How much pension income to break even

dont_use_vistaprint

I was talking to a pensioner yesterday , a widow who never paid into any pensions.

She was telling me how with pension credit, council tax and water rates reductions, fuel allowance, free boiler, insulation, and various other benefits such as free dental, optical, tv licence  taxis for medical appointments - the list is fairly long as she’s constantly finding more things that are free or reduced but only if on pension credit. Shes very comfortable financially and able to save each month & gets to go on 4 -6 foreign holidays a year and still has spare cash.

This got me thinking , considering the tax taken off income over your personal  allowance , what would be the break even point and how many lower paid workers paying into pensions will in reality see no benefit for it - it will just reduce pension age benefits.

Has anyone done or able to a calculation of minimum sized pot by 67 to give the same income after tax as someone with no pension ? 

JoeCrystal

One can easily live on an income of less than £11,343.8 per year as a single person (As far as I am aware, it is the income the pension credits will top up to) without worrying about paying mortgage or rent. Considering the capital limit with pension credits, spending on holidays is a way to keep savings under £10k.

I am not sure what the point of your question is, though. Anyone with a complete history of correct National Insurance contributions easily beat the pension credit at £11,502.4 per year. (Or much higher if they had SERPS or S2P).

dont_use_vistaprint

JoeCrystal said:

I am not sure what the point of your question is, though.

it was to understand what kind of private pension pot someone needs to break even with the various incentives for those who haven’t worked much or saved anything and are now being encouraged to save for a pension because they are being told it’s in their interest  -  I don’t believe for a lot of people on low wages it is in their interest 

A huge amount of people , particularly women don’t meet that NI contribution threshold.

Keep_pedalling

Sounds like BS to me. PC is means tested and no one on it will have enough savings or income to have 5 to 6 overseas holidays a year.

LHW99

A huge amount of people , particularly women don’t meet that NI contribution threshold

Those who continued to pay married women's stamp back in the day wouldn't, but since that was abolished (and even for some of us before it was) there has been HRP, and then NI credits if you were receiving child benefit (or credits when on benefits).

Going forward it shouldn't be difficult IMO to meet the threshold for most people whatever gender going forward. Thos who can't will still have the pension credit top ups.

The aim of the encouragement is so that even those on low wages will have at least a little above state pension income, as NSP is calculated at a level to take people out of the PC regime. Consequently they should be better off by making the savings.

dont_use_vistaprint

Keep_pedalling said:

Sounds like BS to me. PC is means tested and no one on it will have enough savings or income to have 5 to 6 overseas holidays a year.

It’s not BS.

And if you read the post properly you’ll see not just pension credit it’s a whole range of things that you become eligible for if in receipt of PC , which when added up would be a significant amount of pre-tax income.

anyway I guess the answer is no - no one knows the answer 

 

SouthCoastBoy

Pension credit does open up a number of other benefits. My mum received pension credit, which in turn led onto additional benefits such as not having to contribute council tax, she also got a free boiler and I think some additional winter fuel payment (but not sure on that one). 

I think there may well be a position where if you receive just enough to not get pension credit you may be worse of? I think that is the point the OP is making. I don't know if this is true, but I do know by my mum receiving pension credit it opened up a number of other benefits.

DullGreyGuy

It would be easier if you add up the annual value of what you think these things are worth to you... 

Free boiler is only for those with a non-condensing boiler, ours therefore wouldn't be applicable and its a once in a lifetime thing

Taxi to GP... walk, wouldn't use a taxi

Optical voucher - my glasses were £25, they last about 10 years typically. So £2.50 per year. 


Agree with others, you cannot afford 6 foreign holidays a year on £11,502.40. Maybe she isn't the one paying for the holidays? Or have generous gifts from her kids etc? My gran used to go on 3-4 foreign holidays a year but that was her kids taking her (normally in exchange for baby sitting services) and not a penny was coming out her own pocket for them. 

Moonwolf

The problem with the calculation is housing costs.  I must admit, I don't know anything about housing benefit and who would get it, does that include people not on pension credit.

Excluding housing costs, I would say you need £3000 to £5000 on top of state pension before you would feel better off than being on pension credit.

As for holidays, if you are on pension credit, I don't see why not.

I have an elderly relative who lives in a one bedroomed bungalow in the midlands.  The home is paid off so has no housing costs.

He doesn't get pension credit and has savings and pensions to cover repair an maintenance.  However, looking at his costs and imagining someone who didn't own their home but had rent covered by housing benefit.  For transport, a free bus pass and £20 a month in taxis. Even now my relative's combined fuel bill is £100 a month, on pension credit he would get £300 a year, £25 a month towards that.  His food bill is quite low as he just doesn't eat a lot and doesn't drink, and in season neighbours give him home grown veg.  Less that £200 a month for a supermarket shop.

I reckon total bills are around £400 a month, leaving £500 a month for saving and holidays.  Thinking about the type of holidays my mother-in-law took, Wallace Arnold and Shearings, I could easily imagine 4-6 of those a year.

strawb_shortcake

There's no guarantees that pension credit and it's side benefits will be available in future. Comfort in old age isn't something I'd want to take a gamble on.

4-6 holidays a year plus spare cash I can't see being the full picture 

Cobbler_tone

Moonwolf said:

I have an elderly relative who lives in a one bedroomed bungalow in the midlands.  The home is paid off so has no housing costs.

He doesn't get pension credit and has savings and pensions to cover repair an maintenance.  However, looking at his costs and imagining someone who didn't own their home but had rent covered by housing benefit.  For transport, a free bus pass and £20 a month in taxis. Even now my relative's combined fuel bill is £100 a month, on pension credit he would get £300 a year, £25 a month towards that.  His food bill is quite low as he just doesn't eat a lot and doesn't drink, and in season neighbours give him home grown veg.  Less that £200 a month for a supermarket shop.

I reckon total bills are around £400 a month, leaving £500 a month for saving and holidays.  

I think that sums up a lot of the elderly folk across the country. Hence why so many of them didn't need the winter fuel allowance. I get the argument for those who may be teetering around it.
Mine will spend a similar amount (no hols) and will be spend £15k a year (absolute max) with a joint income of around £35k, which includes two state pensions and a small DB pension. A lot of the older generation won't even bother with Sky, broadband and smart phones etc. Landline only!