State Pension

[JollyPollysjolly]

my Husband is sure that by the time we reach state pension age (me 45, him 49) that it will no longer exist - or maybe when we reach 100 ha! Anyone with any knowledge that can add to this idea so I can argue back?

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.

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

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.

@blossomtoes Or they are still working.

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

All the elderly people rioting, yes?

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??

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

@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?

£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

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

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.

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.

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.

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 🤷🏼‍♀️

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

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.

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!

It may well be on Lewis’s website and the financial pages of newspapers but the vast majority of the population still wouldn’t know. The level of ignorance about finance at its most basic is massive.

Ease of access is as likely to be a deterrent as an attraction, I was very happy to have my money locked away where I couldn’t touch it, I was even happier not to pay tax on it when it was deducted from my salary.

Poorer/those on low wages, simply do not have the means to save, they might put aside 50 or 100 per month and then have to dip into it to buy white goods, repair the car etc.
Which is why around 50% of the population have less than £1000 in savings.

Pensions don't need an expensive IFA, even to combine them, have the added adv that they have the employer contribution and cannot be touched until 55/57.

The current interest rates of around 4% won't last forever, likely as not will soon be around 2%, certainly with 12/24 months.

....but if you go a penny over, you lose £5k of that savings relief in one go, no taper, nothing.

I understand why people think the interest rates will return to 2%, but I don't think they will, 5% is the average interest rate and this is the mean to which we will regress.

Few people will be planning on being bang at the limit. I only started mentioning the extra £5k allowance in response to someone up thread saying you pay tax on interest if your pension is £12.5 and you have more than £1k in interest which is wrong. The point is a lot of people WILL have state pension of around £12.5k and maybe a thousand or two in interest, so won't have to worry about paying tax, registering for self assessment etc. It's the entire reason why the £1k and £5k interest allowances were introduced several years ago, i.e. to stop people with modest savings having to register for SA returns and pay tax, i.e. to save the admin costs for HMRC of having to process it!!

I agree, we've had a decade of unsustainable and historically low interest rates and it's very unlikely we'll see that again in our lifetimes. A range between 4-6% for the longer term is far more likely. But of course, in reality, that never happens either. It wouldn't surprise me if we continue see-sawing between high and low interest rates for the longer term as that is exactly what has happened in the past. There's always something which will crop up to mess up best laid plans!!

This is only true for the Boomers and Millenials, all other generations are smaller, with Gen X being the smallest. As the Boomers die off, there will be a window of opportunity for the Government to abolish state pension or make it so meanly means tested it is de facto abolished and state pension is just UC for the elderly.