State Pension

I think most people with low income/savings will be looking to invest in savings accounts rather than pensions, at least then they'll have security and easy access. Pensions, historically, were more for the richer people or those who had access to gold plated works pension schemes. People don't need to see an IFA to put money in bank savings accounts and they don't need an IFA to be told about the £1k/£5k allowances - it's all pretty generic advice on Martin Lewis's MSE and in personal finance pages of most newspapers!

Why would you think it's an unlikely scenario??

Two reasons. The first being that pensions have been pretty commonplace for years now and contributions are tax free. The second being that very few ordinary people with average incomes would consult a financial expert so savings as opposed to pension contributions would never occur to them.

Isn't it balanced out? So pay into a pension now and get tr tax back which adds more to yr pension ( so you are paying less tax on your income when you are working) vs put the money into an ISA and lose the tax rebate from the government that you would have got from putting it into a pension. Over time, and if you take a lump sum from your pension to pay off a mortgage, etc you will be the same

I'm very tempted to move my cash ISAs into stocks and shares, but with 5% available now on cash ISAs weighed against the risk that stocks and shares could go down in value, I feel like I might be better off staying in cash 🤷🏼‍♀️

I do not have great pension provision, but I do have a significant amount in a stocks and shares ISA as I have always tried to use as much of my ISA allowance as I can afford. This was instead of saving for a private pension.
Until I retired the share dividends etc were paid back into the ISA, but in my retirement, I get paid these tax free into my bank account. The ISA should still retain its value over time. Unless I have a period of significant ill health and have to pay for care, I will be able to pass the ISA to my children. You will not have to declare income from an ISA on your tax form as it is tax free.

But these people in work, supporting more pensioners are, in real terms, earning far more & the pension age is a lot higher, esp for women.

Tax take is set to be, on current plan, the highest its ever been.

As usual, stats can tell any story you want.

Its unlikely or rather not common because most people do not have 200k in savings.
But anyone who did, should have been building up their ISA holdings, 10years worth and none of your interest (on 200k) would attract any tax, i know some people who as a couple have huge amounts invested via ISA's and pay no tax on income, which can be very considerable.

The average is in savings is 18k but that hides quite a bit, 50% have less than 1k, 23% nothing... as usual, the top 1 or 2% are doing very well.

What this thread needs is some data. There is something called the 'old-age to working-age demographic ratio', and is defined as the number of individuals aged 65 and over per 100 people of working age (defined as those at ages 20 to 64).

In 1950 this was 17.9. In 2020 this was 30.2. It is projected to be 47.1 in 2025 and 53.0 in 2075.

As state pensions are paid out of current taxation, this means there are fewer workers to pay for the pensions. So the challenge for governments is how to manage this. Either through increasing the pension age, increasing taxes or decreasing pension spend (by means testing or other approaches). All of these are politically difficult and upset people, as is seen in this thread.

So difficult choices for any government. And not just in the UK, but anywhere in the western world

£1000 for all with incomes under £50k,

BUT an additional £5000 tax free allowance which is called "starting rate for savings" for which anyone with total income of under £17,570.

https://www.gov.uk/apply-tax-free-interest-on-savings

@taxguru
Thank you for setting all that out🙏
But have I got something wrong? I thought it was only the first £1,000 of interest that is tax-free but you're saying it's 6,000?

Are you saying it's better to keep your money in a savings account and use the interest as income as opposed to paying it into a private pension?

So, that is why people use SiPps and ISA s? To avoid the tax?

So, if you had £200 a month to put away for your pension after exhausting your work schemes would you be better putting that money into an ISA or a separate pension? The pension would be counted as income for tax purposes once you retire but the ISA wouldn't? Would you still get yr tax back on your ISA ( in the way you do with your work pension)

I’m trying to understand the arguments about losing pension via tax but really once you have taken a lump sum surely most people won’t be paying that much tax and it is still worth paying as much as you can into a pension now

Not given the current relatively high interest rates!

It's actually also a pretty standard form of advice/planning for those who don't have huge sums to put into pensions. It's engineered that way. If people invest in pensions then the pension they take over £12.5k would be taxable. If they invest in bank/savings accounts, the interest over £12.5k would be tax free for the first £6k of it and is easier to access which is important for people without huge pensions and is virtually risk free compared to pensions which are usually invested in stocks & shares, investment trusts etc (and lost huge amounts when covid struck!). I've probably got more clients living on a state pension and interest than I have living on a state pension supplemented by an occupational/private pension. Why would you think it's an unlikely scenario??

All the elderly people rioting, yes?

Can you tell me what you’re talking about so I can respond sensibly?

@blossomtoes Or they are still working.

NoisySnail, of course you won't get it if you don't reply, they wouldnt have any information about where to pay it to. Do you think they come round & shove it through the letter box? The fact is, the payment is offered and the offer is instigated by the DWP. To get it paid you need to tell them where and when to pay it. You do not need to contact the DWP and request your pension off your own back. The DWP makes the first move.

That’s a very unlikely scenario. The vast majority of people likely to have investments of that magnitude will also have an occupational pension.

If no other income besides state pension and interest, you can have income up to around £18k before paying tax as the interest can be tax free up to around £6k due to personal savings allowance etc. So someone with state pension of upto £12.5k and interest up to £6k won't be liable to tax at all.

No they don’t. You have to claim it.

The problem with that age of 53 is
For those in the private sector employers did not make it easy for you to transfer your private pension from one scheme to another
ie
job 1 you pay into a pension for a few years then move to
job 2 employer states they will not pay into your previous pension and you have to take out theirs. So you have to have a new p pension at your new office. You pay into your new pp but can’t afford to pay into the old one as well. It sits there mounting up admin charges, You change jobs
job 3 Same as job 2only now you have two pensions idling doing nothing
job 4 New office says they will pay into your old pension but you will lose lots from your old pension in doing so. You either idle pension 3 or lose money and transfer.

And on and on and on it goes.

For someone of that age this will have happened most of their career.

It’s also worth noting private pensions weren’t compulsory until 2012, ie whilst an employer might want one a company didn’t have to pay anything into it which means you’d have to pay a lot more to allow for the cost of management fees.

Two of my pensions are completely empty due to admin fees and cost of transferring.

So if you were born on or after 1994 ( assume working age starts at 18 yrs in 2012) you have been in a system where having a private pension is a requirement of all employers and of course assuming you are in a contract whilst working.
Therefore that’s people age 28 now, not 53.

@Overthebow most older people can not manage without the state pension either.
The median pension pot is £32,700.

I’m in my 30s. We do have work pensions. We also have high housing costs, high childcare costs and high student loans and repayments. We pay above the minimum contributions but even on decent salaries we’re looking at pensions worth around £10k and we can’t afford to put much more in. There will be a huge problem for many if the state pension is stopped, and it will be the younger generations being hit the most (again).

There would be riots on an unimaginable scale.

@OddityOddityOdd And if you do not respond you do not get your pension.

"If you’re applying online, you’ll also need the invitation code from the letter about getting your State Pension."

The DWP write to you to inform you you can claim your pension. You need to confirm whether you want it paid from the start date or another date.