Update: it’s time to future-proof pensions

because they think they are better than everybody else,,who can lose their job and get £30,000 as an end of employment payoff,, because they were BAD at their job ,,,,,,,,????????

This is an absolute disgrace Jill, Not only have Governments past and present made a complete mess of our State Pension entitlements they are now forcing the public into private pensions that are notoriously high risk from a reliability perspective. Thank you for sharing your awful experience with us. I strongly believe that you should make your local MSP aware of your situation and ask him or her for help and improvements to the present mess you find yourself in.Contact your local CAB for help and advice . Please let us know how you get on. Going forward I wish you all the best.

Su – I am not sure it is fair to generalise about people’s capacity when they reach a certain age. Many people are fully functioning well into their late sixties and beyond; it largely depends on what sort of job they have. Employers often value highly the knowledge and experience of older staff, and firms probably have fewer capability, attendance and discipline problems than with some employees in the younger age group.

Some people who have sufficient income can stop work at 60 [or earlier] and live reasonably well until their state pension starts paying out later on, but to fund the state pension from 60 would require a significant increase in National Insurance contributions and taxation. The pension age is being pushed back because, in general, people are living longer. The cost of the state pension is met by current workers and taxpayers so it does not depend on the payments made by each pensioner. We need to bear in mind also that many people nowadays do not start work until they are 21 or older so are not making much contribution through taxes or NI to the state’s funds and their opportunity to achieve a full contribution record of 35 years is therefore more limited.

John Ward I worked from age 15 yet my contributions were only recognised when I reached age 19 .I was looking forward to retiring at age 60 I missed this opportunity by 3 months and was forced to wait till I was 65. I have not been able to enjoy my retirement because of a serious heart condition.
John you asked Su not to generalise about people’s capacity to work beyond a certain age yet you have just made an unfair generalisation about and younger ones, intimating that they lack discipline and are poor time keepers.
You then go on to say that most young don’t start working until they are 21, this is probably because they were in further education until then. Perhaps even holding down a part time job to fund their educational expenses.
So as a rule we should not generalise about anything or anyone.
I strongly believe that we should not be forced to continue working beyond 60.
Our being forced to carry on working beyond 60 has been caused by Governments mismanagement of the State Pension fund and a complete lack of positive action to ensure State Pensions would available for all at a reasonable pension age. Not only are we being forced to work longer we remain the poorest paid pensioners in Europe. This is unfair!

When the age at which State Pension could be claimed was set, expected lifetimes were probably up to 20 years less than now, so most peoples capacity to work longer has greatly improved. As women generally lived – and live – longer than men that disparity in state pension age seems odd in hindsight.

But we now also have a greater proportion of pensioners to wage earners than when the pension was introduced. There is no state pension fund; pensions are paid out of the current taxes that are paid by others so the fewer of them proportionately the more pressure the state pension provision exerts on the economy.

Our pensioners who need it receive supplementary payments, so simply comparing the basic pension with that in other countries is not valid.

Much as I would like to see people able to retire early, I do not see this as an entitlement when most are quite capable of continuing to work for considerably longer than when the state pension was introduced. It would be a luxury for when our economy is in better shape. But for those who can spend less earlier in their lives and save for retirement the option is there.

Inglis – I agree with Malcolm’s response above.

My comment about the reliability of older and younger employees was based on many years of managerial experience and I believe was a fair generalisation.

I appreciate that the postponement of the start of work is due to people pursuing further and higher education – which is generally in the national interest as well as in students’ long-term career interests, but it has consequences, and it defers the point at which they can complete a full contribution record and draw the full state pension.

It has been found in previous Conversations on the UK’s state retirement pension scheme that it is impossible to make fair comparisons with other countries because no two systems are alike and there are various reliefs and benefits outside the basic pension which need to be taken into account [such as concessionary travel, winter fuel payments, etc] and also the contribution rates and eligibility criteria including levels of tax relief on pension contributions. Since its inception, the state pension has been seen as a supplement to personal financial provision for later life, not the other way round.

The state retirement pension has actually been rising faster than average earnings and the consumer prices index for some years recently. The Coronavirus emergency has reduced average earnings and the inflation rate is very low so some correction to pension payment levels is now likely unless the country can afford to hold onto the 2.5% minimum increase guarantee [part of the triple lock]. That will be a political hot potato.

Interesting ideas, Edith. I would go along with some of them if it was a requirement for all people in work to set aside 15-20% of all their earnings to fund personal pensions payable from their date of retirement for the rest of their lives. Taxation and National Insurance Contributions could then be reallocated to meet your other proposals and to provide support for those who are entirely dependent on the state. All this depends on a healthy and prosperous economy, of course.

Daphne – People with only a state retirement pension do not pay tax because it is below the level of the personal tax allowance. They may also be eligible for supplementary payments and/or an additional state pension.

In most cases, people who have an additional pension, such as an occupational pension or a personal pension plan, do have to pay tax on the extra pension income because their pension contributions were allowed against tax when they were paid into their pension pot. When they draw them out as a pension, income tax is due – but pensioners generally do not have to pay national insurance contributions. Pensioners are also entitled to a number of untaxed benefits and allowances.

Since all citizens, including pensioners, pay other taxes, such as VAT and various excise duties, it would not be fair for taxation to be used to provide luxuries for some.

It is inevitable that the basic state pension will not provide for more than the basic necessities so it is necessary for people to save up, invest, or boost their pension pot while they are working in order to support themselves in later life.

The state retirement pension has been going up faster than the rate of inflation or average wages for some years now.

Angela – All retired people would like a bigger state pension but it was never intended to be sufficient to live on entirely for the much longer lives that now prevail. State pensions are paid for out of the income tax and National Insurance contributions of people currently working and by everyone who pays VAT and other taxes. To increase state pensions would mean raising taxes.

The State Retirement Pension has in fact been raised by more than increases in the average working wage and the cost of living for several years now so generally it has kept up with inflation. People with ‘gold-plated pensions’ have paid separately – and usually considerably more – for those benefits, although it is true that the public service pension schemes [which are heavily subsidised by the employers] tend to be more generous than private company schemes but it is argued that the better pension compensates for lower remuneration during their employment. I am not convinced myself and feel that most public service workers have better conditions of service overall than their private sector equivalents and greater job security.

This is an argument that will run and run and the best way for people to secure a decent income in later life is to make independent personal provision during their working life, if necessary at the expense of reduced cost of holidays, motoring and lifestyle enhancements.

Andrew – Why would the pensioner’s estate require a payment from the deceased’s pension fund? The beneficiary of the fund is dead [and the estate might well have considerable assets that can be realised].

A private pension or occupational pension does not automatically go to your estate when you die – and sometimes the estate has to pay back any overpayments made before the date of death, as is the case with the state retirement pension. Some occupational or private pensions include provision for survivor’s benefits but these cost considerably more to fund.

By definition, no tax is payable on state pension contributions from national insurance and taxation. The personal tax allowance also means that the basic state pension is tax-free when paid out.

If you want a minimum income of £25,000 a year after stopping work then you have to pay for it when in work through an occupational pension, additional voluntary contributions, an additional personal pension, or a bespoke life assurance policy. You would need to build up a very large pension pot to fund such an income for the best part of thirty years.

I am not clear whether the inference is that the state pension comes from a personal pot of money and the residue should go to the estate. It is not such an asset – as John says the state pension comes out of NI and income tax, paid by current earners for the benefit of existing retirees. Those contributions are not taxed and until the state pension exceeds the tax free allowance, no income tax will be paid. Pension contributions made privately are given the benefit of tax relief when made; income tax will be payable upon retirement once earnings exceed the threshold; you cannot have tax relief twice over.

We must recognise that the SRP will remain a basic payment, but it is supplemented by other state benefits for those in financial need. Making separate provision if you want a more comfortable retirement is essential.

I understand that if you have a SIPP – self invested personal pension – on which you would pay income tax if you drawdown an income, if you can avoid doing that and preserve the “pot” it will not be subject to inheritance tax when you die. So if for example, you have managed to save in an ISA, which is subject to IHT, better use that capital or income which is tax free.

That is an aside, but relevant to those maybe prudent enough to set money aside throughout their working life for their retirement rather than maybe using it as discretionary spending.

I should have added to my final sentence (above) that to protect the spending power of £25,000 a year on retirement for the following thirty years would require an even bigger pension pot, probably unaffordable for most people.