Pensions… again

[GoodnightAdeline]

https://amp.theguardian.com/money/2024/apr/08/uk-state-pensions-benefits-changes-april-triple-lock-rise

Another pension increase we can’t afford when working people are grappling with the cost of the country.

What will be the endgame in all this? Where will we be in 20 years?

Auto enrolment will be of very little use to those whose wages are a pittance.

Well a 35 hour pw job pays £21k, auto enrolment minimum is 3% employer, 5% employee. So thats £1680 pa. Its not huge, granted. But, firstly, you are unlikely to be on that forever. Secondly, a 40 year career will see £67,200 worth of contributions. Compounded growth over a 40 year period with an annual growth rate of 5% sees a fund value of £221,000. That is not a pittance, especially when added to state pension.

Can I just remind everyone that you don't stop paying tax when you retire. Parents died at 92 and 76 still paying tax. In laws 94 and 86, still paying tax. Husband is 74, I 'm 71, still paying tax. If you are not paying tax your income is below the threshold. The vast majority of pensioners are still contributing.

Everanewbie I presume your figures for the number of "millionaire" pensioners comes from this

https://www.if.org.uk/wp-content/uploads/2022/06/pensionermillionairess_FINAL.pdf

Or something similar.

So: there are roughly 3 million pension age people in the uk in households with total assets of over 1 million. The figures are misleading in that they are for households (most of which have more than one person) and include all assets- in the southeast houses are worth £££££ as we all know- but that is only valid when it is sold.

This is in stark contrast to the increasing number of pensioners living in abject poverty:
"The report also details that the average annual income of the poorest 20% of retired individuals is below the minimum amount needed to live on. This means that the country’s poorest retirees, including those solely reliant on the state pension, have an annual income estimated to leave just £41 for a weekly food shop and insufficient funds to run their own car or service their boiler.
Relative pensioner poverty is at one of its highest rates (almost 18%) this century and is more than four percentage points higher than a decade ago. It means that 2.1 million pensioners in the UK have an income that is less than 60% of the national average."

ageing-better.org.uk/news/50-years-progress-against-pensioner-poverty-under-threat-state-ageing

So- while some pensioners are comfortably off, 20% have less than the minimum amount needed to live on. In one of the richest countries in the world, 20% can't afford to live.

Pensions are already taxable for those with an income higher than the personal allowance btw, a fact often overlooked.

Yes I am well aware of where the income tax threshold is thank you very much. Whilst that threshold remains the same for retirees as it does for this in employment, the excess is paid at 20% then 40%. However, a worker pays NI on top of this so has a significantly higher rate of tax.

Secondly, those who have planned their retirement well can use a multitude of allowances to effectively pay themselves a large tax free income. PCLS from pension savings, investment bond tax deferred allowances, ISA income/encashment to name basic strategies. It is common for retirees I meet with to have combined incomes in excess of £100k without paying a penny in tax. Whilst the people out there who sweat for their £100k pa would pay more than £31,000 in tax.

So 27% are in millionaire households, 20% in abject poverty. That leaves 48% somewhere between those. That pyramid still looks favourable to me when compared to those of working age.

It is common for retirees I meet with to have combined incomes in excess of £100k without paying a penny in tax.

Then you are living in a bubble.

Most people of any age don’t have an income that high.

Admittedly my work sees me meeting those with more wealth. I posted the example of what is possible with decent planning to illustrate the disparity between the taxation of work v. the taxation of other income sources. But a bubble of 27% millionaire households is an extremely large bubble.

I worked for 2 years after retirement age to defer my pension as it is the only one I've got and to save a bit more rainy-day-money - both our pensions come to just under £1600 a month (not riches but not destitute). When I worked the extra 2 years, I thought it was very odd that my NI contributions stopped and think we should continue to pay them if we're still working.

Your assumption, then, is that people will be able to work with no breaks. Unfortunately, that's not a reality for the many who are on zero hours contracts or those who have breaks in their employment because of illness.

I'm very fortunate indeed. I had a middle managerial post and I inherited 4k a year of my husband's work pension. (Roughly half.) That, combined with my works pension gives me about 22k a year. I've been both lucky and unlucky: no breaks for child rearing and no significant illnesses. I should be fine, though I'm trying to set money aside for the personal care, etc that I shall inevitably need if I live long enough. Many other people - mainly women - are in a much less secure position.

My illustration is based on 40 years. Yes if there are breaks, then the final pot will be less. The point is that low earners can still build a decent provision, and the earlier you start the better.

I understood your point. My point is that you're describing the ideal scenario which is increasingly unlikely given the current job market. I know many young people working two or three part-time jobs (mainly zero hours) because that's all they can get.

Cloud cuckoo land more like. Nobody with an income that high doesn’t pay a penny in tax. And most of these fabled pensioner millionaires are living in their wealth. They’re not swimming in ready cash.

@BIossomtoes it is far more likely than you’d think. Each person has a personal allowance of £12,570. You can then use withdrawals from pensions, ISA withdrawals/dividends to produce further income. A couple with professional careers and savings are more than capable of acquiring capital that could be structured to provide c. £36.5k worth of income each.

Im sorry you don’t like it, but plenty of people do and I advise quite a few myself.

I don’t think 40 years on minimum wage is ideal.

A couple with professional careers would have occupational pensions which are taxed at source. It’s not a question of liking, it lacks credibility.

You are assuming that those being paid minimum wage can afford to pay into a pension scheme in the first place. It doesn't matter how amazing the pension scheme is if you cannot afford to pay into it in the first place.

Not necessarily. They can be transferred.

True. There is the affordability issue. You need to be able to eat before you contribute to your pension. But if you can contribute, you should.

@BIossomtoes I am a Chartered Financial Planner. I know how pensions are taxed.

At which point they’d be subject to tax.

How? Until income is taken there is no tax.

Only 25% of withdrawals from a pension pot are tax free.

Yes. First thing you’ve got right. So, you don’t have to take 25% at once. For example. A person with a £400k pot has a £100k PCLS entitlement. Year 1. Crystallise £40,000. £10,000 is paid as a tax free PCLS. £30,000 allocated into drawdown but not taken. Yr 2 crystallise £100k. £25,000 PClS, £75,000 allocated to drawdown. After 2 years this person has accessed £35,000 from their pension tax free. They still have £65,000 remaining (invested for growth) tax free PCLS.

Careful planning can see decent incomes with little or no tax.

I do this shit for a living mate.

That’s withdrawals - there’s (generally) no tax on transfers

Although most people won’t have enough money not to need / want to take income from their workplace pension at some point, and I can’t imagine many retired professionals being happy to restrict themselves to the personal allowance (less State pension when they’re of that age)