MSE News: The great pensions shake-up: What you need to know

A question about : MSE News: The great pensions shake-up: What you need to know

This is the discussion thread for the following MSE News Story:

Joss Harwood from Eldon Financial Planning explains what workplace automatic pension enrolment means for you

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The great pensions shake-up: What you need to know

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• Right let me get onto my soap box with this one, I work and have paid into a private pension and believe you and me i could do with this extra money right now but i plough on as you do, I have paid in for around 18 years, My point is this why this government want to attack workers in this way is in my view WRONG the low paid can barely afford the basic essentials at home let alone have their pay deducted to some shark pension company that will probably in the future go bust and well the government will have some excuse for that but further to this what about the ones that choose not to work and i am not talking about the ones that have lost their jobs through the recession they still get a state pension when they retire how about taking some of their handouts away and put that into their private pension set up by the government they might then get an idea what it is like to keep having more of your money taken from your income ( benefits } and not to mention the pay freezes for the many over the last three years and more to follow. Its about time this government backed off and let people make their own choices in life or they may find themselves with a bigger benefit bill as the low payed may find more money out of work.
• The correct question to ask your employer is "What will the pension investment options be and can I transfer my pension pot to a more appropriate pension for me from time to time if I want to?"
  If the employer answers that the pension is NEST then the appropriate steps are:
  1. Ask your employer to reconsider using the worst of the pensions designed for auto-enrolment and consider using NOW:Pensions or one of the alternatives that are likely to arrive in the not too distant future.
  2. If your employer insists on using NEST, consider your age and investing experience or interest. If you are close to retiring it's likely to be best to stay opted in anyway. If you are an experienced investor or are relatively young the better investment options available elsewhere may make it a better idea to opt out of this workplace scheme so that you can benefit from the better investment options you can get. It's sad to lose any employer contribution but in this case it can be the best choice.
  3. Consider whether investing within a pension is in your best interests at the moment. If it is not, opt out.
  4. If you do decide to be part of a NEST pension it'll probably be best to pay in only the absolute minimum required to get any employer matching. Pensions are a long game and you can wait until you get a decent deal before using a pension for your investments. Use a stocks and shares ISA or a personal pension of your own until then so you don't lose out on the years of compound investment growth.
  If your employer is not using the NEST pension scheme the next steps are:
  1. Consider whether investing within a pension is in your best interests at the moment. If it is not, opt out. If your pension is one of the public sector pensions it's likely to be one of the best deals available. It's very unlikely to be in your best interests to opt out.
  2. Ask about the investment options, ability to transfer money out without leaving the scheme, the costs and whether your employer is adding any employer NI savings to pension contributions above the minimum. Then ask for guidance here on whether this is a good or bad deal compared to what else is available. Putting in enough to get the full employer match is likely to be a good deal in most cases provided you have a reasonably normal life expectancy.
  3. If the pension turns out not to be a good deal, don't delay your retirement planning, just invest inside a stocks and shares ISA instead with any money that you would have put into the pension. Ask here if you're unfamiliar with investing and need help. Retirement planning is a long term game and it's fine to wait until you're working in a job with a good pension scheme so long as you are investing your money for retirement somewhere else.
  Why auto-enrolment?
  Inertia affects people's decisions. When people have opting in as the base choice they are much more likely to join a pension scheme than if the base choice is opted out with an explicit option to opt in. It's just like car insurance renewals: it's automatic and the hope is that you'll take the easy course and be part of it.
  The Turner Pensions Commission under the last Labour government reports suggested that auto-enrolling into a basic pension would be a useful part of long term planning to reduce the number of people on means tested benefits in the future. This would save the government and tax payers money because at the time it was projected that more than 70% of households with a pensioner in them would be entitled to means tested benefits by 2050, because the guarantees increase with earnings. The proposed changes reduced this to a little over 30%.
  The Pensions Commission also proposed these changes:
  1. Increasing state pension age as life expectancy increases - done by the current government, with automatic increases.
  2. Changing the S2P (formerly SERPS) system to be flat rate, taking money from average and higher earners and giving it to lower earners. Partly done by Labour, planned to become more aggressive under the anticipated proposals from this government for a flat rate pension of around Ј140 a week.
  3. Abolishing contracting out. Done by the current government from April 2012.
  So in a long term context this is part of budget cuts that were being implemented by Labour and which are being implemented by the current government as well, shifting the costs of retirement to those currently in work and away from future tax payers.
• "This year will see the biggest shake-up to pensions most of us can remember". I'm not sure about Joss Harwood but my memory goes back as far back as the huge simplifications and improvements introduced in 2006 under the last Labour government under the A-day changes:
  1. Abolished the need to buy an annuity by their 75th birthday. (Yes, that's right, the same thing that the current government claimed to have done as well: it had already happened, it just changed the rules to make it better for inheritance tax avoidance and worse for those who die early in retirement).
  2. Let people have an unlimited number of pensions, removing the ban on having a personal pension as well as a work pension that applied to those earning more than Ј30,000.
  3. Let people pay in up to 100% of their earned income.
  It was a huge simplification and improvement of the system compared to the relatively trivial introduction of auto-enrolment that is happening gradually over the next few years.
  There was also at other times:
  4. Introduction of S2P, starting to increase the taking of money from average and higher earners to subsidise lower earners.
  5. Introduction of the cap on S2P contributions to gradually make it even more of a cross -subsidy from those entering higher rate tax levels, gradually falling over time to affect those on lower incomes than higher rate.
  6. Abolition of contracting out.
• So, how's this going to affect people like me who have a personal scheme? I don't want to be auto-enrolled into anything, so are there any standards set out for the schemes that are NEST-compatible?
• I joined a pension 10years ago, paid in every month for a year until the company went bust, this year I received a settlement for my pension, a nice cheque for Ј10 woop. My hubby was on a final salary pension until the company decided to change the rules, he still pays in but won't get a great deal for his retirement.
  In my view paying into a pension is far too risky, from my experience I have had more from a lottery ticket and the most I have had of them are 3 numbers but I paid in a lot less!
  Biggest con in modern times I just don't know how they get away with it.
  Well this is my view based on my experience.
• hear hear mswan someone has been with me on this one and i would like to thank the person for thanking me on my original post i bet this was another Cameron's many dinner guest's trying to had over donations for workers cash into their pension schemes or that's what they would like to call it for now. Strange that in the last budget approx 3 weeks ago they said that they would introduce a re viewable pension retirement age so for many of use with years ok decades before we might be told its now ok for you to retire you can park your zimmer frame for a bed lol
• What i really can't stand happening at the moment is that people in their fifties are telling me in my late 20ies about contributions to the pension. I would not have any problems with this if I was able to take a state retirement at the age say 55. But I suspect now that I would need to be around 75 to retire at the state pension with the employers possibly bringing their retirement age in line with the state's one.
  Cameron and co probably will retire a bit earlier than this.
  If I will survive by then(which taking in to account that I am male and live stressful life and have unhealthy lifestyle) not obvious at all, I will suffer from Dementia, Parkinson's etc, will be able to come out of my home on mobility scooter only or needing a full time care.
  I feel that it makes more sense either to save money in your savings or investments or investing in property, rather than keeping it in the pension which you are not guaranteed ever to get(as you can die early) or even if you get in to that age due to poor health you might not be able spend it.
  Example:
  Pensioner Nr1 Gets Ј500 state pension and Ј400 private pension.
  He pays rent of Ј400 per month therefore his Net Disposable Income is Ј500.
  Pensioner Nr2 Get's Ј500 state pension, has no private pension however as he is on a low income government also pays his rent via housing benefit for him. So his NDI is also Ј500.
  I therefore simply don't see the point to save in to the pension unless you can afford a really huge amount of money in to the pot otherwise I will just end up in the shoes of pensioner 1.
  It is therefore in the government interest for people to contribute but not always in people interest.
• OK, the experts will hate this response, even the shnorrer won't like it.
  1. Unless you are really clever you will get NO value from your pension savings. I will illustrate this later with my own experience having saved all my working life.
  2. By signing up to what the government want you are guaranteeing their deliberate attempt to fleece you and much worse, you are ensuring some city boy continues to get his undeserved Porshe sized annual bonus. Additionally, you add credibility to the expressed government point of view.
  Let's start with your pension pot. Like me, if you have worked all your life you probably have an average pension pot yo-yoing around Ј100,000. So what can you do with it. Well do you really want to give it to an annuity provider and get an annual return hardly different to what you would get if you put the cash into an interest bearing account, but giving up any right to your Ј100,000. We have to do this because the Government has sucked up to the chisselers that offer these products and who knows what kickbacks they are being paid. Yes there must be kickbacks because how could something so manifestly unfair be your main option?
  Now you do have another option. You could take the income drawdown option, invest the money yourself and keep hold of your money. Well it isn't quite that simple. When you die the Government steals 55% of it. Why 55%? Because our politicians are fundamentally dishonest. You have avoided paying 20 % tax on the money you saved, so where does 55% come from. Then there is probably an expensive "wrapper" that stops you accessing your cash, like with ISAs where most years in the last 20 you get less interest than you could get elsewhere, invalidating your reason for saving that way. Similarly the cost of the "wrapper" could put you at a terrible disadvantage. (Strange that Martin Lewis doesn't point any of this out - have the politicians knobbled him too now that he is a celebrity and part of the establishment?)
  Much better to save without the tax relief and retain control of your savings, unless the employers contributions invalidate my argument. Even so, adding costs to your five person employer is hardly likely to add security to your job.
  Now lets look at the State pension. The dishonest creeps we elect have been devaluing this for as long as I can remember, while constantly increasing the funding for it (NI). They deliberately keep the high impact items out of the inflation index. Perhaps you don't believe me. Council tax is outside the index. Mine was Ј32 a year when I bought my house in 1978 and is now around Ј1500. What sort of inflation rate is that. How on earth am I going to be able to pay council tax in ten years time.
  Well if you save nothing you get an enhanced pension, your council tax paid and if you don't own your home, you get your rent paid. If you scrimp and save all your life you may well be worse off than someone who has saved nothing. Think about it. Don't fall for their lies.
  If the politicians weren't dishonest they would provide a fair option. Say you had an alternative to invest in any National Savings product at the same rate as a non pension customer, with the money remaining yours and the unfair 55% tax abolished. That might work but it would do nothing for the dishonest politicians who just love devaluing your pension pot or pension in payment by printing money willy nilly. They call it quantitive easing because they know most of us are too stupid to recognise what they are up to.
  Don't fall for their lies. Make them provide a fair alternative.
  Howard Dare
• I couldn't agree more with MISHOMEISTER's comments on Pensions.
  I have just ended a long 2 year battle to get a Pension Company to honour their Gauranteed Fixed Annuity.
  The Policy Schedule of over 20 years and backed up by the few statements Gauranteed a pension of Ј5,500pa, there were a couple of times they sent statements with a lower figure of Ј2.500 but when challenged apologised for sending the lower figure.
  On nearing retirement, and because of past wrong figures, I needed confirmation on the higher figure before I committed my life savings to puchase a small flat for my retirement.
  This confirmation was given 3 times to my IFA, so I went ahead with the puchase.
  5 weeks before I retired the company apologised for their mistake but said to my IFA, a Gaurantee is null & void if a mistake can be shown to have been made all those years before. This statement was reiterated by the Pension Advisory Service and the Ombudsman
  Consequence no life savings, a property which can't be brought up to standard, so valueless and a pension more than halved.
  The Ombudsman was very critical of the Pension Company (probably the largest in Europe), but they never even had their wrists slapped.
  So rather than hope to secure your future with Pensions look to other investments, maybe property, wish I had.
• Am I being a bit cynical with these latest proposals by the government?
  Making everyone automatically pay into a private pension sounds suspiciously like a precursor to abolishing the state pension. By introducing the auto-enroll process does this not give the government the perfect excuse to claim everyone already has a pension so there is no need for a state one?
• littlerob, that isn't the point. It's more about ensuring that more people won't rely on benefits when this plus the state pensions are combined. The reports of the Turner Pensions Commission covered this sort of thing in great detail around the middle of the last Labour government and both Labour and the current government have been generally moving in the direction of implementing the recommendations made in those reports.
  One of the challenges of that has been means tested benefits which have meant that very low earners in retirement might not gain from making pension contributions. They could lose the value of the private pension due to the higher income level reducing the income from means tested benefits. Moves towards a lower number of qualifying years and a higher basic state pension to replace means testing are intended in part to eliminate that disincentive to put money away for retirement.
  With the changes that are happening it's becoming increasingly unwise for even those on low incomes to just assume that means tested benefits will top up their income in retirement. There's still no compulsion to use a private pension, though. People are free to choose to be relatively poor in retirement if they want to.