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I have only have peripheral interest in this as I have retired bit I have to ask where all this money, contributed by employers and employees, will be invested to produce security and aworthwhile return? There have been several talking heads on TV today and while they have all explained the contributions they haven't discussed investment and projected returns
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The money will go to Fund Managers. They will engage a consultant to find where to invest (so they cannot be blamed), invest via a Stockbroker and do little else.
The Fund Manager will get backhanders from the consultant paid out of the investor's money, the Fund Manager will get commission from the Stockbroker (paid out of investors' money) and get a management fee - a % of the investors' money.. every year.
As a result they will fail to beat the FT Index . And in a bad year will lose lotsofmoney.
Of course they could invest in gilts. If they do the investors' will lose even more money unless you believe 0.5% interest rates will last for 20 years...(Hint: think 4 years tops)
It is important that Fund Managers are kept in the style to which they are accustomed. The Fund Manager will of course invest his own pension totally differently.
In case anyone thinks I am joking, the above describes current practise. All totally legit.
Last edited by: madf on Mon 1 Oct 12 at 13:17
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Thank goodness I am now 'beyond' this. It sounds as bad as any scheme could be. I predict that people will opt out in droves I have a with profits annuity which pays me, after tax, half of what I was getting 7 years ago. Profits = no profits!
Last edited by: Meldrew on Mon 1 Oct 12 at 13:22
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>> Thank goodness I am now 'beyond' this. It sounds as bad as any scheme could
>> be. I predict that people will opt out in droves I have a with profits
>> annuity which pays me, after tax, half of what I was getting 7 years ago.
>> Profits = no profits!
I have a very modest with profits annuity with the Pru, normally paying around £1800 per annum.
Last Friday my next year's payment notice arrived. Yep -it's gone down again.
Only about fifty quid in the year, but it's money we could do with.
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I've just had the annual notification of my public service pension - it's gone up more than 8%.
I was disappointed when they changed from RPI to CPI, but where on earth did they get that from?
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>> I've just had the annual notification of my public service pension - it's gone up
>> more than 8%.
Lucky you. My company pension will never go up.
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At 1% from the employer and 1% from the employee on salaries between £5k and £42k to start with I wouldn't expect a lavish pension regardless of the investments ;-) I realise that over time these contributions rise to 8%, but even so...
I'm also slightly concerned that this could lead to another round of reduction in pension provision by employers - if the government says that only 8% is 'required', then its only a matter of time before some schemes that currently contribute more actually cut there contribution...
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Over the years I was in a few schemes, final salary, employer's money purchase and private pension.
the only one worth a candle for the Final salary scheme. the rest were either poor or appalling.
The Private pension paid in over the last 10 years before retiral did not grow at all............
the pension pot almost identical to the £60K I paid in + £40K Income Tax = £100K instead of an anticpated min anticipated of £120K.......then the annuity rate fell from some 11% to 6% so instead of 11% of £120K = £13.2K per year it was some 6% of £100K= £6,000 per year.
Thank goodness I was not depending on it.
For the very poorly paid with no pension currently the new scheme might be even more of a dead loss. Currently someone with only the SRP gets a boost in min pension and gets other add-ons...............with some private pension income the extra Freebies declines!
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I agree with most of the negativity above..but...we are heading for a crisis, because a lot of people have no pension provision at all. Nothing.
Now whether you plan to de-size your home, pay in to a traditional pension scheme, save what you can in a personal investment, etc...they need to do something...but many people have their head in the sand, big time.
I think the current new set up is better than nothing and at least focuses people's minds on the subject. Also, try telling someone in their 20's to start paying in to a pension. However if it's done automatically and it's a norm, you just go along with it and forget about it. That's how it was for me and I thank goodness now, it was so. I think that should apply to all and my impression is this new set up is a start in that direction.
The other thing is, final salary pensions have become more and more rare...no doubt because they are expensive to the employer/State and we are in a recession. Will they all come flooding back when the good times roll?..will they heck...and that is bad, very bad. A huge chunk of the population will find it very tight for cash flow in their increasingly long, old age.
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A quick search round some financial sites suggests that one needs a 'pot' of £100,000 to generate an annual pension of £6K. I am guessing that anyone who only has the State Pension would like another £1000 a month so a pot of £200K would be needed. Is this new scheme ever going to generate that, for someone and their employer contributing for 40years? If they my experience, and someone else's, is that it will not be a fixed/guaranteed income!
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Of course there are those of us who took a 1.5% wage drop 5 years ago to prevent any redundancies and still haven't got it back yet.
This 1% the employer has to pay in will just be used as an excuse not to re-instate the salary drop and will be presented as a pay rise.
Pat
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"Of course there are those of us who took a 1.5% wage drop 5 years ago to prevent any redundancies and still haven't got it back yet."
Better than us Pat - company said we would have to take a 5% cut. We used to get 60% of job cost and it went down to 55%, which I suppose is a decrease of 5%. But, as I pointed out, a cut of 5% out of 60% is an 8.33% decrease. We were also told that it would be reviewed after a year - three years later and no sign of a review! Other comment was "if you don't like it, go work elsewhere!"
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That's the attitude we've had too Phil, but there are no other jobs around and they know that.
Short & curly's??
Pat
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With the state prepared to fund someone who is 65 and has never worked far better than someone # who has worked and saved up to get a pension pot, there is every disincentive to save..
# Think: Housing benefits, no forcing you to sell your house to pay for nursing care etc...
Best to spend it all and rely on the state..
(Until the state realises it can no longer fund it and has no choice but to reduce benefits . Given the propensity of politicians to run away from hard decisions , that's decades away unless we follow Spain's route.)
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Pretty much right madf. In financial terms there's no incentive for many people to scrimp to amass a pot of £100,000. Just make sure you have no savings either.
And I'd be very happy to hear where I can get £6k a year per £100,000 of purchase value, with some inflation protection (essential IMO) and say a 50% spouse's pension if I snuff it first. Be lucky to get £2,500 on that basis. So to retire on £25,000, think interms of a pot of £1m...
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I'm just grateful that my wife continued to pay her NI contributions, even when not required. She now gets a state pension of around £5700 per year, without which we would find things very difficult.
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>> I'm just grateful that my wife continued to pay her NI contributions, even when not
>> required. She now gets a state pension of around £5700 per year, without which we
>> would find things very difficult.
you only need 30 years of contributions for full state pension, any excess of 30 you can give to her to top her years.
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"you only need 30 years of contributions for full state pension, any excess of 30 you can give to her to top her years"
Zero, would you be kind enough to give more details or provide a link with the details?
Cheers
Phil
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tinyurl.com/65odwbn - www.direct.gov.uk
I had to do 40+ for mine now you youngsters are getting it for 30 years contributions AND living longer
have you not seen the tinyurl sticky?
Last edited by: VxFan on Tue 2 Oct 12 at 00:39
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>> I had to do 40+ for mine ............
Me too.
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>> +1, please!
Hmm Right. I certainly remember that being the case two years ago when I was planning her and mine retirement, but now that may not be the case.
Re the number of qualifying years required,
Number of qualifying years - Men / Women
If you reach State Pension age on or after 6 April 2010 - 30 / 30
If you reached State Pension age before 6 April 2010 - 44 / 39
Now it seems that women can get their pension topped up to a max 60% of pension if the husband is fully paid up.
www.savvywoman.co.uk/c7-pages/c7s1.php?art_id=202
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Fortunately I get a decent company pension so i don't need my state pension for income and since it will attract higher rate tax I was thinking of deferring it and taking a lump sum. Not sure how that works out financially - Anyone done it?
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>> I was thinking of deferring it and taking a lump sum. Not sure how that works out >>financially - Anyone done it?
>>
Say you defer 3 yrs then take the money in a lump sum. It will be taxed along with the Company Pension and any other income you have.
Alternatively you can have a higher SRP every year for your lifetime - taxable of course.
You can of course take the SRP Say £7K and invest £3,500 IIRC in a Private Pension (say £2,800 and a tax rebate of £700 or £2,200+£1,400 for Higher rate taxpayer)............that will grow and eventually you can cash it in and take 25% Tax Free and the rest a a pension OR if you depart the world sooner than anticipated the money in the fund can be paid to your estate.
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The big idea is work till you drop.We are all in this together.>:)
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SWMBO got a full state pension at 60 (last year) despite not having 30 years contributions.
Something about credit for the years she didn't work whilst raising the sprogs.
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There are only three options for pensions:
1) You need a big salary and you make big payments into a proper flexible scheme that can invest in something giving a real return. Preferably you also need a generous employer who matches your contributions.
2) You have a low or average salary. You are happy to retire on a pittance, at a lower standard of living than you had when working, because it is pointless making any pension contributions at all. Any you make will be stolen by the fund managers, or the government through low interest rates or QE.
3) Try and snatch a public sector job and hang on to it for dear life, sacrificing any hopes of job satisfaction or, laugh, of making a real contribution to the national economy through initiative and risk-taking. Live for the day when you can put your feet up, and enjoy your index linked pension, unless of course it too has been stolen in 40 years time.
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>> 3) Try and snatch a public sector job and hang on to it for dear
>> life, sacrificing any hopes of job satisfaction .......
>> Live for the day when you can put
>> your feet up, and enjoy your index linked pension, ...........
I just wish I'd thought of that aspect when I started out on my working life. Biggest mistake of my life. In hindsight I'd have been more than happy to have no job satisfaction in exchange for an index linked pension.
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>> 3) Try and snatch a public sector job and hang on to it for dear
>> life, sacrificing any hopes of job satisfaction or, laugh, of making a real contribution to
>> the national economy through initiative and risk-taking.
Some of us do manage both.
Live for the day when you can put
>> your feet up, and enjoy your index linked pension, unless of course it too has
>> been stolen in 40 years time.
>>
>>
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When I was working there was an HMRC (known at the time as Inland Revenue) limit on occupational pension contributions, and on the pension paid, to prevent people from avoiding income tax by putting all their spare money into their occupational pension scheme.
Will the New Pension Scheme have similar limits?
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>> When I was working there was an HMRC (known at the time as Inland Revenue)
>> limit on occupational pension contributions, and on the pension paid, to prevent people from avoiding
>> income tax by putting all their spare money into their occupational pension scheme.
>>
>> Will the New Pension Scheme have similar limits?
>>
£1.5million is current limit
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>> £1.5million is current limit
>>
So does that mean that you can contribute to the scheme up to that limit and not pay income tax on any of your contributions? That sounds like a really good form of saving for the employee, and a really big loss of income tax for HMRC.
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>> >> £1.5million is current limit
>> >>
>>
>> So does that mean that you can contribute to the scheme up to that limit
>> and not pay income tax on any of your contributions? That sounds like a really
>> good form of saving for the employee, and a really big loss of income tax
>> for HMRC.
>>
The total value of the Pension pot is £1.5m - this is payments in & growth of the underlying investments over time.
It makes sense to put money into a scheme especially if the employer pays in.
I know of a self employed person making a large income (6 figures) looking at taking a large pay cut to work for an employer - the trigger is employee benefits - bonus (0%-20%), free health cover, sick pay (Full pay to 12 mths and 50% for 4 yrs), 25% employer contribution to a Pension Fund.
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And IIRC you can 'only' get tax relief on up to £50k of contributions per year, so there's a limit to how much of your spare income you out into a pension to reduce your tax bill
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>> And IIRC you can 'only' get tax relief on up to £50k of contributions per
>> year, so there's a limit to how much of your spare income you out into
>> a pension to reduce your tax bill
>>
I was limited by HMRC to contributing 15% of my gross salary. If my yearly contribution limit had been £50,000 I could have contributed every spare penny of my salary and saved myself a fortune in income tax. How times have changed!
Last edited by: L'escargot on Tue 2 Oct 12 at 11:40
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Both limits apply, if you are making employee contributions, but employer contributions are only limited by the £50,000.
Tax relief on employer contributions is given as an allowance against corporation tax, assuming the payment is justifiable as a legitimate business expense. There are complex rules allowing carry-forward of unused contributions from up to 3 prior years.
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>> Both limits apply, if you are making employee contributions, but employer contributions are only limited
>> by the £50,000.
Sorry Cliff, are you saying that for an employee the £50k and 15% limits apply? Apologies if that's not what your saying, but I don't think that's right. An employee can contribute up to 100% of their salary to a personal pension, subject to the £50k 'annual allowance'
What I didn't realise until I looked just now is that the £50k annual allowance includes the employers contribution, if the Pensions Advisory Service website is correct:
www.pensionsadvisoryservice.org.uk/personal-and-stakeholder-pensions/stakeholder-pension-schemes/contribution-levels-and-tax-relief
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No, sorry, what I meant was the employee contributions are limited by reference to actual salary, up to a maximum contribution of £50,000, but employer contributions by £50,000 regardless of salary.
So a director might have minimal actual salary, but could still be credited with the full £50,000 employer's contribution.
Last edited by: Cliff Pope on Tue 2 Oct 12 at 14:32
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Ah, sorry. That makes sense!
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As well as the HMRC contributions limit of 15% of my gross salary, there was also an HMRC limit on the pension I could draw. This was 2/3rds of my pensionable salary, which was as defined by the pension scheme. How does the New Pension Scheme compare with regard to my pension limit?
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>> No, sorry, what I meant was the employee contributions are limited by reference to actual
>> salary, .............
What's the relationship between the employee contributions and the employee salary?
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New Pension Scheme - madf
