The State Pension

Including Financial Independence and Retiring Early (FIRE)
Kantwebefriends
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Re: The State Pension

Postby Kantwebefriends » November 7th, 2016, 3:43 pm

BarrenWuffett wrote:The state pension was introduced just after WW2



Nope: shortly before WWI.

Tortoise1000
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Re: The State Pension

Postby Tortoise1000 » November 7th, 2016, 7:48 pm

I thought the whole point of the new State pension is that it wont be means tested, in order to encourage people to save? Whereas the current system discourages saving by making up for any lack of it with pension credit. But on the other hand it wont be higher for higher earners as the old SERPS made it. Just a flat rate, so cheaper overall. I dont see a need for that to change, its a good basis for going forward.

Some of the other benefits could go though. Winter Fuel Allowance is pointless. The basic pension should be at a level where people can afford heating. They should make the allowance a one-off increase in the level of pension credit, and then let it fade away as pension credit does. Free TV licence is unnecessary too. Maybe they could raise the age to 85, if they feel they have to keep it.

We are definitely being softened up to lose the triple lock. But I don't know that it was crucial as a vote-winner anyway. Older people vote in a very considered way, based on a lifetime of experience. They dont simply want monetary bribes as some younger people seem to think they do. Keeping up with earnings would be perfectly fair
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T

foxy
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Re: The State Pension

Postby foxy » November 8th, 2016, 8:12 pm

We are going to have to eat the old folk. This would reduce both the grocery bill and unfunded pension benefits for the younger folk.

There will likely be exceptions, MPs, the obscenely rich and the aristocracy. To stop oneself being turned into a burger say a pension fund of two million as the cut off point linked to the CPI with a triple lock.

Anybody else got any other ideas ?

Garless
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Re: The State Pension

Postby Garless » November 8th, 2016, 9:18 pm

Remember the state pension is taxable if you have other pensions, fuel payment should be as well. My DC pension, even with impaired life is less than my state pension and not index linked so the only index linking I have is the SP. Given it was politicians who did not regulate the economy to stop things like Equitable Life and the banking crash perhaps they need to sort their act out rather than helping pensioners too much and punishing the low paid.

Kantwebefriends
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Re: The State Pension

Postby Kantwebefriends » November 8th, 2016, 9:41 pm

"it was politicians who did not regulate the economy to stop things like Equitable Life": you don't think that rather more of the blame attaches to the people who ran Equitable Life?

TopOnePercent
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Re: The State Pension

Postby TopOnePercent » November 8th, 2016, 10:31 pm

When I started my private pension I was entitled to access it at age 50. I'm now 42. The age at which I may now access it is 58. My state pension age has scrolled back by several years also. Any further scrolling of my private pension age and all contributions will have to cease, with some form of tax minimisation strategy being employed to protect my earnings from the tax man such that what used to be tax paid would fund the gap between 55 and whenever the private pension became claimable.

Means testing my state pension is an absolute no-no as far as I am concerned. Certainly I won't fund everyone else's state pension & welfare benefits when I am not to have what I was promised for the past 20+ years of hard graft. I would have no choice but to restructure my future earnings so as to pay very little tax, if any, until such a time as the (roughly) £250k cost of replacing that provision was returned to me. I would consider that my social contract with the state was dishonoured and I would avoid all further attempts at taxation for the rest of my days.

Politicians and civil servants on their solid gold pensions may have under-estimated the importance of the state pension to those of us that must fund everything for everyone. They would be wise to reconsider.

tjh290633
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Re: The State Pension

Postby tjh290633 » November 8th, 2016, 11:22 pm

Garless wrote:Remember the state pension is taxable if you have other pensions, fuel payment should be as well. My DC pension, even with impaired life is less than my state pension and not index linked so the only index linking I have is the SP. Given it was politicians who did not regulate the economy to stop things like Equitable Life and the banking crash perhaps they need to sort their act out rather than helping pensioners too much and punishing the low paid.

I agree that the fuel supplement and the Christmas Bonus should be taxable. In my view they should just be rolled into the pension and not paid out at specific times. After all, the winter fuel payment was intended to let you get a load of coal at that time of year. Nowadays most people pay for their energy in whichever form on a monthly basis. Those who buy oil fuel might appreciate it.

Making them taxable is far simpler than any method of means testing. Taxation ought to be levied on the principle of it being cheap to collect and unavoidable. Maybe we shall see some proper reforms with Hammond's budgets.

TJH

TheRIT
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Re: The State Pension

Postby TheRIT » November 12th, 2016, 11:30 am

TopOnePercent wrote:...
Means testing my state pension is an absolute no-no as far as I am concerned. Certainly I won't fund everyone else's state pension & welfare benefits when I am not to have what I was promised for the past 20+ years of hard graft. I would have no choice but to restructure my future earnings so as to pay very little tax, if any, until such a time as the (roughly) £250k cost of replacing that provision was returned to me. I would consider that my social contract with the state was dishonoured and I would avoid all further attempts at taxation for the rest of my days.
...

Why wouldn't you do that anyway? Minimising tax has been one of the pillars of my FIRE journey thus far and your a fool not to IMHO. It's not dishonest, immoral or anti-society as if the government don't like the loopholes they're welcome to just change the rules. The fact they don't says it all to me...

I know I avoid as much tax as I can with around 65% of my wealth now tax sheltered (SIPP, ISA, NS&I ILSC's). HMRC doesn't have to worry too much though as my earnings ensure I'm still paying eye watering amounts of tax if you look at true tax on earnings by which I mean NI (employer and employee) and income tax. Not for much longer though as I'll soon opt out as I move to FIRE. What I find funny though is that when I do FIRE my job will almost certainly go offshore meaning that the government in their efforts to extract ever larger sums of tax from 'the middle' will actually see their tax take fall.

quelquod
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Re: The State Pension

Postby quelquod » November 27th, 2016, 9:42 pm

tramrider wrote: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'.

Wouldn't have saved all that much lately as BoE undershot inflation target, or even if it meets 2% though.
The only financial solution is to shift the entitlement age so that the proportion of payers-in to takers-out remains broadly constant.
The hurdle though is that whilst people are living much longer, for manual workers (and some mental workers) the increased years are unsuited to productive work.

TopOnePercent
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Re: The State Pension

Postby TopOnePercent » November 28th, 2016, 11:08 pm

TheRIT wrote:
TopOnePercent wrote:...
Means testing my state pension is an absolute no-no as far as I am concerned. Certainly I won't fund everyone else's state pension & welfare benefits when I am not to have what I was promised for the past 20+ years of hard graft. I would have no choice but to restructure my future earnings so as to pay very little tax, if any, until such a time as the (roughly) £250k cost of replacing that provision was returned to me. I would consider that my social contract with the state was dishonoured and I would avoid all further attempts at taxation for the rest of my days.
...

Why wouldn't you do that anyway? Minimising tax has been one of the pillars of my FIRE journey thus far and your a fool not to IMHO. It's not dishonest, immoral or anti-society as if the government don't like the loopholes they're welcome to just change the rules. The fact they don't says it all to me...

I know I avoid as much tax as I can with around 65% of my wealth now tax sheltered (SIPP, ISA, NS&I ILSC's). HMRC doesn't have to worry too much though as my earnings ensure I'm still paying eye watering amounts of tax if you look at true tax on earnings by which I mean NI (employer and employee) and income tax. Not for much longer though as I'll soon opt out as I move to FIRE. What I find funny though is that when I do FIRE my job will almost certainly go offshore meaning that the government in their efforts to extract ever larger sums of tax from 'the middle' will actually see their tax take fall.


Put simply restructuring my income isn't risk free, though the balance is tipping heavily away from risk toward reward. My assets are almost entirely tax free in their structure (Pensions, ISAs, VCTs, PPR, and bed & spousing the crap out of my brokerage account).

gadgetmind
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Re: The State Pension

Postby gadgetmind » December 9th, 2016, 10:29 am

TheRIT wrote:Why wouldn't you do that anyway? Minimising tax has been one of the pillars of my FIRE journey thus far and your a fool not to IMHO. It's not dishonest, immoral or anti-society as if the government don't like the loopholes they're welcome to just change the rules. The fact they don't says it all to me...


I'm also at the tax avoidance stage. The personal allowance clawback was irritating, but then along came the annual allowance taper on top of it, and I decided that enough was enough. I've dropped to a four day week, my taxable income is now down below six figures, and I can put the full £40k into my pension. HMG makes £30kpa less off me in tax than if I worked the extra day, so I'd have been working it entirely for them. Sorry, stuff that.

wyndrum
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Re: The State Pension

Postby wyndrum » December 11th, 2016, 1:46 pm

if the state pension is simply an insurance policy that pays out relative to what has been paid in via contributions then there is no reason for the govt to be involved. I would suggest the first smallish steps have been made down that path with the workers pension contributions.

The level of contribution will have to be increased dramatically and intellectually its not the company's compulsory responsibility to match what the employee pays. (Why should it be?)

So running the tape to the end as they say, it looks to me obvious that the state pension will cease to exist within 5-10 years and will run out from there, so within 50 years say, there will be no further govt payouts with a diminishing call on state funds as the years go by.

At the same time taxation will have to fall to compensate for the transfer of the individual making payment against the govts relinquishing of being the pension provider.

We in the west are at a crossroads where we can't have freedom of choice (on the scale that we do) but at the same time expect the state to be "mother" in pensions, welfare and all the rest.

The choice is to make higher tax payments for greater state involvement in our lives or pay lower taxes and have more responsibility.

We have had the best of both worlds over the last 50 years or so because of the West's domination of world trade. This, through globalisation is fast ending. Rapid communications and technology in general, are making companies supreme and the national state, less so.

The state cannot support its population in a way that over the last 50 years in the UK in particular we have come to expect. And "expect" is a very important in this context, emotive word. Far from getting "better" and more encompassing any state benefit going forward is likely to be reduced and many eliminated.

Right now I think its almost the worst or all worlds. UK tax for the standard individual is untenably high. NI, Income Tax, VAT, Council rates, Capital gains as well as particular taxes on fuel and power limit the individual for saving in any meaningful way for the future, but at the same time the forecast pension payout will not sustain anything but a very poor life going forward. (Realise too, that inheritance tax law is constantly under threat from Politicians as is people retiring in houses that are "to big" for their needs. I mention this not as a political point per se but simply to also bring to the attention that what savings are accrued are inevitably looked at to see they can be taxed. This too, must change and stop.

There needs to be a sea change in the whole thought process from what we expect as individuals for when we retire and what contributions are likely needed to be made to get there and the time it will take for those contributions to mature. But from my logic this has to become wholly individual with no govt intervention, much the same way as you might insure your car. Yes its the "law" that you have insurance but if you claim on the insurance it has nothing to do with the govt how you got paid out or any problems you may have in getting paid out. or whether or not the insurance was high enough to meet the claims you needed it to. (Its not a great analogy, more I am just pointing out that there are areas in life where we take responsibility for things financial and if they go wrong we don't automatically expect the "State to do something"

kodokan
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Re: The State Pension

Postby kodokan » December 11th, 2016, 3:08 pm

wyndrum wrote:There needs to be a sea change in the whole thought process from what we expect as individuals for when we retire and what contributions are likely needed to be made to get there and the time it will take for those contributions to mature. But from my logic this has to become wholly individual with no govt intervention, much the same way as you might insure your car. Yes its the "law" that you have insurance but if you claim on the insurance it has nothing to do with the govt how you got paid out or any problems you may have in getting paid out. or whether or not the insurance was high enough to meet the claims you needed it to. (Its not a great analogy, more I am just pointing out that there are areas in life where we take responsibility for things financial and if they go wrong we don't automatically expect the "State to do something"


The issue with the 'individual freedom, individual responsibility' approach is what then to do when people can't or won't plan for their own needs. The US, where I currently live, tussles with this with healthcare. People who don't have health insurance don't quietly lay down and die if they get sick, much as I'm sure the hard right would like them to. Lacking insurance and access to a regular doctor, at a visit cost of around $100 for their strep throat infection, they instead go to the ER. Emergency Rooms have to see and treat all comers, regardless of ability to pay at the point of treatment (GPs can simply refuse).

So they get patched up and stabilized with the bare minimum of care with no ongoing followup whether it's for an ear infection or a heart attack. The bill for the simple strep throat consult and antibiotics that would've been $100 is now $500, because flagship fully-equipped hospital, and the one for the heart attack would be into the tens or hundreds of thousands. Of course, the other reason hospital bills are so high, for everyone, is that everyone is paying a proportion of the bills for the uninsured that the hospital now has to just eat. Sub-optimal, stressful healthcare for the individual, higher costs for everyone because they're using ER consultants as their GP. It's stressful and economically inefficient.

Making people buy car insurance but letting them live with the results of their poor decisions - insufficient cover, can't afford a replacement car other than a banger, have to get the bus now - is one thing. But when it comes to pensions and being able to afford the big, life or death things - healthcare, shelter, can I afford food or heat this week? - then society has to dispense with moral hazard and be prepared for people to literally die if they chose unwisely in their youth.

That's a society where an ER triage nurse has to turn away an individual who is clutching their chest and gasping, or a parent who is beseechingly holding out an unconscious child dropping blood from their head wound, and have security throw them back out into the street. Where people from whatever 'the council' would be in this future, or private firms contracted by private landlords, would break down the door of No. 67 Acacia Avenue and put out 85 year old Mrs Jones with all her furniture into the street for non-payment of rent, while people trying to get work toot angrily at the road blockage and the disruption.

But hey, who knows? <irony on> Maybe it would be a good thing. Perhaps it would revive a golden age of closer family and community relationships, with generational social contracts about caring for one's elderly parents, or building deep neighborly networks through civic or religious organizations so there would always be someone to care for us in tough times. I'm sure our new corporate overlords will organize their business activities to permit us to stay steadily and gainfully employed in one place for decades, to build these relationships and remain near our families.

LadyGagarin
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Re: The State Pension

Postby LadyGagarin » December 11th, 2016, 5:50 pm

BarrenWuffett wrote:The state pension...Of course it would be political suicide for any government to make it means tested


Don't be so sure. Witness the outrage over billionaires receiving the winter fuel allowance, whether they need - or even want - to or not.
When times get tough, look at the attitudes of working people, not in receipt of state benefits, directed against those who are. Wouldn't it be relatively easy to stir up resentment toward certain pensioners who enjoy several holidays a year, seemingly have nothing to do but complain to the authorities about their neighbours (who are too busy, working 3 jobs, to keep their gardens tidy), whilst living in their cheaply-bought, securely-tenured ex-council homes, and are eternally protected from the belt-tightening everyone else has to suffer? It only takes time and a measure of audacity, and the tables will undoubtedly flip. Workers, who have striven equally as hard as those pensioners did, for substantially less security and reward, won't be hard to persuade.

Note: I am not necessarily claiming all pensioners are well-off, nor that they didn't work hard for what they have, but not always harder than those in employment today, and they did have the 'carrot' of hope that things could only get better, at least in terms of living standards.

supremetwo
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Re: The State Pension

Postby supremetwo » December 11th, 2016, 6:07 pm

And with people living longer, why fewer contribution years?
https://www.nidirect.gov.uk/articles/qu ... april-2016
The number of qualifying years you need for a full basic State Pension depends on both:
your age your gender
Men born before 6 April 1945 usually need 44 qualifying years.
Women born before 6 April 1950 usually need 39 qualifying years.
Men born on or after 6 April 1945 need 30 qualifying years.
Women born on or after 6 April 1950 need 30 qualifying years.

Lootman
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Re: The State Pension

Postby Lootman » December 11th, 2016, 6:54 pm

LadyGagarin wrote:
BarrenWuffett wrote:The state pension...Of course it would be political suicide for any government to make it means tested

Don't be so sure. Witness the outrage over billionaires receiving the winter fuel allowance, whether they need - or even want - to or not.

But isn't the winter fuel allowance a form of welfare? It is not earned by NI contributions.

The state pension is earned by NI contributions so means-testing it is not an option in the same way. It's a little unfair to invite me to pay insurance premia for 20, 30 or 40 years and then tell me I get nothing back in return as I was promised.

LadyGagarin
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Re: The State Pension

Postby LadyGagarin » December 11th, 2016, 7:30 pm

Lootman wrote: It's a little unfair to invite me to pay insurance premia for 20, 30 or 40 years and then tell me I get nothing back in return as I was promised.


Yes, I see your point - but we were discussing what might, or is likely to, happen re future payouts to pensioners - fairness has nothing to do with that, unfortunately.

Lootman
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Re: The State Pension

Postby Lootman » December 11th, 2016, 8:06 pm

LadyGagarin wrote:
Lootman wrote: It's a little unfair to invite me to pay insurance premia for 20, 30 or 40 years and then tell me I get nothing back in return as I was promised.

Yes, I see your point - but we were discussing what might, or is likely to, happen re future payouts to pensioners - fairness has nothing to do with that, unfortunately.

Where I think fairness does come into such things is that politicians cannot ultimately enact something that a majority of voters deem to be unfair without risking electoral loss. Whether enough voters think it is "unfair" to deny earned state pension payments to someone who has earned them simply because they happen to be rich is another matter.

There are other solutions, such as increasing the qualification age and increasing contributions. But if the government instead wants to start arbitrarily cutting pension payouts based on means testing then at the minimum such a change should be phased in, with existing retirees protected from the requirement. People have made very important decisions based on the assurance that their insurance company won't change the rules when they finally make a claim.

hiriskpaul
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Re: The State Pension

Postby hiriskpaul » December 12th, 2016, 7:48 pm

I cannot see the current state pension being withdrawn. Government policy is to encourage work and pension savings. Means testing the basic state pension is going in the opposite direction to current policy and thinking. As Lootman has pointed out, it would also be a huge betrayal of trust for those who have paid into the current system. I see the triple lock continuing for a while yet as a way to increase pensions, which I understand are actually still quite low compared to other developed countries.

We might see some tinkering of the tax system and various reliefs to increase the burden of tax on those pensioners with larger incomes. One possibility I can see on the horizon is to limit in some way the the tax relief being handed to people who have accumulated significant investment portfolios in ISAs. Perhaps even going so far as to abolish ISAs for those over state pension age and tax income/capital gains from that point as unsheltered investments are. A change like that would be an easy sell to many voters.

Lootman
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Re: The State Pension

Postby Lootman » December 12th, 2016, 8:19 pm

hiriskpaul wrote: I see the triple lock continuing for a while yet as a way to increase pensions, which I understand are actually still quite low compared to other developed countries.

As an example, the US state pension is far more generous than in the supposedly more "socialist" UK. You are fully qualified after just 10 years and the US state pension can be as high as £400 per week, versus about half that in the UK (old scheme) and 3/8 (new scheme).

hiriskpaul wrote:We might see some tinkering of the tax system and various reliefs to increase the burden of tax on those pensioners with larger incomes. One possibility I can see on the horizon is to limit in some way the the tax relief being handed to people who have accumulated significant investment portfolios in ISAs. Perhaps even going so far as to abolish ISAs for those over state pension age and tax income/capital gains from that point as unsheltered investments are. A change like that would be an easy sell to many voters.

It's possible but, as with pensions, it would be undermining decisions made by thousands of people over several decades. For instance I made a conscious decision years ago to favour contributing to ISAs (and PEPS before them) rather than contribute to a SIPP. In fact I don't have a SIPP at all. I reckoned that in the long term the tax benefits of tax-free income and gains would outweigh the upfront tax benefit of a SIPP. And so far that has been proven the correct choice. But if my existing ISA investments were not grandfathered into the existing tax treatment, that would all fall apart and I would have the worst of both worlds - no tax breaks at either end.

I'm not saying the voters would care if a few fairly well off old codgers like me got fleeced like that, but it would be very unjust on that minority. Instead I'd argue for a "new ISA" going forward where the new tax rules would apply. Or no new ISA at all but existing accounts retained on current terms.


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