Pensions? Are they even worth it?

Malthusian

mlv-1967 said:

I don't think it's debatable at all - we have the lowest state pension among nations of the OECD, which is frankly shameful. In some countries the state pension is earnings related, but not in all - many nations (e.g. the USA) have a flat rate state pension, though still much more generous than the UK's. The base rate of income tax is 20% in the UK, not 44% - even including NI the base marginal rate of tax is 32%.

You forgot employer's NI. Tax on income = income tax.

If you exclude 34 percentage points of income tax the base rate of tax is 10%, but it doesn't matter.

It is highly debatable whether a system with higher contributions and higher benefits is more generous than one with lower contributions and lower benefits. Or one where the pension is higher but you have to pay for your own healthcare out of it.

The problem with leaving it to individuals to invest their own money to provide a pension is twofold: (1) many people will be reluctant to save when they are free to spend their after tax salary on anything they want and (2) investing money in a defined contribution pension is very high risk for the simple reason that the final result of years of contributions is not defined.  You could, at least in theory, end up with less money than you invested after allowing for inflation.

You would have to be extraordinarily imprudent for that to happen, and extraordinary imprudent people having less money is not a social problem, just the laws of physics.

You could far more plausibly pay lots "into the State Pension" (i.e. in tax) and then end up with "less than you invested" because the State changes the rules. If you disagree with this point, I'm just going to hand you over to my good friend Ms Anne Keen, the founder of WASPI.

People who spend their entire after tax salary having less to live on in retirement than equivalent people who save is not a social problem. It is what should happen.

The whole point of state pension provision is guaranteed income that is enough to live on - the state pension in the UK is nowhere near enough to live on even assuming a modest lifestyle.  This is the problem.

A problem solved by additional benefits such as Housing Benefit for the small minority who have no other means than a full State Pension.

You statement is nonsense because under a salary linked state pension there would surely be a cap on how much you could receive - i.e. someone earning £1M a year would not be able to receive £500k a year as a pension.

So they'd end up with much less money than they invested? I thought that wasn't supposed to be possible with an entirely state pension based system.

Anyway, it is possible to have a higher state pension without it necessarily being earnings related. If we had a state pension based on say, two-thirds of the median salary, this would be around £20-21k a year and provide a decent personal income for most people to live on without the need for taking high risks with investments.

A later-life universal basic income that is 33% higher than the income of a working-age person on full-time minimum wage is not going to happen.

Most people saving into pensions are not taking high risks.

Dazza1902

JoeCrystal said:

Pondskater said:

Wish I had known where your mum was able to buy a three bed detached house in the 80s for less than £7000. I was looking at crummy flats in run down areas outside Glasgow and they cost more than that and the interest rates were eye watering,

Maybe it came with an RTB discount?!

Green shield stamps ?

Dazza1902

I think someone said that means tested benefits ( additional to sp to cover renting I guess) amounts to 18k ?
 Perhaps we have been harsh on the op, if indeed he will never own his own home, and his income only allows auto enrollment min contributions throughout his lifetime . Then his pot at retirement might not cover his rent.
 

Silvertabby

Dazza1902 said:

I think someone said that means tested benefits ( additional to sp to cover renting I guess) amounts to 18k ?
 Perhaps we have been harsh on the op, if indeed he will never own his own home, and his income only allows auto enrollment min contributions throughout his lifetime . Then his pot at retirement might not cover his rent.
 

That was me.  A friend's mother-in-law received that from pension, pension credit, housing benefit and council tax benefit.

Because she complained about not being able to afford 'nice food' the family took turns at booking a home delivery shop for her every so often.

After she died, the family found over £12K tucked away in little stashes round the house.