Government considering phasing out pensions tax free lump sum

This one does the rounds, who knows?

I had just been reading a website that says taxes will have to be significantly higher or spending deeply cut to meet social security and especially NHS costs in one to two decades.

It advises to look to your private pension rather than the state pension for help. Wasn't it helpful of Gordon Brown in his bull-market exuberence to tax dividends on private pensions and if him (or a successor) abolishes the tax-free lump sum, we're up the creek.

Conclusion: in ten or twenty years time state pensions will be means tested (i.e. you get nothing if you have a certain amount of savings), the state retirement age will be raised to 70-75. This will also apply in a certain measure to non-essential NHS care.

To cap it off, if the government hits a funding crisis due to not enough taxes coming in, I suspect we'll see a move to convert private pension funds into government IOUs.

The ultimate question being, why bother with a pension? You may as well blow the money now and qualify for the means-tested state benefits?

Actually, I have a better idea. Since the means test may be based on assets such as stocks, bonds, cash. It may be better to buy collectables and sell them off as you go!

Thoughts?

Roland.

URL?

I thought most young people were already doing this ?

Emigrate ASAP if you are young and skilled.

I can see the means testing including income from a private pension. If you have a private pension you could end up with no, or very little, state pension. All those NI contributions down the tube and those who opted not to join the company pension scheme will qulify for the state pension.

They are. In our city centres most of the banking and insurance jobs have been moved to call centres, which are now moving offshore. The old banking and insurance buildings have been turned into bogus trendy wine bars/restaurants or nightclubs selling alcohol to teenagers at about 1000% mark up 'til 3-00am.

This is a "Dream Ticket" for the government. All the booze contributes to the governments coffers via excise duties and VAT, low grade, unstable employment is created in the bars etc. But this flourishing, but scarecely productive "industry" is included in our economy which the Chancellor tells us is growing at 3% per annum, and government ministers are warning us is over heating "Our factories are running out of space". Erm, What factories?

Plenty of "Space" between the ears of vacuous polticians ISTM.

Meanwhile the kids in their teens and twenties are pissing away like nobody's business, money which in my generation was saved to go towards a deposit for a house. But then most of it comes back in tax, so we'd all have to pay more tax if they didn't.

Growing exotic vegetation as a retirement job (I meant Orchids and Bonsai trees, dummy ! ) The taxman never knows how many of your seeds have germinated.

Or old and rich ;-)

Otherwise, you just have to stay here and put up with it.

DG

This argument can be extended, not unreasonably, to say that any universal benefits (the basic state pension, child benefit, and a load of other stuff) are a mis-allocation of taxpayers' funds.

If you have somebody with a £25k public sector pension (yes, plenty of ex civil servants are on that) then why pay them the state pension?

If you have a family where the man brings in £50k gross (plenty of those; practically every little woman driving a Mits Shogun around will have a hubby on that much, at least) then why pay them the £10/week child benefit? It's a pisstake, no less.

It is only a matter of time before somebody with big enough balls will have to grab this bull by the horns and deal with it. But with politicans going for election every few years, it will take a real crisis before anybody is going to do it. The question is just how far UK will be allowed to go down the pan before it happens.

In the meantime, I think the best strategy is to have a range of one's own investments. They will "always" be secure. I used to think that NIC contribs were always worth doing because the *basic* state pension can never be removed but now I am not so certain; I think there is a real prospect of it being means tested.

i just contracted *back* into the state 2nd pension (was SERPS) ... bad move? :/

Y.

This thread is precisely why I haven't.

The advice for someone of my age is that I should opt back in again.

I most certainly am not going to do so. I fully expect some government in the next 25 years to take away my right to receive it on retirement. I'm having the money now ta very much.

tim

Same hear.

I think there's more of a possibility of them reducing the value of the state pension than reducing the value of a protected rights pension.

Daytona

i hear you guys... but i want a balanced portfolio as regards pensions. i already have PPPs with 2 providers and just want to hedge my bets. what's happened with Eq.Life is frightening. but i appreciate that in the future state pensions may be means tested and i'll end up with zip. such is the casino of life :\

maybe i'll opt out again in a few years ;)

Y.

But they can means test both. Reemmber that say 20 years from now, NIC will have been merged into income tax and once that happens, any pretence that your NI contributions have bought you a particular amount of state pension will be history...

Yippee! A long-overdue simplification, and acknowledgement that NI is just another tax, and doesn't really "insure" anything.

But what on Earth makes you think it will happen? It sounds far too sensible.

Perhaps you could explain why that follows. Why should your state pension not relate to your income tax record then?

Not to mention the increasing number of SKIers who will leave their kids with even less fallback...

Roland.

This will expose a major problem with social democracy. Politicians buy power by promising more and more benefits to voters. We already have at least one pensioners party, this issue will polarise and fragment the vote to the point of impotence as single issue parties take opposing sides.

Remember Argentina forcibly coverted private pensions into depreciating government bonds two years ago.

What exactly is used for means testing today? Savings? ISAs? Stocks and Bonds? Cowrie shells?

Roland.

>

I think we have to remember that the government is under no legal obligation to provide you with anything. You cannot sue a government for not providing you with a decent pension X years down the line.

Roland.

Sure, but as yummy said, that's the lottery of life.

To counter this I would like to see governments come under the rule of law. The fundamental legal test of reasonableness would scupper things like this.

Daytona

It is being talked about a lot. If it wasn't a political hot potato, and didn't put thousands of civil servants out of a job, they'd do it tomorrow. Technically the main challenge is to find another means of measuring one's state pension entitlement.

That would be one way, yes. It would mean that people with taxed but "non-earned" income (e.g. investments) would qualify for a state pension. I can't see anything wrong with that, but it goes against the traditional left-wing social thinking that has historically underpinned this area.

On the conversion date, they would presumably have to give you some sort of "pension credit" for the NICs paid over the past years. That would be an opportunity to do further means testing. Already, they are limiting PP funds to £1.5M (IIRC) which sounds like it won't affect many people, but it is a thin end of a potentially big wedge.

One must not forget that the E/Life fiasco was in TWO parts: those who lost money and those who gained money. The former group are making all the fuss. The latter group, basically people who were with EL during the 1990s when EL were over-allocating WP bonuses, did very well, but they aren't making a fuss :) I was in that group too, and saw my fund go up nearly 4x in 9 years.

To repeat what has been said here many times, a pension is just another investment. The much-advertised tax advantages are based solely on the LIKEHOOD that you are now a higher rate taxpayer than you will be when you retire. If this is not the case (either because tax rates change or because your pension is pretty good) then an ISA is just as good and much more flexible. Both are equally vulnerable to the most common disaster for a man (a divorce) and the advantage of a pension is that it is shielded from a bankrupcy, and a large pension fund doesn't prevent you drawing state benefits (at present!)

Yes, but it means that one cannot be any more certain of the basic state pension, versus anything one buys with additional contributions (SERPS)

Same here although I lost a bit on the contracted out element left behind with EL.

How much of this was due to investment returns though given the bonus rates wouldn't have increased it by that much -

1989 20% 1990 12% 1991 12% 1992 10% 1993 13% 1994 10% 1995 10% 1996 10% 1997 13% 1998 10% 1999 12% 2000 3.3% 2001 2.0%

Daytona