The State Pension

Including Financial Independence and Retiring Early (FIRE)
TheRIT
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The State Pension

Postby TheRIT » November 6th, 2016, 6:05 pm

In all of my early retirement planning I've assumed that the State Pension won't be available to me either because it will be means tested by then or because the date will be pushed out so far as to not be useful. So far we've seen the dates being pushed out but not yet any discussion on means testing. One thing I am watching carefully though is how they are starting to peg access to Private Pensions with the State Pension. Thankfully I'm still holding at 55 (for now).

In early retirement I'm still planning on paying into the system via Class 3 NI contributions as an insurance policy against it going all wrong.

I've seen this morning MP's starting to now say the triple lock should be removed. Are we being softened up for an Autumn Statement announcement?

Full disclosure: I've always found the triple lock quite strange (read: a short term vote buyer) as it guarantees pensioners using the State Pension will over time do better than workers. This seems perverse as it almost guarantees it must eventually fail because the costs of supporting it will increase in % terms in an ageing society such as we live today. So I guess I won't be surprised if they do.

Dod1010
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Re: The State Pension

Postby Dod1010 » November 6th, 2016, 6:28 pm

I doubt that we will see means testing in the next several years but I think the triple lock may go together with the (unmeans tested)winter fuel allowance. A bit like the NHS I do not think it is sustainable indefinitely.

Class 3 contributions were probably the best investment decision I made (I worked abroad for most of my working life) and I think that the grey vote is too important for any Government to fundamentally change the State Pension. In a sense it is means tested in that we pay tax on it although for some reason not on the winter fuel allowance.

Do not try to over analyse your situation!

Lootman
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Re: The State Pension

Postby Lootman » November 6th, 2016, 6:29 pm

TheRIT wrote:In all of my early retirement planning I've assumed that the State Pension won't be available to me either because it will be means tested by then or because the date will be pushed out so far as to not be useful. So far we've seen the dates being pushed out but not yet any discussion on means testing.


I don't see how the state pension could ever be means tested, since it is not a welfare benefit in the normal sense of that word, but rather a contractual payment based on premia that you have paid under an insurance contract.

TedSwippet
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Re: The State Pension

Postby TedSwippet » November 6th, 2016, 6:32 pm

TheRIT wrote:... So far we've seen the dates being pushed out but not yet any discussion on means testing.

Well, there's this, published by the (Left Of?) Centre for Policy Studies a mere three days ago:
http://www.cps.org.uk/publications/reports/the-state-pension/

The State Pension should be put into “run-off”, so that, from 2020, no further “entitlements” would be created. Past “entitlements” would be honoured, as the legacy State Pension, which should be means-tested, along with the whole range of other pensioner benefits.

This from Michael Johnson, the man who whispered "pensions ISAs" to George Osborne's before the last budget, and which brought us the LISA trojan horse. His justification is that the state pension is a "benefit (i.e. welfare), not a contractual obligation." Johnson may be a demagogue, but apparently he has the ear of some of those in power. Depressingly, since the above quote is far from the only retirement-destroying "idea" in this paper.

Dod1010
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Re: The State Pension

Postby Dod1010 » November 6th, 2016, 6:35 pm

Slightly off topic. Is this the Lootman ex TMF of some time ago? If so greetings and welcome.

Dod1010

TheRIT
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Re: The State Pension

Postby TheRIT » November 6th, 2016, 6:36 pm

Lootman wrote:I don't see how the state pension could ever be means tested, since it is not a welfare benefit in the normal sense of that word, but rather a contractual payment based on premia that you have paid under an insurance contract.

Is it really that though? Genuine question, not be controversial. These days I thought NI just went into general revenue like tax. There certainly isn't pot of money at the end of the rainbow. Also other developed countries means test it - Australia is but one example of that.

MrDoppleGanger
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Re: The State Pension

Postby MrDoppleGanger » November 6th, 2016, 6:39 pm

I think it unlikely the triple lock will be removed before 2020/end of parliament - manifesto and all that.

I can't see it staying in its current form beyond that. It wouldn't surprise me if the level stayed the same but the number qualifying years rose, or if the cost of 'insurance' via Class 3 NI contributions became prohibitive.

TheRIT
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Re: The State Pension

Postby TheRIT » November 6th, 2016, 6:42 pm

TedSwippet wrote:
TheRIT wrote:... So far we've seen the dates being pushed out but not yet any discussion on means testing.

Well, there's this, published by the (Left Of?) Centre for Policy Studies a mere three days ago:
http://www.cps.org.uk/publications/reports/the-state-pension/

The State Pension should be put into “run-off”, so that, from 2020, no further “entitlements” would be created. Past “entitlements” would be honoured, as the legacy State Pension, which should be means-tested, along with the whole range of other pensioner benefits.

This from Michael Johnson, the man who whispered "pensions ISAs" to George Osborne's before the last budget, and which brought us the LISA trojan horse. His justification is that the state pension is a "benefit (i.e. welfare), not a contractual obligation." Johnson may be a demagogue, but apparently he has the ear of some of those in power. Depressingly, since the above quote is far from the only retirement-destroying "idea" in this paper.

Well knock me down with a feather. Every day that passes I get more and more thankful that I've assumed the State Pension contributes absolutely zero in my retirement planning. If they do pull this stunt it will also reduce my annual FIRE spending as I was planning on continuing to pay NI until I reached my 35 years albeit at the expense of an insurance policy.

Bminusrob
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Re: The State Pension

Postby Bminusrob » November 6th, 2016, 6:49 pm

Just a minor point on means testing (winter fuel allowance, free TV license etc). Means testing always costs a fortune, and considerably more than the benefit being removed. We already have a nationwide scheme for means testing - the income tax (allowance) system. So, for the winter fuel allowance, for example, keep giving it to all people over a certain age, but reduce the tax allowance for everyone over a certain age. Hey presto, means testing (almost) for free.

ap8889
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Re: The State Pension

Postby ap8889 » November 6th, 2016, 6:51 pm

Wow. That would be a kick in the tits for a lot of people, myself included. Hope they are planning for a lot of pensioner poverty in a few decades time because the vast majority of UK pensioners are reliant on income from the State pension, and I can't see them making good the deficit without a corresponding drop in taxes which we all know is unlikely.

Best hope long term as I see it is the triple lock is removed but the inflation link is kept, while the age creeps ever higher...

TheRIT
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Re: The State Pension

Postby TheRIT » November 6th, 2016, 7:01 pm

ap8889 wrote:Wow. That would be a kick in the tits for a lot of people, myself included. Hope they are planning for a lot of pensioner poverty in a few decades time because the vast majority of UK pensioners are reliant on income from the State pension, and I can't see them making good the deficit without a corresponding drop in taxes which we all know is unlikely.

Best hope long term as I see it is the triple lock is removed but the inflation link is kept, while the age creeps ever higher...

The 'fair' (I know governments don't do fair) thing would be to link the pension age to life expectancy and if that's not affordable then the £'s per month cloth would need to be cut for all (present pensioners included). I have a bit of a problem with arbitrary increases in age based on affordability while in parallel the amount is being raised. All this does is sell out the generations furthest from retirement.

Lootman
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Re: The State Pension

Postby Lootman » November 6th, 2016, 7:02 pm

TheRIT wrote:Is it really that though? Genuine question, not be controversial. These days I thought NI just went into general revenue like tax. There certainly isn't pot of money at the end of the rainbow. Also other developed countries means test it - Australia is but one example of that.


Yes, there is no segregated pot of money. But the NI and tax systems are currently separate. If the government really wanted to relegate pension entitlements to the level of discretionary welfare payments, then I think they would have to:

1) Merge the tax and NI systems (over my dead body, but that's another matter), and
2) Grandfather in existing contributions into the "old" scheme

TheRIT
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Re: The State Pension

Postby TheRIT » November 6th, 2016, 7:08 pm

Lootman wrote:
TheRIT wrote:Is it really that though? Genuine question, not be controversial. These days I thought NI just went into general revenue like tax. There certainly isn't pot of money at the end of the rainbow. Also other developed countries means test it - Australia is but one example of that.


Yes, there is no segregated pot of money. But the NI and tax systems are currently separate. If the government really wanted to relegate pension entitlements to the level of discretionary welfare payments, then I think they would have to:

1) Merge the tax and NI systems (over my dead body, but that's another matter), and
2) Grandfather in existing contributions into the "old" scheme

I can't see how they could ever do the former as it would mean workers learning how much income tax we actually pay. I can only imagine the gnashing of teeth if they then called employers NI income tax tax as well.

UncleEbenezer
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Re: The State Pension

Postby UncleEbenezer » November 6th, 2016, 7:42 pm

ap8889 wrote:Wow. That would be a kick in the tits for a lot of people, myself included. Hope they are planning for a lot of pensioner poverty in a few decades time because the vast majority of UK pensioners are reliant on income from the State pension, and I can't see them making good the deficit without a corresponding drop in taxes which we all know is unlikely.

Best hope long term as I see it is the triple lock is removed but the inflation link is kept, while the age creeps ever higher...

Some things just don't change. The Chattering Classes were discussing pension problems in rather similar terms 30 years ago, as think-tanks pointed out the inevitable problems. We were going to have to move from a state-provided pension to making our own provision, but that meant some generation would have to pay twice over.

We've seen an element of that in the receding pension age and the crash in annuity rates. What we'll see in future remains to be seen, but it won't be so in-your-face as taking away the basic pension. Probably the most sensible measure that would hit hard on pensioners with significant income would be to merge the two main income taxes so everyone falls under the same regime. I expect it'll coincide with when I hit pension age :twisted:

BarrenWuffett
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Re: The State Pension

Postby BarrenWuffett » November 6th, 2016, 7:59 pm

The state pension was introduced just after WW2 when average life expectancy was many years less than today for both men and women. Also, most people would leave school at the age of 14 yrs..then 15 yrs and work for the best part of 50 yrs before they drew a pension which would be perhaps 10 yrs for the average working man.

Now most people stay on at school and then go to uni so do not start paying taxes and NI until 10 yrs later. The current generation have a heavier burden as fewer workers have to fund the pensions of far more people than previous generations.

In short the system is unsustainable in its current form and this has been fairly obvious for at least a decade. Of course it would be political suicide for any government to make it means tested as it would be grossly unfair to current workers who have been paying taxes/NICs for many years on the basis they would receive a state pension. Therefore the only option is to keep extending the state pension age. I should think before too much longer it will become 70 yrs then 75 yrs.

I would not rule out receiving the state pension at some point and would certainly factor it into the long term plans. I would think it is prudent to continue with NICs however, at the age of 44 yrs, be prepared for a 25 yr wait.

Lootman
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Re: The State Pension

Postby Lootman » November 6th, 2016, 8:14 pm

BarrenWuffett wrote:Therefore the only option is to keep extending the state pension age. I should think before too much longer it will become 70 yrs then 75 yrs.


I would not say that there is the only option - just one option that will obviously happen. Other options for trying to close the obvious funding gap are:

1) Increase contributions
2) Remove the cap on contributions
3) Decrease the benefits, or freeze them

In practice I think the least traumatic approach would be to do all of these, so the impact of each one is minimised.

But I don't include means testing as an option. Telling people that they will be punished for having the prudence to make extra provision for themselves sends out totally the wrong message and, anyway, I don't think the voters would tolerate it.

ADrunkenMarcus
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Re: The State Pension

Postby ADrunkenMarcus » November 6th, 2016, 8:22 pm

I am planning on the basis of there being no state pension whatsoever by the time I retire, several decades hence. That way, I won't be disappointed.

Best wishes


Mark.

YeeWo
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Re: The State Pension

Postby YeeWo » November 6th, 2016, 8:30 pm

ADrunkenMarcus wrote:I am planning on the basis of there being no state pension whatsoever by the time I retire, several decades hence. That way, I won't be disappointed.

Best wishes


Mark.


Welcome ADM/Mark, Good to see another StanChart holder here! Amazing how quickly us Cyber-Refugees have found a New Home! Best, YW.

tramrider
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Re: The State Pension

Postby tramrider » November 6th, 2016, 10:10 pm

I think that the triple lock was introduced at a time when the basic pension rate had fallen seriously behind earnings and some pensioners had become seriously poor, as shown by the amount of pensioner credit needed by them. Although not yet generous, the pension rate has crept back up closer to a realistic living rate over the last few years, especially due to the 2.5% minimum increase when many public service employees were given 0% and inflation was very low.

As a pensioner (a turkey voting for Christmas), the simplest option seems to be to reduce the 2.5% minimum increase to perhaps 1%, while leaving the reasonably justifiable links to inflation and average earnings so that pensioners would not fall back behind average workers who are paying into the 'pension pot'. This would save the government a bit without causing any additional hardship to pensioners.

Tramrider

ADrunkenMarcus
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Re: The State Pension

Postby ADrunkenMarcus » November 7th, 2016, 7:06 am

Very true, YeeWo. We also have Unilever in common, I think? Thanks.

Best wishes


Mark.


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