What do you think is the future of the UK state pension?
Discussion
The currents system is unsustainable, the forecasts for spending on pension predict it will increase from 100B to 110B by 2022-23.
https://obr.uk/forecasts-in-depth/tax-by-tax-spend...
In addition to that is the ever-falling support ratio, meaning fewer working people to every pension claimant.
What do you think will happen to the state pension? Will the benefits be eroded away by inflation? Or will the pay-as-you-go system be ditched?
I personally think that we should head towards a funded system, either wear all NI contributions go into the same fund or each individual has his/her own fund and can determine the investments based on risk level.
https://obr.uk/forecasts-in-depth/tax-by-tax-spend...
In addition to that is the ever-falling support ratio, meaning fewer working people to every pension claimant.
What do you think will happen to the state pension? Will the benefits be eroded away by inflation? Or will the pay-as-you-go system be ditched?
I personally think that we should head towards a funded system, either wear all NI contributions go into the same fund or each individual has his/her own fund and can determine the investments based on risk level.
Phooey said:
I can't see how it won't end up being means tested
Means-testing will cause a big stir, many will complain about having to pay NI for other people's retirements. The current system is based on the illusion that NI contributions are funding your own retirement when in fact they are paying for the current pensioners. DOCG said:
Means-testing will cause a big stir, many will complain about having to pay NI for other people's retirements. The current system is based on the illusion that NI contributions are funding your own retirement when in fact they are paying for the current pensioners.
Many things cause a big stir (look at Child Benefit - £50k+) but it won't stop the gov fading in something like means-testing in some way or another. Of course, It'll be a lot more technical than just means-testing. Maybe something like re-branding National Insurance??Edited by Phooey on Friday 22 November 18:51
The considerable increase in births following the ending of the Second World War, seems to be known to everyone, except politicians.
A minister will announce a sudden increase in the older population, is putting a strain on pensions, hospitals etc. Funny why it is such a surprise to them. Has been coming for 65 years.
Something did happen a while ago to pensions. Others will know in more detail, but there was a Chancellor of the Exchequer announcement, that a new simplified State Pension would be (was it) £167 per week. When the time came, existing pensioners discovered they do not receive that amount, but continued on about £110 per week.
There is no need for means testing, when they can use confusion instead.
Phooey said:
DOCG said:
Means-testing will cause a big stir, many will complain about having to pay NI for other people's retirements. The current system is based on the illusion that NI contributions are funding your own retirement when in fact they are paying for the current pensioners.
Many things cause a big stir (look at Child Benefit - £50k+) but it won't stop the gov fading in something like means-testing in some way or another. Of course, It'll be a lot more technical than just means-testing. Maybe something like re-branding National Insurance??Edited by Phooey on Friday 22 November 18:51
Phooey said:
Many things cause a big stir (look at Child Benefit - £50k+) but it won't stop the gov fading in something like means-testing in some way or another. Of course, It'll be a lot more technical than just means-testing. Maybe something like re-branding National Insurance??
Exactly. They will start off with people who have huge pension pots and the argument will be "why does the metropolitan elite (what whatever the chosen nomenclature is at the time) need a state pension" and then the threshold will be gradually lowered.The question of course is whether they will take into account simply your pension pot(s) or total assets.
CzechItOut said:
Exactly. They will start off with people who have huge pension pots and the argument will be "why does the metropolitan elite (what whatever the chosen nomenclature is at the time) need a state pension" and then the threshold will be gradually lowered.
The question of course is whether they will take into account simply your pension pot(s) or total assets.
The overly simplified terminology of referring to them as "pots" I think is unhelpful to the debate, they are assets that can go up and down in value depending on the market and can also have different risk profiles. The question of course is whether they will take into account simply your pension pot(s) or total assets.
markcoznottz said:
CB was just tinkering. This is big deal. Civil service will just keep raising retirement by age to 70+. Job done. A sort of soft default.
I very doubt that simply raising the SPA past 70 will have a large enough effect considering how sharply the support ratio is fallingMeans testing needs to come in, providing pensions to the wealthy is kind of distribution of taxpayers money to the children of the wealthy through Inheritance.
They are many pensioners for whom the £110 a week they get from the government pension means little to them, yet others where a little extra would transform their lives.
They are many pensioners for whom the £110 a week they get from the government pension means little to them, yet others where a little extra would transform their lives.
Wilmslowboy said:
Means testing needs to come in, providing pensions to the wealthy is kind of distribution of taxpayers money to the children of the wealthy through Inheritance.
They are many pensioners for whom the £110 a week they get from the government pension means little to them, yet others where a little extra would transform their lives.
At what level would you see the loss of pension and would you base the means testing solely on pension only or overall assets. They are many pensioners for whom the £110 a week they get from the government pension means little to them, yet others where a little extra would transform their lives.
I would think this would be far too complicated to work well.
How would you differentiate those with a large pension who have lived modestly to ensure they are in a good position in retirement against those that have spent throughout their working life with no care about retirement.
Would be very unfair if the one saving and making sacrifices was then penalised at retirement.
The government could set the age to a percentage of life expectancy so it can gradually increase.
In the long term, I'd like to see something like:
Everyone has a "pot".
About 20% of income is taken for this purpose.
About 8% of this is shared amongst all "pots" of those who "contribute to society" (working or provably looking for work). 12% goes to your pot.
When the total value of your pot is enough to provide an inflation linked annuity of about £180 a week (enough to live on) you can "retire". You have to claim this annuity (so the state can be sure you won't be a burden on it if you spend your money) but can do what you like with any extra.
If you are married, then half of your contributions go to your pot, half to your spouses (and vice versa), and your pot remains yours if you divorce or are made bankrupt.
This will be invested at an appropriate level of risk, and hopefully fees should be lower than private pensions.
There is no opt-out (if opt-outs are allowed, people will invest in property which will force up prices for everyone forcing others to opt out to buy a home).
Other taxation is reduced by the amount that the state was paying into pensions, and if your employer pays into a private pension, they will stop paying this and add the amount they were paying to your salary.
In the long term, I'd like to see something like:
Everyone has a "pot".
About 20% of income is taken for this purpose.
About 8% of this is shared amongst all "pots" of those who "contribute to society" (working or provably looking for work). 12% goes to your pot.
When the total value of your pot is enough to provide an inflation linked annuity of about £180 a week (enough to live on) you can "retire". You have to claim this annuity (so the state can be sure you won't be a burden on it if you spend your money) but can do what you like with any extra.
If you are married, then half of your contributions go to your pot, half to your spouses (and vice versa), and your pot remains yours if you divorce or are made bankrupt.
This will be invested at an appropriate level of risk, and hopefully fees should be lower than private pensions.
There is no opt-out (if opt-outs are allowed, people will invest in property which will force up prices for everyone forcing others to opt out to buy a home).
Other taxation is reduced by the amount that the state was paying into pensions, and if your employer pays into a private pension, they will stop paying this and add the amount they were paying to your salary.
Many people of 30 and under have no pension at all. Even intelligent, financially secure people have no pension, due to needing to save for a house deposit or whatever.
The whole system is unsustainable, and the triple lock really doesnt help in the long run as they are increasing the tax burden on the working population, and ensuring that pensioners get a bigger pay rise every year than those who are paying for it! Inevitably that is always going to lead to a problem.
IMO this current government - in all its forms back to 2008 - has a lot to answer for. For a party supposedly of business and of fiscal responsibility it has failed to get the budget under control and has spent quite a lot buying votes from its traditional supporters, who arguably need less support than the people who have been most affected by cuts in services.
The whole system is unsustainable, and the triple lock really doesnt help in the long run as they are increasing the tax burden on the working population, and ensuring that pensioners get a bigger pay rise every year than those who are paying for it! Inevitably that is always going to lead to a problem.
IMO this current government - in all its forms back to 2008 - has a lot to answer for. For a party supposedly of business and of fiscal responsibility it has failed to get the budget under control and has spent quite a lot buying votes from its traditional supporters, who arguably need less support than the people who have been most affected by cuts in services.
Phooey said:
I can't see how it won't end up being means tested
The problem is that the state pension is about 8.5k per year. The equivalent pot you would need to get that would be 170k, assuming without inflation. To combat inflation you wound need a much bigger pot.If it was means test what would be the incentive to save into a private pension if it effectively lost you a 170k pension pot?
Personally I think the qualification age will go up.
You will have to pay more in, for longer, to get less for a shorter time.
It's already unbalanced, as the highest earners pay far more NI in total, but get the same final pension amount.
You also keep paying into the scheme after you have paid in enough years to get the full state pension.
Incentivising deferral or reinvestment may help.
So, if you don't need an extra £8.5k a year at age ~70, you can choose to use the money in a different way, or even not take it at all.
At some point I may try to calculate exactly how much I have paid in NI over my working life to see if it's been a good investment (lol), or if I could have used the money to greater effect by self investing it.
It's already unbalanced, as the highest earners pay far more NI in total, but get the same final pension amount.
You also keep paying into the scheme after you have paid in enough years to get the full state pension.
Incentivising deferral or reinvestment may help.
So, if you don't need an extra £8.5k a year at age ~70, you can choose to use the money in a different way, or even not take it at all.
At some point I may try to calculate exactly how much I have paid in NI over my working life to see if it's been a good investment (lol), or if I could have used the money to greater effect by self investing it.
tighnamara said:
At what level would you see the loss of pension and would you base the means testing solely on pension only or overall assets.
I would think this would be far too complicated to work well.
How would you differentiate those with a large pension who have lived modestly to ensure they are in a good position in retirement against those that have spent throughout their working life with no care about retirement.
Would be very unfair if the one saving and making sacrifices was then penalised at retirement.
All challenging questions, with no easy answers, however, I wouldn't consider not getting a state pension as being penalised, much in the same way as our family not getting any tax relief, child benefit etc etc is not us being penalised for working hard.I would think this would be far too complicated to work well.
How would you differentiate those with a large pension who have lived modestly to ensure they are in a good position in retirement against those that have spent throughout their working life with no care about retirement.
Would be very unfair if the one saving and making sacrifices was then penalised at retirement.
The 'young' 70-year-old lady across the road, lives in a million-plus house, has a big pension from now-dead husband, enjoys plenty of holidays etc etc...£110 a week would not be missed, yet split amongst two or three of the 16% of pensions that live on the poverty line, perhaps would have their lives transformed.
98elise said:
The problem is that the state pension is about 8.5k per year. The equivalent pot you would need to get that would be 170k, assuming without inflation. To combat inflation you wound need a much bigger pot.
If it was means test what would be the incentive to save into a private pension if it effectively lost you a 170k pension pot?
Personally I think the qualification age will go up.
Based on annuity numbers I’ve heard recently, about 340k to buy a 8.5k annuity. Not that many people have pension pots of that size. Low rates of return are screwing everyone, boomers benefitted from good rates of return, wage inflation eroded the relative value of mortgages, living standards improved greatly, yes some bumps along the way but overall a good run. The current generation are facing a serious rebasing of “normal” in addressing climate change, aging populations, low inflation etc.. If it was means test what would be the incentive to save into a private pension if it effectively lost you a 170k pension pot?
Personally I think the qualification age will go up.
All the work shy who live on benefits their whole life with half a dozen offspring have their NI contributions paid, they sponge off the state and do nothing to better themselves, why would they when they are better off not actually working (in a lot of cases), they get means tested have no assests etc so qualify for basic state pension, very fair 
State pension is already means tested to a large degree via income tax.
The State Pension is tax free for those with no other income but you you may end up paying 20%, 40% or 45% income tax depending on other income sources.
Any further penalties to those prudent enough to save for their retirement would not be a vote loser and would act a deterrent to pension saving.
The State Pension is tax free for those with no other income but you you may end up paying 20%, 40% or 45% income tax depending on other income sources.
Any further penalties to those prudent enough to save for their retirement would not be a vote loser and would act a deterrent to pension saving.
HootersGsy said:
Based on annuity numbers I’ve heard recently, about 340k to buy a 8.5k annuity. Not that many people have pension pots of that size. Low rates of return are screwing everyone, boomers benefitted from good rates of return, wage inflation eroded the relative value of mortgages, living standards improved greatly, yes some bumps along the way but overall a good run. The current generation are facing a serious rebasing of “normal” in addressing climate change, aging populations, low inflation etc..
With 340k under the mattress you could take 8.5k a year for 40 years so that does sound a bit steep.Gassing Station | Finance | Top of Page | What's New | My Stuff