To think workplace/private pensions will be used like this in future?

[themaskedcat]

Many agree the state pension as it currently works is not sustainable. When it was set up it was linked to life expectancy and there were many workers for every pensioner, but these days it's the biggest cost from the welfare budget and there aren't enough workers for every SP recipient.

The age is going up to 67 soon, and will be 68 for anyone born after 1978. I'm in my 30s and expect the age to be into the 70s for my generation.

But while people are living longer, that doesn't mean people are going to necessarily be healthier and able to work into their 70s. I believe that for many, they will have to use their private pension to 'bridge the gap' from the time they can no longer work until they get the state pension (whatever age that will be). So private pensions will need to be used 'before' rather than 'alongside' the state pension. And that's I think that's why there's such an emphasis on them these days, so people in their 60s will have something to fall back on.

@Pinkdaisie ffs there are penalties for doing so.

Most people who stop working before state pension age do so because of poor health. Wouldn’t it make sense to have a long term disability/incapacity insurance that replaces your income, or a decent % of it instead of saving another private pension that is going to have minimum age to access…which is usually SP age minus 10yrs?

How much would that insurance cost though? And as you get older the premiums would be eye watering.

I think it depends more on how old & healthy you are when you start paying premiums and whether this insurance is individual or group based- the more people the risk is spread among the cheaper it is. It could also be subsidised or underwritten by the Gov as well to reduce liability for insurance companies and prevent people from losing insurance if their insurer goes bankrupt.

It’s not a penalty. The amount is less to take into account the fact you’re receiving it for longer, which is only fair. Lots of people I know with public sector pensions are planning to take it at 57.

It’s not a penalty. It’s a reduction to take into account the fact that it is being paid for longer.

I'm 50, my SP age is currently 68, I strongly suspect that this could be extended to 70 (my mum is a Waspi and we all know how shafted that co-hort of women was with pension age being changed with little warning)
I'm on target to pay off my mortgage by age 60 and am throwing as much as I can afford into my personal pension.

I intend to work full time as long as I can then gradually reduce it to part time and stick to that as long as possible.

I hope to have a comfortable income for retirement but certainly won't be flush

But boy do I wish I could start reducing my hours now, perimenopause and FT work is exhausting

I think we will look back and see the current pattern of retirement as a one-generation phenomenon. It just doesn't make financial sense to work for 35 years and then retire for up to 40 more on a decent income. In the future this lifestyle will only be for the rich. The rest of us will need to work longer, perhaps changing career. Personally I find it helpful to consider the current pensioners as a lucky generation rather than feeling hard-done by that I won't experience this.

4% a year for TPS when I last looked.

I seem to recall it's higher, maybe 5%, ifyou've already left teaching.

We early boomers tended to start work at 15 or 16, DH and I and most people we knew did. A small minority went on to further education. Apart from about 3 years as a SAHM I worked part time, full time, on agency etc., til I was 64. DH continued til 67. He had a few years out due to a major health issue, but took what work he could in later years, we don’t have great pensions. Our lived experience has been nearer 50 years of employment than 35.

I agree. Most people I know are retiring in their early 60s with a gap that needs to be made up to 66/67. I would also expect that in due course state pensions are means tested, i.e. if you have a decent occupational pension a state one will not be available. Await the announcement along the lines of those with the broadest shoulders etc…

Not If you’re self employed.

I am 52. I started paying into a private pension aged 23, knowing that state pension would never be enough. I originally planned to retire at 50 but life got in the way. Now, I cannot take my private pension until 55 because of legislative change but I will do as soon as possible after that. State pension is not worth relying on and I have no intent of keeping working until I get my state pension

@Penko25 yes I know people like that now too. Most of them have a good chunk of final salary scheme under their belt before it was closed to new entrants. People who started their careers later and earn an average wage will not be retiring in their 50s.

As a general point though,any government needs to tread very carefully with means testing any type of state provision. It's a fine balance to avoid people gaming the system. Why would people put themselves under a lot of financial pressure when younger, paying a significant chunk of their income into an occupational or private pension, if it's going to work against them in the future? It's not like paying into your own pension lets you off the hook with NI contributions - you still pay them. Why should people who work hard, are fully paid up with NI contributions, who follow the advice and also pay a lot into their own pension, then find they aren't entitled to get a state provision that someone who hasn't bothered paying into their own pension would get?

Agree. It's a real risk, and we're walking enough of a tightrope at the moment with the existence of pension credit undermining the case to even pay NI contributions for some.

I think we're more likely to first see nudges so that people who can't keep working til their late 60s claim their own private pensions first, rather than trying to claim benefits. The pensions don't necessarily have to be a comfortable amount to live on for this incentive to exist. They only have to pay more and be less unpleasant to claim than benefits.

Not if you are employed either, in fact no one is obliged to put anything into a pension

I looked at this the other way - what's the incentive to save to fund yourself in your 60s when the state will pick up the slack via benefits if you don't? Maybe we need to look at a system whereby your entitlement to working age benefits is reduced if you opt out of your workplace pension?

For me, it's the fact that I don't trust the benefits system (used to CAB volunteer so saw a lot of bad practice). I want to minimise the extent to which the state can coerce me into working longer than I feel able.

But that's from a position of being able to save into an occupational pension and still have what feels like a decent lifestyle. So it's not a particularly hard choice.

I agree about the risks of means testing. People with tight budgets will be disincentivised to keep up their private pensions.

DH and I are late 50s and are very fortunate to have a mix of public and private pensions, meaning we will be able afford to work part time before SPA (and would be OK not to work at all, one our Mortgage is paid off). For a time when our children were small and our mortgage large though, it looked tempting to stop paying into our pensions. I'm obviously extremely glad that we didn't, but recognising that young couples now have even greater financial pressures than the ones we had, it seems like an incredibly bad idea to discourage them from making pension contributions.

@lolly792

Yes and it definitely seems to be becoming more apparent

Our view exactly 😆

But if you're in a position where you can opt out of creating your own fund and then get state support, you can have jam today and jam tomorrow.

Well. Some jam. A scraping. It also means you can't have much of a nest egg, given that UC starts being withdrawn if you have more than 6k saved. Doesn't go that far these days. Maybe more like just marge!

Changing work place pensions are making it easier to 'segment' pensions. The first company I worked for with any longevity, set up an Equitable Life pension which I ended up moving. They then set up another one (so total company #1 = 2 pensions). Company #2, significant longevity there, had a DB pension which they closed. For a while they had an AVC scheme running alongside. When they closed the DB scheme , they set up ANOTHER DC pension with a different provider (so my total with employer #2 = 3 pensions). Moving them to one pension did not appeal as there were bonuses to be weighed up versus costs.

The DB scheme which closed allowed access from 55 but at 60 you could take the pension with a lump sum without it being actuarially reduced (which I did). This allowed me to halve my hours at work.

My DM died aged 64 before she could claim SAP. Although, technically a WASPI or thereabouts she was pretty savvy (went to a women's club - I bet they had a speaker who came to talk to them about it) and was always nagging me about pensions. That being said, I really wondered how DPs would have managed on 2 × SAPs and her meagre pension from a major retailer - they also had an endowment mortgage to pay off, some savings but not enough to match their earnings. There were two inheritances which skipped a generation due to her death so perhaps she was banking on those?

If you save 8% for 40 years, you'd have 320% of your salary even if you assume very low risk funds increasing with inflation - so enough to last 3-4 years at your current spend rate.

Alternatively, you could opt out, spend all your money and put yourself at the mercy of the state when you're worn out. Upthread, PPs have confirmed people are doing exactly that.