Pensions

[Deskdiary]

Many people will see their April take home reduced with the Government's requirement for people to to contribute a minimum of 8% of salary into their pension (granted this will be a mix of employee and employer contributions). I find this completely laudable and prudent.

I accept employees can opt-out, but am I the only person who thinks society has a problem when those that are looking after themselves are being told how much they must contribute when there's certain members of our society who do the square root of F all for their future (or their present) leaving the responsible to fund them by the government giving them free money?

In 7 years time I will have paid my total NI contribution to receive my maximum state pension. In 7 years time I will be a long way from retirement so will still be paying NI, and yet bizarrely those that have paid nothing will receive a larger state pension than me. On what planet is that correct?

[spathiphyllum]

I think you're wrong on the % figures. Is it not 5% ?

[spathiphyllum]

"(granted this will be a mix of employee and employer contributions)."

Ah, sorry..

[naomi24]

Deskdiary, and furthermore, when you eventually receive your pension you will be paying tax on money that has already been taxed.

[fiction-factory]

State pension is taxable but only if you have other income that takes you ove rthe trheshold. And private pension income comes from contributions that were given tax relief at source. SO I'm not sure what you mean, Naomi.
I agree witha lot of DD's sentiments though

[bhg481]

You got tax relief on payments into a pension fund in the days when I worked. Has that changed?

[fiction-factory]

It certainly hasn't changed. I susepct naomi and DeskDiary, like me, have been getting tax relief at 40% on large amounts of money and will take out a fair amount tax free and ensure the pension is only taxed at 20%- we have been lucky but have made sacrifices I'm sure.

[naomi24]

fiction-factory, working for what you have isn't lucky. It's what many of us choose to do.

[fiction-factory]

We've been lucky to get tax relief at 40% when i'm pretty sure this figure will be cut back before too long, and we also had final defined benefit, sometimes final salary, pensions which were generous compared to the DC schemes most new workers get now. But yes we made sacrifices and took advantage when others wasted the chance

[naomi24]

Yes.

[fiction-factory]

You haven't clarified the "you will be paying tax on money that has already been taxed" bit yet though

[naomi24]

Sorry, salaries are taxed - contributions then go towards pensions - and then pensions are taxed.

[fiction-factory]

The new 8% figure is a bit misleading for the Workplace pensions as it is only 8% on a band of your income - the rate is zero for the first £7000 or something like that, so for part time workers and minimum wage staff, the average rate is much lower. Because I work in the 'gig'economy and have multiple employers I often fall below the thresholds with each employer and some of my pension pots are less than £100 after fees after several years. It's not a problem for me- my pension is taken care of- but the Workplace Pension will not help much for some workers in part time/zero hours/multi employer roles- nor for the millions of self employed

[fiction-factory]

>Sorry, salaries are taxed - contributions then go towards pensions - and then pensions are taxed.
But as bhg says, if you were a taxpayer you got tax relief (at 40%?) on payments into a pension fund.

[naomi24]

Okay.

[Deskdiary]

Crikey - the above has left me utterly bewildered. And that I think is part of the problem with pensions and tax.

All I know is I have a non-contributory pension from my employer plus I choose to contribute to two other pensions (these were company arranged personal pensions that I chose to continue paying into when I left previous employment). On more than one occasion I've asked IFAs whether it's worth consolidating and have received advice which is, at best, vague. If the performance of my pensions were a football team, they'd be in League 1.

Even though a PAYE employee I have for many years been self-assessment - strangely I always seem to owe money to the exchequer. Funny that.

I'm not a conspiracy theorist, but if I were I would suggest the pension industry and the tax system in the UK is deliberately confusing to ensure plebs like me have no chance of understanding it! And I really don't. I wouldn't describe myself as stupid, but I genuinely do struggle with these subjects.

Still, good to know that people that have never paid a bean into the system will receive a larger state pension than somebody who has paid all of their dues (if there was a sarcastic emoji I'd use it - if I knew how to use emojis).

[fiction-factory]

>Still, good to know that people that have never paid a bean into the system will receive a larger state pension than somebody who has paid all of their dues

Have you got an example please?

(I accept that in the past with pension credit and all the things that go with it (free council tax, housing benefit, energy bill rebates) there was little or no incentive to save for a pension at the margin, but the new 'guaranteed' pension will help address that.)

[fiction-factory]

^although maybe you don't really know given your comment that
"the pension industry and the tax system in the UK is deliberately confusing to ensure plebs like me have no chance of understanding it! And I really don't."

[Prudie]

I'm a total dimbo with pensions but might suggest "people that have never paid a bean into the system will receive a larger state pension than somebody who has paid all of their due" is because many working people have company pensions that include some element of opt-out of the state pension that reduces what they get. Those who have never worked get the full wadge. I for example, have worked all my life but won't get a full state pension because of my company pension scheme.

[Maydup]

I understand your point DD, but just out of interest why is your pension non contributary?

If you paid into it instead of your other two, they would have to match it up to the auto enrolment minimum levels.

[fiction-factory]

Yes, that's because we paid lower NI (contracted out) when in a company scheme. It's a bit complicated but I am absolutely certain for me that sticking with a company pension scheme and squirelling away bonuses and pay rises into tax efficient AVCs (and paying off the mortgage) was well worth the sacrifice and will mean that the state pension is just a little extra to look forward to. I'd hate to have been in a position where the state pension was all I would get, regardless of whether I'd contributed a bean or not.