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Chance of state pension not paying what's in my forecast?

abbeymeadster
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Chance of state pension not paying what's in my forecast?

#449545

Postby abbeymeadster » October 12th, 2021, 3:01 pm

Hello,

I have 33 yrs full NI contributions. My State Pension estimate based on NI to April '21 is £170.68 pw and the forecast if I contribute another 2 years before 2032 is £179.60 (i.e. the maximum).

I am planning to retire early at 57 when I will have made 35 yrs contributions and will live on investments/other pensions in the 10 yrs before my state pension kicks in aged 67.

My question is: what would happen if the govt increases the number of qualifying years for a full pension before I start drawing it? Could the £170.68 accrued currently be reduced? So say people need 40 years for a full pension, could my amounts be reduced by 35/40? Have there been retrospective reductions applied in the past?

Thanks.

SPURLEY
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Re: Chance of state pension not paying what's in my forecast?

#449549

Postby SPURLEY » October 12th, 2021, 3:20 pm

Hello I do not have an answer for you . I remember years ago the qualifying years was 44 , I think , and then I seem to remember it was 30 and now its 35 . I think since they have phased out SERPS they would just increase the retirement age rather than the NI qualifying years amount . I am 61 and have not worked or claimed any benefits for the past three years, and am living on savings / DB Pension . I have 41 years NI contributions . If they did alter the number of years of NI contributions for a full state pension I think I would look at buying back - years -- if I thought it worthwhile .

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Re: Chance of state pension not paying what's in my forecast?

#449558

Postby mc2fool » October 12th, 2021, 3:50 pm

Your question is unanswerable as it requires predicting how a future government may change the rules, and making predictions is difficult, especially about the future. :D

As 270160 says, in my lifetime the number of qualifying years needed for a full pension has gone from 44 to 30 to 35, and AFAIAA there have never been any retrospective reductions. Indeed, in the transition to the New State Pension in 2016, which included the change from 30 to 35 years, everyone's accrual was guaranteed and some people even got an increase, and I suspect that if there was another change it'd be politically very very difficult not to do the same.

Having said that, the New State Pension was a pretty major change and, other than the already baked-in future increases to the state pension age, I doubt that any government will want to make any notable changes to the system for quite a long while.

abbeymeadster
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Re: Chance of state pension not paying what's in my forecast?

#449560

Postby abbeymeadster » October 12th, 2021, 4:01 pm

Ah OK that's all very helpful thanks.

I am running some cashflow forecasts and trying to work out how reliable the state pension money will be. I know people have predicted the demise of the state pension for ages, but given that I've been getting estimates/forecasts from the govt for many years, I would hope that I'll get some at least :lol:

270160 - in terms of buying extra years if you're short, I thought that could only be done if you have earnings in the year concerned? So that wouldn't help anyone who retires before SPA, would it?

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Re: Chance of state pension not paying what's in my forecast?

#449562

Postby mc2fool » October 12th, 2021, 4:14 pm

abbeymeadster wrote:in terms of buying extra years if you're short, I thought that could only be done if you have earnings in the year concerned? So that wouldn't help anyone who retires before SPA, would it?

Not at all; almost anyone can make voluntary contributions at almost any time (although one should check that it is beneficial to do so first!)

Class 3 voluntary NICs currently (2021/22) cost £800.80 for the year, and will boost your state pension by £266.83pa (assuming you're not already at the max.)

Or you can declare yourself self-employed, doing some minor "business" that earns diddly squat, and pay class 2 voluntary NICs at a mere £158.60 for the year for the same end benefit.

https://www.gov.uk/voluntary-national-insurance-contributions

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Re: Chance of state pension not paying what's in my forecast?

#449565

Postby Alaric » October 12th, 2021, 4:23 pm

mc2fool wrote:Your question is unanswerable as it requires predicting how a future government may change the rules, and making predictions is difficult, especially about the future.


There's periodic noise that perhaps the State Pension should be means tested. Equivalently a tax on "too much" wealth or increased tax rates for private pension income.

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Re: Chance of state pension not paying what's in my forecast?

#449569

Postby Lootman » October 12th, 2021, 4:29 pm

mc2fool wrote:Your question is unanswerable as it requires predicting how a future government may change the rules, and making predictions is difficult, especially about the future. :D

As 270160 says, in my lifetime the number of qualifying years needed for a full pension has gone from 44 to 30 to 35, and AFAIAA there have never been any retrospective reductions. Indeed, in the transition to the New State Pension in 2016, which included the change from 30 to 35 years, everyone's accrual was guaranteed and some people even got an increase, and I suspect that if there was another change it'd be politically very very difficult not to do the same.

Having said that, the New State Pension was a pretty major change and, other than the already baked-in future increases to the state pension age, I doubt that any government will want to make any notable changes to the system for quite a long while.

I would agree but there are still various things the government could do to reduce the overall cost and benefit of state pensions. It could increase the tax you pay on them, start charging NICs on it and on those who work past retirement age, and even consider means testing the state pension.

In each case the argument would be: "Why should rich people get money from the state?" (I know the answer and disagree with the idea, but there are those out there suggesting such things, even some on TLF who should know better).

So a future government could find a number of ways of messing with the benefits and making them worth less, if it had a mind to.

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Re: Chance of state pension not paying what's in my forecast?

#449630

Postby Steveam » October 12th, 2021, 7:33 pm

According to Lootman I should know better.

Best wishes,

Steve

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Re: Chance of state pension not paying what's in my forecast?

#449636

Postby Lootman » October 12th, 2021, 7:55 pm

Steveam wrote:According to Lootman I should know better.

In the interests of not having this genuine inquiry forcibly relegated to the Current Affairs and News board I will decline the bait. The point was more that in my view people should bear in mind the political risk of relying on the state pension, given the degree of redistributive zeal of some sections of society.

The only state pension you can truly rely upon is the payments you have already received. The rest is just a promise subject to political whim and public prejudice.

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Re: Chance of state pension not paying what's in my forecast?

#449649

Postby vrdiver » October 12th, 2021, 8:25 pm

On a more pragmatic note, to the OP I would suggest doing the financial modelling with some assumptions about the SP and you still being eligible for (all of) it at retirement.

From your post, you are just over 10 years from eligibility. Personally, I'd factor in an additional year's delay, allowing for the risk that they raise the SP age to 68 rather than 67 by the time you get there. That risk should reduce as you get closer, since the backlash becomes increasingly worse the less notice period they give.

I'd also model, as others have suggested, the possibility that some form of tax will hit SP recipients who have additional means, such as a SIPP or other pension. Perhaps assume a NI type levy, if only to get some numbers for modelling purposes.

Finally, I'd assume the triple lock will be broken (at least for "rich" pensioners) so your SP flatlines rather than keeps up with inflation. I.e. the £179.60 in today's terms is paid to you at retirement but doesn't get a rise each year (the rise being means-tested, for example). In effect, your model would need to show a shrinking SP over time.

I'm about a year ahead of you, age-wise, and for my own model have assumed zero SP. I'll be extremely annoyed if that happens (having paid a shed-load of NI whilst working and then purchased missing NI years to get up to the maximum pension possible). Assuming that we both get to SP age and get the expected (full) amount, it will be nice to have a little fat in the system ;)

VRD

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Re: Chance of state pension not paying what's in my forecast?

#449654

Postby chas49 » October 12th, 2021, 8:47 pm

vrdiver wrote:On a more pragmatic note, to the OP I would suggest doing the financial modelling with some assumptions about the SP and you still being eligible for (all of) it at retirement.

From your post, you are just over 10 years from eligibility. Personally, I'd factor in an additional year's delay, allowing for the risk that they raise the SP age to 68 rather than 67 by the time you get there. That risk should reduce as you get closer, since the backlash becomes increasingly worse the less notice period they give.



The OP states he will reach SPA (at 67) in 2032 - which means he was born in 1965.

According to this announcement from the DWP in 2017 (proposing a change to SPA to age 68):

No one born on or before 5 April 1970 will see a change to their current proposed State Pension age.


I haven't found any more recent announcement contradicting this but I may have missed something

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Re: Chance of state pension not paying what's in my forecast?

#449665

Postby vrdiver » October 12th, 2021, 9:31 pm

chas49 wrote:The OP states he will reach SPA (at 67) in 2032 - which means he was born in 1965.

According to this announcement from the DWP in 2017 (proposing a change to SPA to age 68):

No one born on or before 5 April 1970 will see a change to their current proposed State Pension age.


I haven't found any more recent announcement contradicting this but I may have missed something

Agreed, but I'm a pessimist when it comes to government promises, and 1970/1965 are a bit too close for comfort in this context!

Having said that, I'd be surprised if the OP was caught by another SP age change, but I'd still recommend putting it in their model to check the impact on their plans; better to pleasantly surprised than bitterly disappointed...

VRD

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Re: Chance of state pension not paying what's in my forecast?

#449737

Postby abbeymeadster » October 13th, 2021, 8:05 am

Thanks everyone for the input.

I had already made two of the same assumptions as VRD when I looked at whether it's feasible for me to retire early:

1. State pension age increases to 68 for me (although I agree there's no indication at the moment that it will)
2. National insurance starts to be levied on all pension income

I think politically it would be impossible to do away with state pension altogether, even just for certain pensioners, so hopefully those assumptions are sufficient/reasonable.

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Re: Chance of state pension not paying what's in my forecast?

#449757

Postby JohnB » October 13th, 2021, 9:56 am

TLDR; Minimal chance of OP being affected

With the state pension designed to be contributory through NI, people have a clear impression they have earned it, no way will the government means test it, as they could for any other unearned benefit like Child Benefit. They could reduce its level pro-rata, and offer to supplement the poorest with increased Pension Credit, but we've seen how the generous Triple Lock is hard to rein in even when it has statistical anomalies. Far more likely to try and rebrand more and more of NI as a NHS+social care tax, and levy it on pension income. This would make sense in SIPP terms for anyone who's used Salary Sacrifice to avoid NI at source, as they'd be deferring NI like they'd be deferring tax. But not everyone uses salary sacrifice, and application of NI to state pension would be a painful jump for many.

They could adjust the NI system so you got a state pension pro-rata for how much NI you paid, rather than for complete years, and reduce the terms from the remarkably generous ones at moment, but we've seen how complicated any NI change is to sell and administer, and how it can only get through unless you promise no-one will lose out, and the short term winners will cost the Treasury more until the long term benefits can be realised, an approach short-term politicians will avoid.

NI is a dog's dinner, it should be folded into income tax, but won't be.

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Re: Chance of state pension not paying what's in my forecast?

#449797

Postby ursaminortaur » October 13th, 2021, 12:21 pm

vrdiver wrote:On a more pragmatic note, to the OP I would suggest doing the financial modelling with some assumptions about the SP and you still being eligible for (all of) it at retirement.

From your post, you are just over 10 years from eligibility. Personally, I'd factor in an additional year's delay, allowing for the risk that they raise the SP age to 68 rather than 67 by the time you get there. That risk should reduce as you get closer, since the backlash becomes increasingly worse the less notice period they give.

I'd also model, as others have suggested, the possibility that some form of tax will hit SP recipients who have additional means, such as a SIPP or other pension. Perhaps assume a NI type levy, if only to get some numbers for modelling purposes.

Finally, I'd assume the triple lock will be broken (at least for "rich" pensioners) so your SP flatlines rather than keeps up with inflation. I.e. the £179.60 in today's terms is paid to you at retirement but doesn't get a rise each year (the rise being means-tested, for example). In effect, your model would need to show a shrinking SP over time.


I'd doubt that the inflation protection would be dropped from the triple lock. In the 1980s Thatcher broke the link with earnings but kept the inflation link (there was no 2.5% minimum increase until 2003 which was put in place following the outcry when a previous state pension increase had only been 75p). As to means testing I think that would be strongly resisted through the courts as people actually pay for their state pension either through employment or by explicitly buying NI years. And certainly when buying extra NI years their pension statements explicitly state that that will increase their state pension up towards the maximum.


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