The argument against "Dont bother saving for retirement, just claim pension credit"

Kaizen917

I tried to find similar discussion through the vast number of threads but unsuccessfully, particularly interested in the opinion of people in their 50s,early 60s that are way more ahead in their planning journey.

In a nutshell,its about the balance between making some effort to plan for retirement OR living it to the fullest and then let the state take care of us if we have next to nothing saved.

I tend to be the type to take the first route. At least where it stands now, being in my 30s, I have ok sized SIPP(older small pots combined), LISA(topped for the last 2 years) + current employer pension with fairly decent level of contributions (employer pays 18% of salary, I do 8% so total of 26).

As it happens however, some of the friends I would discuss the topic over a drink are basically at the polar opposite and thinking that I shouldnt put a penny towards any such pension. In general, their argument goes along the lines 1) Either we dont contribute enough over the years so we would be better off just getting benefits for about 200-300 per week 2) We contribute enough but all sorts of risks such as capital loss, inflation etc end up making this long term effort not worth it.

Im not a big fan of the idea of relying on the state for this so normally I didnt put much thinking into strict planning, just did my contributions thinking its the right thing to do. But do they have a point that the effort isnt worth it?

sevenhills

My sister has held the view that people should not save for retirement, as you could be better off on pension credits. Her husband died and it left her in good position and she has also worked for a short time for the NHS and local authority.
So most people will probably have too much money to claim pension credits.
Even my ex wife, who hasn't worked for twenty years, will qualify for the full state pension, so not qualify for pension credits.

dunstonh

Pension credit is being phased out.  So, planning to rely on that could be foolish.

A state pension is around £10k.   How much do you earn?   if you earn £12k a year, you may feel that the state pension is enough.  if you earn £20k a year, then you are going to drop your income by half.  If you earn more than that, the drop will be even more significant.

Some may say that two state pensions (e.g. husband and wife) is enough.  But what happens when one dies much earlier than the other?  It leaves the surviving spouse/partner with a hole to fill.

Do you fancy 20-30 years on the breadline?   Or do you prefer to put something aside that you can have in later life?

That is what it really boils down to.

calcotti

If you get the full new State Pension you will not get any Pension Credit (unless entitlement is increased by being on receipt of receiving disability benefits) anyway so will be relying totally on the State Pension - plus Council Tax Reduction and Housing Benefit if applicable.

The future of Pension Credit is unclear, on the one hand the full State Pension is worth more than the Pension Credit personal allowance, on the other hand Pension Credit was planned to include help with rent and replace Housing Benefit. 

The people who could reasonably argue that it was not worth accruing a personal pension is those who end up with a pension that is below their means tested benefit entitlement because it reduces the benefit income and they therefore get no benefit from the pension.

When considering the issue 30 to 40 before reaching age I think the only certainty is that in the intervening years the State Pension age and means tested benefit rules will have changed and there’s no way of knowing what they will be.

Kaizen917

Im currently on around 55k but thats not reflecting my lifestyle which is modest enough to be saving the majority (circa 40-70% of the income, depending on season or one off expenses). My vague goal was therefore for retirement income of 10k at worst and 15k at best, on top of the state pension(assuming current prices). In a way, even if I really really wanted to opt for more lavish lifestyle now to keep myself below certain pension credits threshold in future, I would be forcing myself to spend rather pointlessly.

But thanks for bringing this up on the phasing out of the pension credit. I suppose if thats on the roadmap, so to say, then its a good enough argument not to stand by and rely on the government to fill the gap. Then again, who knows what the landscape will be like in the 2050s when Im due to retire..

hugheskevi

The main things I would be considering/concerned about are:

1. Gambling on a future social security structure many years into the future - there will almost certainly be something, but who knows what
2. Having few - if any - options prior to State Pension age at 68, I would be committing to work until then come what may (or be sick/disabled, but that seems an even worse outcome and in such a scenario I'd probably be glad of having my own resources to tackle the situation). 
3. By saving nothing to enhance income now, I would be exacerbating the drop in living standards at retirement compared to smoothing income over lifetime by saving - I might be able to live on State Pension but I would be unlikely to like it unless I've been a lifetime low earner.
4. Even if there is a generous means-tested regime when I retire, I still will be at the mercy of whatever the system is. Assuming I've followed the 'spend it all and rent' model to maximise income from the State, I then have little if any say in how things like boiler replacement are done - in my own home I would replace it in good time with a decent replacement, whereas in rented accommodation I will probably have to wait until it breaks and then who knows how long it will take to be assessed and replaced and have no input into what it is replaced with - I am unlikely to have any control, but have to live with the consequences. The same would apply with things like medical procedures - having your own resources can give you a lot of control you would not have if reliant on what you are given by the State, for example to fund a cataract operation rather than wait until the NHS get around to doing it.
5. If I decide to own my own house but make no savings, would I want to pursue equity release on whatever terms may be available - otherwise I have a very low income and will be responsible for maintenance which even with a modest home would entail some big expenditure. 
6. Death of a spouse - either before or after retirement - is likely to have a significantly detrimental impact compared to inheriting remaining pension.
7. Burden on children - whatever I might say, it is likely that children would feel a moral obligation to assist.

I think taking an extreme no saving position early in life is fraught with risks - at least take the employer contribution, ideally contributing enough to benefit from matching, even if you do nothing else. The impact on net earned income is likely to be minimal, even in a public service pension scheme where it will probably be larger but equally the pension loss would be greater.

It all comes down to a choice between (1) work longer, (2) save more or (3) be poorer in retirement - each individual can choose to balance those however they wish but extremes in any of the three variables need careful consideration.

eskbanker

dunstonh said:

Some may say that two state pensions (e.g. husband and wife) is enough.  But what happens when one dies much earlier than the other?  It leaves the surviving spouse/partner with a hole to fill.

Or there's always cremation as an alternative....

MalMonroe

Hi, I think any effort is definitely worth it, especially as we are all now living longer and the government doesn't particularly want to be paying out for years to pensioners who insist on living into their 90s. I think that one day, state pensions will be a thing of the past and pension credits won't exist. By the time you hit pension age (forecast to be in one's 70s), the world - and benefits - will be very different. 

I'm someone who's in receipt of a state pension as well as two private workplace pensions and my income is not high by any means but it's too high for me to claim any benefits. For which I'm grateful. I don't want to have to rely on benefits in my retirement. 

I think it's sensible to plan for your future and with the way pensions are going - south - it is probably essential that young people do so now. 

You said "In a nutshell, it's about the balance between making some effort to plan for retirement OR living it to the fullest and then let the state take care of us if we have next to nothing saved." - but I don't agree. It isn't a case of either/or.

I have done a lot in my life and travelled the world and still intend to do more. But I don't want the state to take care of me. It's possible to live life to the fullest and make an effort to plan for retirement. Because the state won't want to take care of anyone in years to come. 

In my opinion your friends don't have any point. The effort IS worth it - so don't give up! 

Linton

One answer to the spend it all now strategy is that at some time the money will run out. You will suddenly be unable to afford most of the expensive pleasures you have got used to and you will have to carefully plan every bit of expenditure  Your freedom to choose  your lifestyle will have gone. You could face a grim future if you are ill-equipped to manage your new circumstances.

A related problem is that as you don’t know the future it is impossible to plan your expenditure with sufficient accuracy so that you don’t run out of money at a time whilst you still want to use it.

Better in my view to plan your expenditure so that your standard of living remains constant over your lifetime. If you plan prudently you will probably find that over time you then have enough money to afford an increasing standard of living. This means you can look to the future with some confidence rather than fear, worry, and potentially life shortening stress.

badmemory

Do you really want to spend your retirement years filling in forms with intrusive questions?

Emmia

What if there is no state pension (or the pension is so low, that it leaves those with nothing else in poverty)?

Auto enrolment in pensions could be seen as a long term way of making future generations pay for their retirement (or almost all of it) upfront, rather than relying on the government/future tax payers.

Personally it's a bit too much of a gamble for me.