Employers and employee pensions

[chump]

http://news.ft.com/cms/s/400868ae-4a30-11d9-b065-00000e2511c8.html

from Sir Peter Davis report....well that's a good recommend isn't it afterall he did such a fantastic job at Sainsburys didn't he (jobs for the boys)...for those who lack subltety I am being heavily sarcastic !

Well , come on Labour adopt it and finish the job you started. UK might as well have both feet weighted down as just one .... when will these chumps learn how to let the market be 'efficient' .

 

[RogerM]

http://news.ft.com/cms/s/400868ae-4a30-11d9-b065-00000e2511c8.html

from Sir Peter Davis report....well that's a good recommend isn't it after-all he did such a fantastic job at Sainsburys didn't he (jobs for the boys)...for those who lack subltety I am being heavily sarcastic !

Well , come on Labour adopt it and finish the job you started. UK might as well have both feet weighted down as just one .... when will these chumps learn how to let the market be 'efficient' .

I can't see anything new in these proposals. In fact I'm sure that I anticipated them in a post I made "in this 'ere very boutique" about 3 years ago. At the time the Financial services industry was running around setting up Stakeholder pension schemes for any company employing more than 5 people. You can't enforce pension contributions - whether they be by employer or employee - unless there are pension schemes in place to receive them. When implementing big changes, you don't do it all at once. So, move one step, and stop and consolidate. Then implement the next stage, and stop, and keep moving in discreet steps until the change which would have been completely unacceptable if made all at once, has been implemented in full.

Step 1 was the aim of Stakeholder - to put the infra-structure in place.

Step 2 will be compulsion - initially by just the employer.

Step 3 will be compulsion for the employee to contribute. I wouldn't expect this to be by anything as overtly clumsy as requiring the employee to actually have money deducted from his pay! Instead there will be a further hike in National Insurance Contributions and then our kindly government will pay some into our pensions for us - after deducting a suitable amount to pay for the admin of course!

Step 4 will be the removal of higher rate tax relief on contributions. At the moment you get tax relief at the highest rate you pay. So it only costs a higher rate (40%) taxpayer £600 to put £1,000 in his pension, whereas it costs a basic rate (22%) taxpayer £780 to pay in £1,000. So expect tax relief to be limited first of all to basic rate only, and maybe later to 1/2 the basic rate. This is what happened to tax relief on life assurance premiums back in the 1980's until it was abandoned completely. The same happened to mortgage interest relief at source (MIRAS) - i.e. first limited to £30,000, then to basic rate only, and then abolished completely when interest rates fell and it was thought people wouldn't notice. So the precedent is already there. After all, if it's compulsory to put money into your pension you don't need to provide massive tax incentives do you?

Step 5 - Increase the state retirement age to 70. This wouldn't happen all at once. It would be phased in over 10 years, so that for a period of time there would be a variable retirement age of between 65 and 70. This is currently the situation for women born between 1950 and 1960 as they have their state pension retirement ages progressively lifted from 60 to 65. Those born before 1950 will still retire at 60, and those born after 1960 will retire at 65. In between they will retire between age 60 and 65. So again the precedent is already in place.

Step 6. Use the money saved to pay a flat rate non means-tested state pension to everyone. At the moment those on low state pensions get them topped up by means-tested benefits, so it would not be new money and there would be a massive saving in bureaucracy. What would cost more is automatically providing the extra pension to those who qualify for a means-tested benefit but are too proud (or who are unaware of their eligibility) to claim it, and also providing it for those who also have a decent occupational pension and don't qualify for any additional benefit.

At the moment there is no point in the low paid investing in a pension unless they expect to be able to grow their fund to in excess of £100,000 because for every £ you provide for yourself in pension you will lose on a means-tested state benefit, so you might as well pee it up against the wall instead of saving it. That is of course so long as you trust a future government to pay you what you expect them to. I think I'd rather have a pot of money with my name on it!

You heard it here first! 😀

 

[ewilcox]

The pensions situation in this country is appauling. From pension black holes in company accounts through to the laughable state pension the whole thing is going to end in a mess. With a rapidly ageing population and absoluteley no confidence in our pension system meaning many prefer to invest in their house rather than their pension I can't see any easy way out of things. Personally I agree with the previous post - I would prefer to have the cash in my bank account than trust it to a pension manager 😈 who has less experience and sense than me in investment in general. If I end up pennieless then at least I only have myself to blame. 😕 All IMHO.

 

[darrenf]

But would you rather have £60 or £100 in your bank account for the same cost - £60 (if you are a higher rate tax payer)?

You can put your money in a cash fund - or deposit in a bank account via a SIPP. No need to trust your money to a "pension manager".

Alternatively, be your own fund manager with a SIPP?

Put £60 in a standard bank account costs £60 out of taxed income.

Put £100 in a cash fund/ bank account in a pension and it also cost £60 for a higher rate tax payer.

Add compound interest over a large number of years (standard bank account interest also subject to Income tax- Interest earned within pension fund - No tax)- makes a big difference!

 

[ewilcox]

I would take the £60 i know i have rather than the £100 I have been promised. Thats the difference.

 

[darrenf]

I would take the £60 i know i have rather than the £100 I have been promised. Thats the difference.

Promised?

If you pay it in and claim the higher rate tax relief, it's there mate! It belongs to you. No one can take it away from you.

If you are talking about long term savings, there is no debate. A pension is THE most tax efficient method available in the UK.

 

[RogerM]

darrenf - I agree with you. When I said "I'd rather have a pot of money with my name on it", I was referring to a pension of my own rather than relying on the state to provide the same benefits when I retire as are being provided now. The other point I was making was that if making pension contributions becomes compulsory, then the government doesn't need to offer big tax incentives. It is debatable whether it is equitable that the less well off have to pay £780 to get £1000 into their pension plan whereas those who are better off only have to pay £600 for £1000 to go into their pension pots. The same arguement was used before MIRAS (tax relief on mortgage interest) was reduced to basic rate only rather than being at the highest marginal rate of tax paid, before being abolished completely. I fully expect the government to reduce tax relief on pension contributions to basic rate only at some stage.

 

[darrenf]

darrenf - I agree with you. When I said "I'd rather have a pot of money with my name on it", I was referring to a pension of my own rather than relying on the state to provide the same benefits when I retire as are being provided now. The other point I was making was that if making pension contributions becomes compulsory, then the government doesn't need to offer big tax incentives. It is debatable whether it is equitable that the less well off have to pay £780 to get £1000 into their pension plan whereas those who are better off only have to pay £600 for £1000 to go into their pension pots. The same arguement was used before MIRAS (tax relief on mortgage interest) was reduced to basic rate only rather than being at the highest marginal rate of tax paid, before being abolished completely. I fully expect the government to reduce tax relief on pension contributions to basic rate only at some stage.

You could well be right Roger. It wouldn't surprise me if higher rate tax relief on pension contributions was abolished if and when compulsion is introduced.

It is equally arguable though that if someone pays 40% tax on their income, why shouldn't they get 40% tax relief on pension contributions.

Either way, I do beleive that even with compulsion, that pension saving still needs to attract tax benefits in order to offset against the disadvantage of not actually being able to draw a benefit form the fund until at least age 50 (soon to be 55).

 

[chump]

My little rant was mainly aimed at centrally organised complusion as opposed to the decentralised recognition that individuals be held responsible and therefore accountable for theirown future financial wellbeing ...life's about choices and I am about sick and tired of this govt making choices for me/us so that they can better look after the chumps who cannot or will not make choices that also account for their future.. rant over I'm buying in Dubai...LOL