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Why your pension won’t be plundered

Why your pension won’t be plundered post image

There’s a school of thought out there that the pension is an endangered species. As doomed as an orangutan surrounded by palm oil company bulldozers and men with matches.

The alarmism goes like this:

  • State Pension – forget about it. It’ll be abolished or gutted by the time you’re 70 or 80 or whatever age you’ll actually qualify for it.
  • Personal pension – the government’s been screwing with this for years. It’s a matter of time before the tax reliefs are slashed. And even if you build up a decent pension it could be seized by state theft.

These arguments are variants on the theme of:

The Government is out to get you. It’s run by a clique of vampires siphoning away our wealth into offshore tax havens. Democracy is about as real as a shadow puppet show, everything’s getting worse because, well, I’m afraid of getting older and cynicism is a really hot look.

Cards on the table: I’m against reflexive pessimism like this because it paralyses us. It feeds into a climate of distrust that undermines our faith in vital social institutions.

With regards to pensions specifically, this kind of thinking is anti-vaxx for personal finance. Bad ideas spread like superstition during a medieval plague. Those seeking guidance are misled by those who should know better. In our eagerness not to make a mistake or be played as the patsy, we can end up falling prey to both.

Our best defence? Critical thinking.

Our pension system is beholden to the political, social, and economic realities that face our country. Let’s weigh those up and see what we can deduce about the future of pensions.

The balance of power

Governments don’t stay in power by shafting those who vote for them. That may seem controversial given the Carry On Politics level of buffoonery unspooling in Westminster, but it’s true all the same.

Governments stay in power by racking up achievement points with their supporters, neglecting those they cannot court, winning the spin wars, avoiding catastrophe, appearing more credible than the opposition, and kicking the really toxic cans down the road.

Your pension is protected by that political nutshell.

Britain is ageing: 18% of the population is over-65 now and 27% of us are predicted to be over-65 by 2041. Future governments oppose the core interests of those voters at their peril. Especially when that group is pretty spry around a polling station – in 2015 10.6 million baby boomers voted, heavily outgunning the 6.4 million millennials who turned up.

It’s no coincidence that the Tories increased pension and health spending even in the midst of austerity while cutting welfare and school budgets. They knew the grey vote was and is a critical part of their base and tailored their policies to keep them onside.

And what politician wants to go down in history as the one who let poor pensioners freeze by gutting the State Pension? That’s an unwinnable PR battle in a way that squeezing welfare during a financial crisis is not.

Some fear that the State Pension could become means tested. That’d be hard to justify given that most people pay in for decades with the promise of a pension at the end of it.

Old age is a universal experience – nobody can claim it’s a lifestyle choice. It’s difficult enough to end free bus passes, so any income bar would have to be set so high that it would only affect a tiny minority of voters who could live with the change.

Is the pension system affordable?

The State Pension is not affordable, according to the latest report of the Government Actuary’s Department.

National Insurance Contributions won’t cover all payouts beyond 2032 due to waves of retiring Baby Boomers.

Potential remedies include:

  • Hiking National Insurance Contributions.
  • Raising the State Pension age still further.
  • Ending the triple-lock policy of upweighting the pension by the greater of consumer price inflation, average earnings, or 2.5% per year.
  • Life expectancy stalling. (Hey, good news on that front.)
  • A young immigrant workforce producing lots of juicy NICs to support our seniors.
  • A booming economy.

Lucky for us we’re not going to gamble those last two get-of-jail free cards in favour of living in an ideological fantasy-land, eh? No siree!

The bottom line is more old people means a more expensive system.

I can’t see the triple-lock surviving. Taxes are liable to rise, but that could take any government a decade to face up to. It’s obviously politically easier to push out young people’s pension qualification age by another year or so. But there’s a limit.

I’m more sanguine about personal pension reliefs. UK retirees rely on personal pensions for about 30% of their income versus 5% in Germany and near-zero in France where the state pension does all the heavy lifting. Any UK government that undermined the saving incentives for personal pensions would come under heavy attack for planting a pension time bomb.

A retargeting of State support seems possible: I can easily imagine a future Labour government abolishing 40% tax-payers’ relief in favour of a higher flat rate (say 25% for all), tilting the benefit away from higher earners.

But on the Tory side, even George ‘Austerity’ Osborne left 40% relief alone.

Let history be your guide

I’m not arguing that UK pensions are as untouchable as Trump’s underpants. However I like a bit of nuance when I’m spluttering over the latest outrage on my news app.

Obviously our society faces profound challenges and we’re naturally fearful in the face of uncertainty. But not every change can be chalked up as a loss. Course corrections often play out in our favour, right a historical imbalance, or are needed to keep the whole show on the road.

The last decade of pension adjustments has created winners and losers – see my scorecard below – but few of us have been on the receiving end of every change, all the time.

The UK remains a rich and politically moderate country (despite everything). We’re not likely to need nor accept extreme action. Personal pensions and the State Pension are still the best vehicles we have for securing a happy retirement and I believe they will remain so in the decades ahead.

Of course, that’s a matter of probability not certainty, but whatever happens keep calm and carry on investing in your SIPP.

Take it steady,

The Accumulator

Bonus appendix: Pension wins and losses in the last decade

Wins

The triple-lock – albeit it was a sop to older voters, is inter-generationally unfair, and will have to go sooner or later.

Pension freedoms – spend your pension however you like! A bold experiment in trusting people with their money. There’s bound to be casualties but the unexpected consequence could be better retirement education.

Tax relief on pension contributions – remains unmolested for most, although a rich sliver of society had their style cramped, see below.

Automatic enrollment – default opt-in has been a massive win, with participation in workplace pensions more than doubling (32% to 67%) from 2012 to 2018.

New State Pension – you’re likely to be better off if you qualify between now and 2030. See the Losses column for the rest of the story.

Losses

New State Pension – slightly more people are projected to lose than win by 2040. The DWP predicts the average loss will be £11 per week. A hefty 68% are predicted to be down by £14 per week by 2050, in comparison to the old system.

Rising State Pension ages – women have been qualifying later in life since 2011 while men have only seen the bar rise from December 2018. On the plus side, most of us are living longer. Well, until the latest life expectancy data came in.

Personal pension age – rose from 50 to 55 in 2010. The government announced the minimum age would rise to 57 in 2028 and would maintain a 10-year gap from the State Pension age thereafter. They haven’t actually got around to legislating the change yet. (I guess they got – ahem – distracted?)

Tax reliefTo whom it may concern: the annual allowance for pension contributions maxed out at £255,000 in 2010-11. Your lifetime allowance was £1,800,000 that year, too. Cutting this relief for the minority helped increase the personal allowance threshold for the majority.

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{ 46 comments… add one }
  • 1 xxd09 July 9, 2019, 12:09 pm

    Am I correct in thinking that the Irish Government raided Private Pensions at the height of their financial crisis a few years ago?
    xxd09

  • 2 mousecatcher007 July 9, 2019, 1:06 pm

    Is it really right to say that with our NI contributions we are ‘paying in’ to anything at all? Surely it’s just another income tax: we pay it on Monday and the government has spent it by Friday. I fear the state pension and public sector pensions are little more than a giant ponzi scheme. And who will the government come after when it all blows up? Anyone with a DC pension or a SIPP. They’ll be ‘the rich’ because they’ve got savings.

  • 3 Bert July 9, 2019, 1:20 pm

    There are only 3 ways out of the massive debt we have:
    1. productivity rises faster than interest rate on the public debt
    2. devalue currency
    3. inflation
    Productivity is falling and migrant workers have lower productivity/higher costs. Currency is already decreasing in value. Next up is inflation.

  • 4 Jeff Beranek July 9, 2019, 2:22 pm

    There’s another argument in favour of pensions not being blown up. They receive special treatment by a multitude of unilateral tax treaties with and between other countries. Whereas trade deals take a long time to negotiate, these treaties are almost impossible to amend or update due to their complexity. Most have been unchanged for decades they don’t even deal with ‘newfangled’ ISAs or LISAs. Lawyers are still trying to get their head around how Osborne’s pension freedoms interact with the treaties. Not to only that, but pensions are structured as trusts and are therefore subject to insanely complex legal protections and small print. I strongly suspect a major reason for creating the Lifetime ISA was that government felt they would be a clean break from legacy pension regulations – as such they could be more easily messed with in the future.

  • 5 Alano July 9, 2019, 2:30 pm

    UK Governments has been encouraging people to save for their own retirement for the last 40 years or so, precisely because the state pension scheme is bankrupt due to the many factors you highlight. Pension benefits, at best, will be allowed to wither on the vine else along with the NHS and the generous benefit culture these will bankrupt the country.

    As for a “clique of vampires siphoning away our wealth” yes that realistically describes most Western Governments over the past (25 years+), present and no doubt future. People had better plan for that outcome! That’s why sensible people are saving for their future as best they can in the ways you espouse. Low cost saving schemes using tracker funds.

    As a retiree, George Osborne is a hero for revolutionising personal pension freedoms. Now retirees do NOT have to purchase an annuity at historically low rates, we can invest for longer in the stock market and have the option to draw down an income whilst remaining invested . These options were previously excluded because pensioners who had saved all their life for an independent future were deemed feckless by Government. How ironic when we see the wasteful Governments of the past 3 decades!

    As for George Osborne and the Theresa May being austere surely you are joking!

    As ever great article when you keep to the facts but when politics come in then it does not stack up factually. Much better to keep the politics to other platforms

  • 6 MrOptimistic July 9, 2019, 2:44 pm

    Very sane article which I agree with, you have to retain some hope for the future otherwise it’s Jones Town. Only one issue: ‘ Trump’s underpants’ . We all struggle to find a bon mot occasionally but what sort of subconscious comes out with that? Could have been worse mind you, Mrs May’s k……no, not even in humour.

  • 7 Tony July 9, 2019, 3:47 pm

    “….A young immigrant workforce producing lots of juicy NICs to support our seniors.
    A booming economy….Lucky for us we’re not going to gamble those last two get-of-jail free cards in favour of living in an ideological fantasy-land, eh? No siree!”
    Brilliant!
    The day will surely come when public sector pensions end for new entrants, as in the private sector. Particularly given the average public sector remuneration package exceeds that of the average private sector worker, unlike once. Plus much higher job security, benefits and conditions. It’s striking how between a third and half of council tax payments are used to fund those pensions (dependent on the local authority). Probably it’ll happen in about a hundred years, as it’s political suicide for any party to even go there…..

  • 8 Hmmm July 9, 2019, 4:45 pm

    I think I disagree with this post entirely. Pension cuts are inevitable, but will come in a way that protects the older, reliable voters. E.g. legislation soon to end the triple lock in 2030.
    Much like they’re doing for other potentially unpopular things such as ending fossil fuel vehicles in 2050; it’s easy enough to legislate things that don’t take effect for a while.

    See also: students not rioting when the pension age went up.

  • 9 ZXSpectrum48k July 9, 2019, 5:16 pm

    I ignore state pensions in all my calcs not because I think they won’t exist but because I see them being means-tested to zero. In Australia, a country much richer than us in per capita income terms, there are both asset and income tests to receive a state pension. For the asset test, the pension starts reducing for a couple at the equivalent of £200k and you receive nothing above around £450k. I can’t remember the exact income test numbers but by £40k equivalent for a couple they get zero.

  • 10 brod July 9, 2019, 6:01 pm

    Great article. Simply too many pensioners to much but refine the system round the edges.

    State pension will probably be simply index linked and other benefits means tested. Surely the easiest way teams test is via the tax system – if you pay more £x in tax you’re ineligible?

    And maybe make SIPP tax giveaway 2-4-1, I put on £2, the state gives £1 up to a limit of say £30k total contributions p a. Or something.

  • 11 MrOptimistic July 9, 2019, 6:43 pm

    The basic problem with pensions is that they were largely promises made by one group of people which would be fulfilled by a different group of people 40 plus years down the track. How easy for the government to appear caring and fair at the expense of future taxpayers. Fortunately debt can come to the rescue: rather than renage on promises you can just borrow more and continue past Go.

  • 12 John B July 9, 2019, 6:46 pm

    I might have agreed with you with a country run by Cameron/Brown. When its Corbyn/Johnson I can see public finances in a death spiral, and especially under a hard left Labour party the bleating of the rich few could easily be ignored. After all you could change the lifetime allowance to £500k, but not have the protections the Tories allowed, so tough. Means testing the state pension would be a much harder political sell

  • 13 The Accumulator July 9, 2019, 7:01 pm

    Very interesting about the Australian system, ZX. That’s a very low cut-off point. Looks like mean testing was part of the pension from the start (or very early on, depending on who you read) – that’s obviously a different proposition to introducing means testing to a system that’s been universal for decades, and foisting it on people who’ve been contributing for many years on the expectation of a full pension. It’s such a drastic step, I could only see it being tried in a time of national crisis, or after we’ve been softened up on the issue. Can-kicking exercises like Heathrow’s 3rd runway, adult social care, deficit reduction, self-employed NICs etc make me doubt anyone would rush into this. I can imagine a future government trying to defuse the State Pension by unhooking it from CPI and just tracking average earnings.

  • 14 The Accumulator July 9, 2019, 7:12 pm

    @ MrOptimistic – yeah, sorry about that. I wrote the word “untouchable” and then the rest just flowed straight from my typing fingers. Nowt to do with me. Agree with you on the debt balloon. Shame we didn’t set up a sovereign wealth fund in the 1980s with the North Sea Oil receipts.

  • 15 Richard July 9, 2019, 7:22 pm

    The risk here is having more than the average person. Even more so if you don’t have enough to get into the ranks of those who have real influence. Then you are in dangerous territory with regards to relying on voting power. The ‘squeezed middle’ – or perhaps top 25%. For many of these a pension represents a lifetime of saving, even sacrifice. This is the only problem I see with wealth style taxes, the guy who spent his life ‘doing the right thing’ sacrificing today for tomorrow is the one who loses as he can’t make that money back again easily.

    Take the Australia example above. 8k a year would cost what 200k. So unless you can get comfortably above 450k you are better stopping at 200k and spending the rest. Good for the economy but would need rules to protect those who saved an extra say 150k before similar means testing was applied. Otherwise that is a lot deferred consumption that has just vanished. Though I guess this would kill any faith in pensions which is likely to be what prevents it happening.

  • 16 Marco July 9, 2019, 7:57 pm

    The state pension is already heavily means tested via income tax. You could pay 0-60% tax on it.

  • 17 Ben July 9, 2019, 9:11 pm

    “Lucky for us we’re not going to gamble those last two get-of-jail free cards in favour of living in an ideological fantasy-land, eh? No siree!”

    Brexit Rant.
    And this really pisses me off. May actually floated this before the last election before dropping it because all the Brexit loons objected. I mean Christ, if you want to leave Europe so badly you’re willing to destroy your party, piss the economy up the wall and risk the break up of your own nation for whatever reason however misguided, I can sort of rationalise that. You have to be willing to pay the costs of that at least as much as everyone else though. And now they complain about the bloody licence fee!
    /brexit rant

  • 18 Eugene July 9, 2019, 10:37 pm

    Perhaps the people that are suggesting that immigrants are a massive economic boon could post some evidence? I’ve looked at the academic research and there is a spectrum of academic opinion on immigration. It varies from immigration being a massive cost to the taxpayer to migrants making a tiny net contribution…

    Does anyone really think a migrant coming to the UK and working in a minimum wage job will be a net tax contributor over a lifetime? Someone on £20k pays very little in tax. So over a lifetime they might work and pay tax for 40 years and then be retired for 30 years. It’s hardly a recipe for making the UK wealthier…

    I’d suggest that people singing the praises of immigration are forgetting that immigrants grow old and retire as well….

  • 19 Getting Minted July 10, 2019, 1:14 am

    There’s still much to consider on pensions even if you are mostly optimistic. Should you contribute more this year in case tax relief is changed next year? Should you take out the 25% tax free amount in case that is reduced or removed? How much should you contribute given the lifetime allowance? Should you open pensions for your children to access in 57 years time? I think the continuing changes make planning difficult.

  • 20 David July 10, 2019, 7:22 am

    The triple lock, is it really inter-generational unfairness? Isn’t it worth more to those people who have the longest time for it to increase pensions, so young people? Surely that’s better for young people than a one off increase then whittled away by inflation. What am I missing here?

    Of course it’s no good if you don’t expect it to be payable when you get there, but that feels like a different debate, and somewhat circular.

    Going back to the overall theme, I do think it probably depends on your definition of syphoning and where you sit in the wealth spectrum. I suspect many monevator readers are above the average in terms of pensions savings so are likely to be hit more by any ‘reform’ and don’t number enough to make a political difference, or fear the alternatives will be worse!

    As for likely reforms, no it most likely won’t be theft of full amounts. Pick your own ideas though, the whole employee NI, income tax system is very complex, one can easily see a future rationalisation (add the rates together and just have higher income tax rates) and apply to all income etc. Will it be a disaster, no, will it make the tax relief on the way in look somewhat less attractive, yes.

    Who knows though, it’s all a guess! There are possible futures where it’s better, others where it is worse.

    So all you can do is keep options open, diversified and not spend your time worrrying about the worst that could happen.

  • 21 Simon July 10, 2019, 7:32 am

    The low LTA might encourage more in future to retire early, as such less juicy NI contributions being paid (anybody tried to get hold of their GP lately). Be interesting to see some numbers being calculated on that.
    Of course we could all move to Portugal and pay 0% tax (like my GP!) or Cyprus and pay 5%, on our index linked state pension.

  • 22 Rui N. July 10, 2019, 8:58 am

    In that specific case you mention, maybe no, specially if they stay until the very end (when we spend most money on health care). But the government doesn’t receive only money from people on income tax, there is an effect on the wider economy of having more people here working.
    But in general, immigrants don’t say their full working lifes in the UK, they eventually go back. And if they are working on minimum wage it’s highly unlikely that when they return to their countries they are able to navigate the bureaucratic mess that is combining your pensions from different countries (especially if they come from a very bureaucratic country where they would have to hire 20 lawyers to take care of that from them).
    Also, an adult immigrant didn’t receive all the money we spent on kids.
    And also again, UK immigration is very far from being exclusively of low-income people, very far away from that. So yeah, in that specific case, you might be right. Overall, it’s highly unlikely that you are.

  • 23 Jonathan July 10, 2019, 10:19 am

    Interesting article, and something I thought about in the context of the other pensions news this week – the fact that doctors are reducing their work hours because of the way the annual contribution allowance changes introduced by George Osborne put them at risk of a large (and unplanned for) tax bill.

    Brod’s comment above might give a possible solution to that. The aim of the limit was to prevent the loss of too much taxation revenue but it was a clumsy solution which, as those doctors are discovering, can seem arbitrarily punitive if a small amount of extra income takes them into the taper range. If the annual limit was changed to a maximum tax benefit – for example £16K representing the existing £40K contribution limit at a marginal tax rate of 40% – I can’t see any objective reason for the Treasury to be worried about anyone putting more into their pension fund if it instead came out of taxed income. Those doctors wouldn’t be getting an unexpected tax bill, their tax would have been automatically paid through their normal PAYE.

    On other points I agree that some future government will need to limit state pension liability. The triple lock is an obvious target, it has pretty much achieved its aim of restoring a value which had fallen behind. It needs to return to simple indexation. It will need more tax to fund it, and perhaps plausible mechanisms would be extending the NI contribution rate to higher incomes (on the pretext it has a notional relationship to the state pension to which all are entitled without means testing) or making it also apply to pensions and other non-employment income (on the pretext it has a notional relationship to other benefits not restricted to employees, though to succeed politically that might need the justification of a solution to the elderly care funding conundrum).

  • 24 B0b July 10, 2019, 10:33 am

    Re the Irish government raiding pensions. There are actually two bits to this tale. (Anyone correct me if I recall it wrong)

    1.There was a raid of 0.6% on private pension pots around 2012/13. It was due to last for four years and when it ended in 2016 it was 0.15%.

    2. There was a reduction in retired government employees pensions around the same period of about 10% I think in 2009 along with the public sector wage cuts.

    The first was unpopular because it was seen as the same as just stealing from the bank accounts. But there seemed, contrary wise, to be apathy amongst the non-financially literate. The second was much more vocally unpopular. Probably because it was easily understood.

  • 25 Dawn July 10, 2019, 10:55 am

    With stock markets constant up and down movements , I think means testing state pension will be become very tricky to administer .

  • 26 Rui N. July 10, 2019, 1:54 pm

    In case it wasn’t obvious, my comment was a reply to @Eugene. Sorry for missing that.

  • 27 Rob S July 10, 2019, 5:40 pm

    @Eugene Why do you automatically associate immigrants with minimum wage jobs? Plenty of professional level migrants. Falling for the Daily Wail/Express narrative that also calls British emigrants “Ex Pats”?

  • 28 dearieme July 10, 2019, 7:05 pm

    “Shame we didn’t set up a sovereign wealth fund in the 1980s with the North Sea Oil receipts.” It would all have ended up in the likes of British Leyland.

  • 29 ZXSpectrum48k July 10, 2019, 7:41 pm

    I’m not at all worried about the UK government’s debt position. It’s long duration and low yielding. In real terms, the UK government is getting paid to borrow money. I am worried about the UK private sector debt position. The problem is by reducing the UK government’s fiscal deficit over the last decade, we’ve been forcing the private sector into dis-saving and more borrowing (we have a capital account surplus so this is enforced by the sectoral balance identity).

    As a result, rather than raise taxes to sterilize government spending and dampen aggregate demand, more govt bond issuance looks like a no-brainer. I don’t lose any sleep over the UK government paying 0.75% for 10-year Gilts and 1.30% for 50-year Gilt issuance. The market is gagging for duration, so let them fill their boots.

  • 30 The Borderer July 11, 2019, 11:12 am

    I wish I could so sanguine about government interference.

    Does anyone remember Tory Chancellor Norman Lamont cutting the rate of ACT tax relief from 25 to 20 per cent in his 1993 budget?

    Or Gordon Brown abolishing ACT relief altogether in 1997?

    These were pretty significant, and major contributors to the demise of private company DB pension schemes.

  • 31 xxd09 July 11, 2019, 12:23 pm

    Bob- thanks for that -filling in the detail
    From up here in Bonnie Scotland where I live you can bet your bottom dollar that if Independence had been achieved and the Government ran out of money as they would -raiding Personal Pensions and other Savings would be high on their list
    No doubt they would quote the happy precedent set by our Irish brothers to justify their actions
    I was far from alone setting up a bank account in England and being ready to go!
    xxd09

  • 32 MrOptimistic July 12, 2019, 7:05 am

    @xxd09. You think? I reckon the first step would have been to blame the English for an unfair divorce agreement. There is form on this one afterall :).
    On means testing, I think the state pension is already means tested by way of eligibility for pension credits. It would be an easy matter to abolish the basic pension and compensate those considered ‘ deserving’ by adjusting the eligibility criteria ( all in the name of intergenerational fairness match).

  • 33 Guy July 12, 2019, 9:38 am

    I see an even more worrying cloud on the horizon for pensions than corrupt and inept governments. Both state and private pensions are desperately chasing yield on investments to be able to carry out their function, but are finding that in the current climate, the risk on all asset classes is increasing for even moderate returns. Until recently, buying stock of good companies was relatively uncontroversial, but the risk even here has soared. Increasingly fewer companies are publically listed out of the total extant and those that are are then often snapped up by private equity using cheap QE debt. They’re then loaded up with too high a debt ratio to survive any headwind while paying their parent entity unsustainable fees for various alleged services.

    This sabotage is just new age digital asset stripping, where the value is sucked out until the company dies and its ordinary investors are wiped out to pay for it all. The media regularly reports these demises, hollowed-out retail empires, property behemoths, care home chains, government service outsource providers, etc., etc. The politicians predictably wring their hands, the regulators are shown to be paper tigers and the next week another one bites the dust.

    So, there may not be anything left anyway for us to worry about being robbed of in the future. Perhaps we’ll be burying silver coins in our back yards like our ancestors soon.

  • 34 Berkshire Pat July 12, 2019, 9:48 am

    Rui:”But in general, immigrants don’t s[t]ay their full working lives in the UK, they eventually go back.”
    Is that really the case ? Obviously short term contractors will, but what proportion of long term immigrants, granted nationality, go ‘back home’ before retirement?
    Immigration can be very good for the economy and the country, but needs to be restricted to highly-skilled people (from ANYWHERE) Letting people in to clean offices, drive minicabs, or work in fast food outlets isn’t a good plan economically or socially.

  • 35 Simon July 12, 2019, 10:15 am

    @MrOptimistic – tax credits instead of State Pension? Did I read that right. Well that messes up my overseas retirement plans. I can see all fo the Costas being up in arms.
    Damn..

  • 36 Gentleman's Family Finances July 12, 2019, 11:34 am

    I think that they have already done about as much as they can to pensions.
    What is of course going to be a problem for savers is that if you are a poor pensioner you will benefit from mean-tested benefits meaning the prudent but not rich will be screwed over.
    The changes in the tax system that are needed – like reducing the tax burden on working (Tax+NI) and increasing it on capital (25% basic rate tax, LVT?) won’t happen – kick it into the long grass is the policy and it’ll cause a lot of problem later on. The government can’t seem to legislate for much these days anyway

    On an anecdotal level, I know of someone who’s mother lives in a million pound house who is livid at the idea of her having to pay for a TV license – can you imagine changing Council Tax to a LVT set at even 0.5% a year?

  • 37 B0b July 12, 2019, 11:42 am

    Good point on new entrants but that has been happening in the public sector since around 1994. There were a number of new schemes introduced for Fire Service and Police that reduced them final defined benefit. Then around 2010 the retirement age for police was increased to 60 (and 35 years service) and a career average. At the same time civil service schemes were varied. Some for existing members. The unintended consequence of the last was a cohort of older middle and lower ranking public employees who were unable to be retired early to save money, watching newer entrants being offerer severance packages.

  • 38 MrOptimistic July 12, 2019, 12:24 pm

    @Simon.
    ‘Pension Credit is a weekly benefit to boost your income. It’s based on how much money you have coming in.

    There are two parts to Pension Credit, called Guarantee Credit and Savings Credit. You might get one or both parts.

    Guarantee Credit tops up your weekly income to a minimum amount.

    Savings Credit is a small top-up for people who have a modest amount of income or savings. It’s only available if you reached State Pension age before 6 April 2016.’

  • 39 Simon 2 July 12, 2019, 2:30 pm

    I think I agree that there won’t be a big bang that removes state pensions, but it’s entirely feasible that pensions benefits will be gradually stripped, reduced and narrowed. As more than half of the UK’s social security spending goes on pensions (https://preview.tinyurl.com/yykh7fgd) it’s a juicy target for any government. I’m not confident it will be a universal benefit by the time I retire in 30 years or so.

    Also – for private pensions – we have seen countries take these away (e.g. Argentina https://preview.tinyurl.com/y3ydaw8m). I guess we can take comfort from the fact that the actions of the Argentinian government are hopefully far far away from what a British government would do, but it is possible if we end up in a BBC Years and Years type future….

    But – that said, I’m going to keep saving in my SIPP for the foreseeable future as, on balance, it’s the most sensible option…for now…

  • 40 Chris July 12, 2019, 11:59 pm

    While I’m probably on the more conspiracy minded end of the spectrum in terms of value siphoning by shadowy elites, I’m of the belief that private pensions won’t be trashed directly, but probably the benefits/limits etc eroded by fiscal drag and stealth taxes. Ditto the state pension being targeted through other wheezes chipping away at the actual value.

    The Government have to be somewhat careful because joe public is already sceptical about the value of long saving on an individual basis (compared to spending to the hilt now) and it wouldn’t take much to scare the horses. Heavily saving into a pension is still something of a contrarian play. But I wouldn’t surprised if individual pension saving has its shoeshine moment at some point in the future.

  • 41 E&G July 13, 2019, 9:03 am

    I’d expect that at some point ax relief will be abandoned and replaced by a flat rate ‘bonus’ of 20-25% but they’ll not go too much further as private provision needs to be encouraged to enable the long-term decline (in eligibility age (and some means-testing) if nothing else).

    I work in local government and have a career average earnings pension (accruing at 1/49th) but I expect the race to the bottom of workplace pensions to continue which is one of the reasons I’m putting a wee bit of cash away for the future. The relatively generous employer contributions are effectively salary deferred, particularly in ‘professional’ grades and senior management roles so any future cuts there will no doubt lead to negative, unintended consequences in the same way we see now with GPs.

  • 42 The Accumulator July 13, 2019, 1:30 pm

    I decided not to watch Years And Years despite loving the first episode. There’s only so much catastrophising I can afford in my life. Projecting worst fears into the future is a recipe for failing to see opportunity now. Excessive caution is a character trait I have in spades – therefore I need to guard against it running the show. Excessive optimism is not a problem for me.

    A good way of staying on the balls of your feet in the face of uncertainty is to use your rational brain to challenge your instincts rather than confirm them. Part of the ‘Don’t worry be happy’ brigade? Then try some negative visualisation and build up your buffer for bad times. A natural pessimist? Then try some second level thinking where the world doesn’t just blindly run off the cliff.

    Above all, hedge your bets.

  • 43 The Accumulator July 13, 2019, 1:38 pm

    @ David – re: triple lock and intergenerational fairness. I think what you’re missing is that the triple lock favours older generations at a time when younger generations are getting a raw deal – for example in education spending. The possibility of a great pension in 55 years time, isn’t going to help a 16-year-old who needs a good education now. Same as inheriting their parent’s property in 30-40 years, doesn’t put a roof over the head of a twenty-something who could really do with an affordable place to live now, but there’s insufficient housing supply because of too much buy-t0-let and NIMBYism.

  • 44 Moggers July 15, 2019, 8:30 pm

    Wholeheartedly agree around personal pensions. For two generations we have people who Have decided mainly due to financial illiteracy that they ‘dont trust them’ or they will be ‘raided’.

    The UK personal pension is the best game in town for maximising your effective return for hours worked. If you have a company who offers salary sacrifice, even better. If you have a family, then check out what reducing your PAYE income mean for eligibility for tax credits/universal credit.

    Thanks to personal circumstances – 27p from my Net Salary = £1.138 in my pension. You would be crazy not to max that.

    But few do it. They all go into the pension for the masses – buy to let. which is both hassle and socially corrosive. They’ll be the target, not the very, very few people who’ve discovered the joys of tax relief.

  • 45 B0b July 20, 2019, 9:48 am

    xxd09. Muchness as I hate keeping an old thread going. For completeness my understanding of the Irish 10% cut in civil service pensions did not mean the same cut in disposable income since they have various tax credits and PAYE credits which have a similar effect to the UK personal allowance.
    Also on the change of public sector pension schemes in the UK. There is a taper so that within 10 years of retirement one stays on the existing scheme. From 10 to 15 years, say, it is mostly old scheme with an increasing percentage of newer less favourable terms. Over 15 years left. All new. That’s really really simplified version.

  • 46 Griff October 30, 2019, 7:43 pm

    Tony , provide details on the comparison of remuneration of public v private. It ain’t true in my house and that’s with two teachers and NHS admin v me a humble chemical worker drone.

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