

pensionpawn said:

nigelbb said:

pensionpawn said:

One issue to consider before delaying taking your state pension. Your state pension stops when you die and can't be passed to family, your personal pension(s) can. If you are no longer in employment why erode your personal pension (future estate) more than necessary (and reduce your personal pensions growth potential)? For example, a couple who both started their state pension this year will be receiving ~ £18k tax free (if no other income). Not a fortune however neither poverty. One of the couple decides to defer their state pension 5 years, using their personal pension instead. If they had a personal pension of £100k after 5 years that is will now be worth around £80k at a growth figure of 8%. That person sadly dies shortly after starting to draw their increased state pension. The surviving partner now has £80k passed to them to add to their standard state pension. Had they not elected to defer one of their state pensions the personal pension passed to them (if not accessed) would now be worth around £147k! 

Some will argue that if you continue to receive income post their state pension age then that is the trigger to defer taking it. I would argue that it may be better to continue to take your state pension and continue to pay into your private pension, (until 75) via salary sacrifice or SIPP. Certainly SS if your income plus state pension makes you a tax payer. That way you could effectively receive a 20% uplift on (part / all of) your state pension in addition to boosting your personal pension (to pass on).

I can't see a reason to defer. I just need two more qualifying years (realistically one as I've probably just met this years threshold) and will want my SP as soon as I can get it, which is presently 67 for both me and my wife.

The example above uses a lot of assumptions, however only to illustrate that deferring the state pension needs to be thought through. In fact I would like to see the reverse of deferral and let people (which would also cushion the blow for Waspi's) to take their pension earlier than SP age by reducing the pension payments in line with the formula for increasing them. With the pension age being pushed further up, some sectors of society may not live long enough to start claiming their hard earned pension. Perhaps that's the plan...

This is what happens in France you can take your pension at a reduced rate from age 62 & receive full rate pension at age 67. There are also other circumstances where you get full pension earlier than 67 if you worked in a particularly tough occupation like fishing or farming & currently when you have contributed for 167 quarters ie working life of just under 42 years. 

I wouldn't expect the reduced state pension to rise over the years just as the increased state pension doesn't reduce. If you go early you get less for life (however long that may be), go later and you get more (for a shorter period).

This is exactly what happens in France I might not have explained it clearly. If you wait until you are 67 or have 167 trimesters (quarters) of contributions you get it at full rate but you can claim your pension from age 62 at a reduced rate but that reduced rate is locked in for life.

I believe America has a similar system.  However, I think I'm right in saying that neither have our minimum income guarantee (MIG) at SPA.  This would mean that those most likely to want to access their (reduced) pension early - those with no other pension income - wouldn't be allowed to do so, as it would take them below the MIG at SPA.

The only way round this would be to abolish the MIG.  Be careful what you wish for.

ADD: The closest the UK comes to this is in respect of occupational pensions with high GMPs.  The pension scheme HAS to pay at least the GMP (in lieu of SP2/SERPS) at State pension age - so if the early reductions for early payment take the pension below the GMP, then payment cannot be made until SPA (or close to it).

To preserve that 'minimal income protection' from taking SP early there should be a lower limit of 5 years prior to standard SPA, for both men and women. A maximum reduction of 29% (derived from the formula for increasing payment due to deferral). So instead of at £9110 at 65, £6478.50 from 60 adjusting according to the triple lock and the gradual increase in SPA. So for example, I can't receive my state pension until I'm 67 however could elect to take it from 62 at the appropriate lower rate.

Yes, but as the pension in payment increases each year, so does the MIG.  Using your figures of £9110 from 65 or £6478.50 from 60, £6478.50 (plus cost of living increases) from SPA will still be less than the MIG of (approx) £9K plus cost of living increases. 

I believe that this system was actually considered for the UK - but discounted due to the MIG.  Those who have no other income in retirement wouldn't be able to partake, as they would need means tested benefits to take them back up to MIG at SPA, leaving the offer only open to those of us who will never qualify for additional benefits.  Cue cries of 'one law for the rich, another for the poor'.

Surely electing to take an earlier reduced pension is a decision for the individual? Yes there must be limits (e.g. I'll take just 42% of my state pension at 55 is obviously not going to fly) as the whole idea of the pension is to provide enough money to cover the basics (accommodation, food, utilities, basic transport) when you can no longer work and that threshold must be set and not breached. However in exceptional circumstances, where life expectancy is lowered due to social environment conditions / health etc, or the lack of income would otherwise throw the individual deep into welfare support, the individual should be allowed to access funds earlier, albeit at an lower rate (or same rate if life expectancy is medically judged to be considerably shorter that average post SPA). Protection for the government could be that taking a SP below any MIG does not trigger any additional support payments. People should be able to calculate their finances. No doubt the Treasury have done their sums regarding average life expectancy post SPA multiplied by pension amount and know how much money has to be set aside. What we are suggesting here is extending that state pension 'withdrawal' window to the left and lowering the amount. Think of it as two rectangles of the same area (pension amount x average life expectancy post SPA) with differing dimensions. I wasn't aware of this MIG prior to this thread, considering it in my reply as a (sensible) concept only.

See Bolded.  That's the 'problem' (for want of a better word).  It is currently the law that someone must have at least £X to live on at SPA.  Allowing people to take a reduced pension early, on the basis that they will not then be entitled to any additional support payments, would mean abolishing the MIG.

As for those with limited life expectancy, my heart goes out to them and I can see that taking reduced/early  benefits on ill health grounds would be a popular move - but I expect that it would be too difficult to administer.

This MIG idea is obviously new to me. Just Googling MIG suggests to me that it's a financial lower safety threshold that care costs are assessed against to ensure that people have money left to survive on after paying for care costs? I'm not sure how I see MIG being an issue for people who do not have to contribute to care costs though would like to take a reduce state pension early?

Apologies.  I used the term MIG with my (retired) pension administrators head on.  Perhaps I should have used 'pension credit limit'.  Basically, someone with no other income but a State pension and no (or very little savings) could be entitled to a pension credit top up to £174 per week, being about £1 under the full single tier level. Nothing to do with care costs. 

So what you are saying is those people posting on this forum about NI payments shortfalls potentially impacting their state pension need not worry as the government will top it up for them? 

Possibly, possibly not.  Most of the questions on these boards re NI shortfalls are from people who don't qualify for the full single tier pension because they were in contracted out occupational pensions.  These people, with their additional pension incomes, would be unlikely to pass the means test for pension credit top ups

It's just those who have only qualified for a lesser amount of State pension - and who have no other pensions/income/savings -who could be eligible for additional means tested benefits.

xylophone

The pension scheme HAS to pay at least the GMP (in lieu of SP2/SERPS) at State pension age

At GMP age?  This is 60 for a woman so far in advance of current SPA.  For a man it is age 65.