To think that a lot of us will be in trouble when we retire...

[Fleetheart]

This generation seems very unlike the previous ones in that we take out loans for everything, buy holidays on credit, kitchens on credit, new clothes etc etc. And pension schemes are getting less and less generous. And most of us don’t understand them anyway. I’ve always earned well, but have split up from partner, so still have s lot on my mortgage, no savings, and really not very much in my random pension schemes most of which are money purchase schemes and won’t pay a lot. And I know many people of my age (mid 50s) who have no pension at all. And meanwhile the govt is being less and less generous. What will become of us all?

Anybody who attempts to ‘put the house in their children’s name’ in an attempt to get free care or avoid inheritance tax is an idiot and will store up trouble for themselves, and their children.

Seriously, do you think HMRC and local authorities are stupid? If it were as easy as ‘signing over your house’, don’t you think that everybody would be doing it? Why do you think that they aren’t? Because they aren’t as clever as you?

A previous poster correctly pointed out that anybody attempting to ‘sign over’ a house they continue to live in, or sell it at an undervalue, will be deemed to have deliberately deprived themselves of assets and the transfer will be ignored.

The tax consequences are worse. If you attempt to ‘sign over’ a house you live in, or sell it at an undervalue, it is deemed to be a gift with reservation. The seven years pre-death time limit won’t save you either. The house will still be part of your estate for inheritance tax purposes unless you can prove that you have paid rent at market rate to the new ‘owner’ of the house. And guess what? That rent is taxable at the house owner’s marginal rate.

If you haven’t paid rent, then not only does the house remain part of your estate for inheritance tax purposes, your family risk double taxation. That is because the person to whom you ‘signed over’ the house is deemed to have acquired it at the transfer value: either nil or a low price. When they come to sell it, they will be looking at a huge gain for capital gains tax purposes. Which will be taxed at their marginal rate.

Schemes like this were all the rage 20 years ago. Every backstreet solicitor was offering them, for fat fees of course, to older people who were unlikely to fall into the inheritance tax net in the first place. Extricating yourself from one is not easy. It’s the old story, isn’t it? If it seems too good to be true, and all that.

My view is, why shouldn’t we all pay for our own care? Do you expect young working people’s taxes to cover your care in order to protect your divine right to pass on your house and cash to your children intact?

The ‘people with no pension end up in the same care homes’ argument is bollocks. Some will, but by being financially responsible you are buying choice for yourself. The choice to pay for carers in your own home. The choice to adapt your own home. The choice of which residential care home you want to live in.

I couldn't afford to pay into a pension until I had finally stopped paying for childcare so I feel as though I'm playing catch up.

At the moment my focus is on paying off the mortgage in the next five years. Definitely do-able if we overpay each month. Once that's paid off I'll concentrate on savings and pension.

As far as property goes, we don't have a large house so we won't be downsizing and in a post-Brexit future that's probably not a bad thing?

I do need to start looking seriously at a good savings investment plan though, my neighbour is in her 80s and has told me that she is very well off with her savings and investments, having had excellent advice over the years from her financial advisor. She never had children though - I'm sure that helped!

I'm fully aware that my future self will thank me for pulling my finger out sooner rather than later!

Care homes are incredibly expensive. No one except the well off can possibly save enough to pay for more than a year or two of care in a decent home anyway.

The reason that very few employers outside the public sector offer defined benefit (which includes final salary schemes) is that they are too bloody expensive. Here is why:

The members are living too long. Actuaries in the 1970s and 1980s didn’t predict the increase in lifespan. My dad worked for a FTSE 100 company for 20 years during that time. He paid into the final salary pension, and he paid AVCs (additional voluntary contributions) too. He is, I am delighted to say, a sprightly 88 who shows every sign of living past 90. However, I doubt that the scheme trustees expected the blokes working in the factory to live 30 years past retirement.

The pension tax credit, which boosted the value of pension funds (not the same as tax credits claimed by individuals), was removed by the Labour government in their first term. That is where all the money for their projects came from, but it clobbered pension schemes. Seriously. It was a shedload of money.

Many of the big corporate pension funds took ‘pension holidays’ in the 1980s when times were good. In other words, they stopped contributing. Idiots. It was a time of optimism: this was when (I think) Equitable Life gave a bunch of private pension savers guaranteed annuities which bled the fund dry, because the actuaries managing the fund thought that the good times would roll forever.

My advice: join your workplace pension for the free money. Contribute what they will match. Get yourself a SIPP on the side, invest in decent and cheap tracker funds. Do the same in an ISA. You don’t want to be counting out coppers in Lidl when you are old.

Most people, Jenny, to be blunt, won’t be in residential care for more than a couple of years anyway. Why not spend those last years in a place of your choice, not the crap care home with permanent vacancies that your local authority can get at a discount?

Also, to address a point made above: yes, there would be an outcry if the state pension was removed from people who had paid NI throughout their working lives and had also prudently saved. Maybe not quite a riot, but look at how many older people were out protesting against Brexit. They know how to make their voices heard.

However, outcry/riots notwithstanding, the worst consequence would be that loads of people with lower to middle incomes, who have to make sacrifices to pay into a pension, would think, sod this, no more pension savings for me. I’ll just spend the lot on holidays and widescreen TVs. Which would push up the cost of future benefits, like housing.

Paying things on the "never never" has been around for decades now, it's not new. I'm 31 and extremely mindful of my retirement, the fact the age is getting later and I'm determined to be able to retire means I, and hopefully others, have been more turned in than perhaps other generations? I'm assuming the state pension will be means tested when I come to retire, so I am trying to plan as if it won't exist. So no, what you say isn't true for me anyway. But not sure if by this generation you mean the one before mine perhaps.

I work in Local Government and have a very generous pension and services linked to pension contribution. The amount of colleagues who opt out is staggering.

I remember one of my a-level teachers ranting about the importance pensions and it stuck with me. I think the key really is to start as soon as you start earning and then you don’t know any different. It becomes much harder if you’re trying to support a family on low wages but there are a lot of medium-high earners that make bad choices that will affect them in later life.

One of the odd things about the current set-up though is high earners are heavily incentivised to save into a pension in a way that lower earners aren’t. Oubliette talked about saving on a 100k salary- every penny over £100k should go into a pension as otherwise you’re effectively paying 60% tax on it until the next step. Higher rate tax payers get the 40% relief and it some cases it can bring them back into getting child benefit threshold etc.

Oubliette talked about the restrictions on high earners saving into pensions. The savings limits were introduced a few years ago because higher earners were disproportionately benefiting from pension tax relief for the reasons you describe: a higher marginal tax rate and more to contribute.

Now, you can contribute a maximum of your salary or £40k each year, whichever is lowest.

Over your lifetime, your tax free pension savings are capped at £1,055,000. It sounds like a lot - and it is! - but it includes growth in those savings, eg interest and dividends.

The change means that higher earners late in their careers are disincentivised from saving more into a pension, because once you go past that limit the tax charges are punitive. That group - older higher earners - were the people benefiting most from pension tax relief, so the new controls have done their job.

It is still massively important to save into a pension, though, no matter how much you earn! I contribute my maximum into my SIPP (I’m self employed) and put the rest into an ISA. Always stocks and shares ISAs, mostly funds but some shares chosen by me. Riskier than cash, but interest lags inflation, so why have a diminishing asset?

you are right, that's why you are better off investing in properties and become a landlord for your pension. If the rules become too bad, then holiday let can help too.

Iamthewombat It’s an interesting policy conundrum. The current regime would have really affected my in-laws who basically put most of their salaries into pensions in their last working years but didn’t earn much when they were younger. But, for very high earners, I don’t think it was fair to have so many tax breaks for years and years.

I’m not worried, final salary pension here and a BTL property. Very little on credit (car and a small card balance). Once residential mortgage paid off I should get about £40k a year in retirement- but its meant sacrificing things now as am very cash poor but with assets.

This is an important (but gloomy) thread. Somebody suggested up thread that a third of us would be fine, a third would just about manage and a third would really struggle. I don’t know if those proportions are right but there seem to be very few good final salary schemes left, except in the NHS, Civil Service etc.

I feel very sorry for young people now as so much relies on them sorting out pensions when they are young. Many of them spend a lot on rent and have to save huge deposits to buy a home. There are a few younger posters on this thread who are saving for retirement - I take my hat off to you (or would if I was wearing one).

^Anyone know what a nest pension is?
I pay into that via work and employer pays too. ^

Withnailandaye (ages ago on thread)
That is the scheme set up by the government for employers when that did not have a company pension scheme. You have two pensions. The NEST one (which is ‘yours’) and the one where your national insurance contributions (NICS) are going which is what they call a pay as you go pension - current NICS go to support those who are already pensioners.

A few posters mentioned being carers. If you are, make sure you are also getting the carers credit if you are on benefits. That will make sure you get your NICS paid so you are still contributing towards the state retirement pension.

www.moneyadviceservice.org.uk/en/articles/benefits-and-tax-credits-you-can-claim-as-a-carer#carer-premium

I'm hoping for some inheritance left after possible care home fees but still expecting and planning for the worst. If there is any money left to us, then it'll be a nice bonus and I'll try to pass it down to help the next generation who really will have it hard.

People saying ' we will sell our house' but who to? I live in Essex and my children work and can't get a mortgage. Houses are not selling now around here , let alone in ten years time. I feel it's a ticking time bomb with the markets stalling and nobody buying or selling anything. Especially as they now want sellers to pay stamp duty ( more tax) if that goes through it's another reason to stay put.
My dh was one of the last of his age group on a final salary pension, these are pretty much gone now. It's all very depressing.
I feel for the young.

Middle class people will be fine. Once kids leave home you will save, and most will inherit. As usual it will be people in low paid work who will really struggle. It is just the same today.

As I understand it the NHS pension scheme is now career average not final salary for all those except for the dwindling numbers remaining on the 1995 version? Not sure about the 2008 version but the 2015 is definitely career average with normal retirement age same as state pension age whatever that is hoisted up to?
If the state pension is to be discontinued or means tested what becomes of those who paid additional class 3 NICs to top up the number of qualifying years contributed, and those deferring the state pension to increase the amount when they do claim it?
Surely they cannot make the state pension any more complicated than it already is, what with post-April 2016 flat rate v. pre April 2016 basic and the contracting out conundrum?

Career average is fine for the majority. Those it affects negatively are those who move up pay scales to well paid roles. Most people don't do that. Most people end up with about the same pension with career average as they would with final salary.

I was encouraged to "contract out" in the late 80's/early 90's. I understand this has backfired but not really how or why.

As I understand it the NHS pension scheme is now career average not final salary for all those except for the dwindling numbers remaining on the 1995 version?

Thanks sandinyourshoes - did not know that. I know that career average is meant to be better for women who have taken time out of the workplace for children or caring but perhaps people with direct experience think differently?

Kate It means that when you get your state pension, you don't get the full amount as your occupational pension is supposed to cover that shortfall. By contracting out, you paid reduced NICs.

Can i just say the gov.uk site is shite. You have to either register and wait for documents in the post or get an out side company to verify you. I'm a customer of Barclays but because I've been an online customer for more than 1 year they can't do it I'll just wait til I'm 70 and see what I get!

From today’s Guardian
www.theguardian.com/society/2019/aug/18/elderly-poverty-risen-fivefold-since-80s-pensions

Ah. I see. Thanks. Presumably this will show up on the NI website as missing or incomplete years? I wasn't in that job for long so I'm still ok according to the calculator. But others might not be.