State Pensions - crisis or no crisis

For once, the Irish lead Britain in the area of pension provision.

5 years ago, The government sold off the state telecom business (for much more that it was really worth, that is another story) and placed all the proceeds into a ring fenced National State Pension Fund.

This fund cannot be touched for 30 years by succcessive governents and will be used to pay for state pensions that, based on current demographic projections, will require additional funding because the ratio of workers to pensionser will not be at current levels due to increased expected longevity and lower birth rates.

Gven the luck of the Irish, asmin problems meant that the money was held in cash for llonger than planned and in that time, they managed to miss out on a global 15% decline in global stockmarkets!!

What did Britain do with all her privatisations during the 1980s and 1990s? (Dare I mention RAILTRACK)

Regards P

quote:

the devaluation of private pensions (charges, poor performance, brown's raid etc).

said MicahelC

Plus, in my opinion, a much bigger contributory factor, the payment 'holidays' taken by employers and the raid made on pension fund surpluses by greedy companies in the 80s/90s.

quote:

Plus, in my opinion, a much bigger contributory factor, the payment 'holidays' taken by employers and the raid made on pension fund surpluses by greedy companies in the 80s/90s.

I to can remember owners, managers and staff rubbing their hands in glee when they realised that that a pension holiday could be used to give a slightly larger dividend to all share holders live now pay later

I wish the media'd get their facts right...

Public sector workers pay into a final pension plan that is IN ADDITION to their state pension; IIRC it's 3.5% out of my wages for this.

The state pension is totally seperate to this. Private sector workers generally get much better wages and can thus afford to pay into their own top up schemes and retire at 60, should they so wish.

EDIT: of course I might not be totally clear on this, but this is the way I understand it. OH, and by the way, there's nothing to stop a government plundering this additional pension fund either, so it's not guaranteed.

Personally, I'd rather work to 67 anyway as a lot of retired people seem to just die of boredom from lack of routine once they retire...

Mick - not all of us can afford ONE property, let alone more than one, to see us to retirement. We've had this argument before - I'm in a pretty well paid public sector job, and average prices are still around 7x what I earn. A total joke.

Dom
Teachers pay 6% towards their pension.

quote:

Private sector workers generally get much better wages

You might be right. But on what basis do you (and others) keep making this statement?

Are you comparing the national average of all uk tax-payers with the average for public sector workers?

Or are you comparing anecdotal "like for like" jobs (assuming there is such a thing)

Or what?

Cheers

Don

quote:

People seem to think that indexed linked pensions are the end all and b all of pensions.

They are not that good. Wages tend to rise faster than prices so after even 10 years, an above average pension goes way down the pecking order. Add to the fact that most men die before thier wives which means the wife will only receive 50% of the original pension. At this stage, what was once a good pension is now a pittance.

The lesson is simple, do not reply on a pension, because it is not much good for the long term. You need extra provision such as equities and property etc.

Mick.

I'm not relying on either the state or anyone else to provide a pension. I am buying and letting property. And I have got my 3 girls doing the same even though they are only 20 to 30 years old.

However, my wife's father is a retired postmaster. He is 93, still active, still drives etc. He retired at 60 and is enjoying a very comfortable life on a post office + state pension. The post office bit is index-linked. He has done remarkably well for 33 years on this pension.

Cheers

Don

Don

Good to see you are diversifying, that is the real secret, do not put all your eggs into one basket.

If you have rented property, you may be tempted to put it into a SIPP. I suggest you give it a miss as the conditions seem to outweight the advantages.

Regards

Mick

quote:

do not put all your eggs into one basket.

Well, I don't have too many eggs at the moment....nevermind more than one basket..

But we have professionals renting in Newbury, students in Newcastle and golfers/professionals in British Columbia. So a reasonable diversity within the domestic rental market.

What's a SIPP?

Cheers

Don

Don

"what is a SIPP"

Briefly it is a new facility soon to be introduced next year. I think it stands for Self Invested Pension Plan.

Basically if you currently own an asset such as a rented property you will have to pay tax on your rentl income and capital gains when you sell.

The reality, of course. is that you can offset your rental tax by claiming running expenses and the capital gains reduces to very little after 10 years because of RPI allowance and taper adjustment.

You can, as from next year, transfer the rental property into your pension, thus your house valued at say £150k, goes into a nominated pension fund. The advantage of this is that you will be excempt from any taxes and there are no limits. This is why investors are currently buying up properties to rent out in areas such as Cornwall and the Lake district because it is deemed a good long term pension strategy. You can also do it with any property within the EU.

The downside is when you sell it, you are compelled to put the proceeds into the pension fund. You can take out 25% in cash when you retire and obviously drawn a higher pension from the proceeds of the remaining 75%.

Like any pension, it ceases to exist when you die and hence it cannot be passed onto your children.

So you have to weigh up the pros and cons according to your own circumstances.

Regards

Mick

Not now you can't!

Apparently WINE will also be an asset class into which you can invest SIPP funds!

All you ever wanted to know about esoteric exotica but when in doubt pay for good advice.

Setback for buy-to-let as exotic investments ruled out of pensions
By Robert Budden and Charles Batchelor
Published: December 6 2005 02:00 | Last updated: December 6 2005 02:00

Investors' plans to purchase buy-to-let property or holiday homes with their pensions were dashed yesterday by the announcement that residential property and exotic investments such as fine wine or classic cars will not attract the tax perks of pensions.

The financial services industry had been predicting strong demand for residential property from pension investors following the introduction of new "A-day" rule changes in April that would have given pension investors much greater freedom to diversify their pension savings.

But in a briefing paper accompanying the pre-budget statement the Treasury said self-invested personal pensions (Sipps) - vehicles that already enjoy significant investment freedoms - "will be prohibited from obtaining tax advantages when investing in residential property and certain other assets such as fine wines".

The clampdown extends toall alternative assets including art, antiques, stamps and racehorses. Pensions experts said the turnround would leave thousands of investors out of pocket.

Financial advisers and Sipp providers have reported that growing numbers of investors have set up Sipps or paid deposits on flats in property developments with the aim of completing the transaction after the rule changes in April.

Richard Meek, principal of Punter Southall, financial advisers, said: "To leave it this late before introducing legislation - after explaining on a number of occasions how it was going to work - is extraordinary. Most people were led to think this was definitely going to happen. Many people will have started to make financial plans and will have incurred costs setting up a Sipp for no reason."

Others predicted the change would damp public excitement over pensions. Richard Proctor, tax partner at Grant Thornton, said: "Because people were turned off by the stock market it was a way of getting them back into pensions. This U-turn could nip a potential revival in pensions in the bud."

But some lobby groups were happy about the climbdown. Jenny Harris, policy leader at the National Housing Federation, the trade body for housing associations, said the previous proposals would have led to house price inflation.

Industry was also concerned that the unregulated investments would have led to another pensions mis-selling scandal. Sipps will not come under the Financial Services Authority until 2007 at the earliest.

Under the rule changes unveiled yesterday, pension investors will still maintain valuable pension tax perks if they invest in residential property via "genuinely diverse commercial vehicles", such as the soon-to-be-introduced Real Estate Investment Trusts.

So who was responsible for the Rentokil scandal. Was it the press's favourite whipping boy Gordon Brown or the management who took a 'contribution holiday' and made no payments from 1994 - 2000?

Bob

The simple truth is that a final salary scheme based on 1/60th or 1/80th for each year of service was based on the asumption that you would be pushing up daisies at the age of seventy. Remember most of these schemes started in the sixties.

Therefore, if every pensioner lived to say 80, then Rentolkil could find themselves bailing out a defunct pension fund.

Rentokil are actually doing the right thing for their employees future.

Even if they refunded every penny saved from the pensions holiday and added interest, it would not be enough to erase the deficit. Longevity is bloody expensive.

The simple answer is you and the employer need to put more into the pensions pot.

Regards

Mick

Mick
Interestingly Andrew MacFarlane, Rentokil's Chief Financial Officer has said a large contributory factor for their decision was the new requirement for companies to plug pension gaps within 10 years.
So they caused the gap by not keeping to their payment agreement and now, to avoid those chickens coming home to roost, are going to close the scheme. The directors will of course be exempt! Corrupt and totally unethical. I so do hope that the workers take up the class action that is being recommended by top lawyers and sue the company for constructive dismissal by breach of contract.

.

[QUOTE]Originally posted by Mick Parry:
Bob

If you sue the company for massive amounts, you threaten the livelyhood of the employees. If you sue the pension fund you threaten the prospects of future pensioners.

You cannot get blood out of a stone and whatever the history / blame, the reality is you need either to pay more or work longer.

You cannot pay a total contribution of say 15% into a fund for around 35 years and expect to receive 50% of your final salary (indexed by 5%) for 20 years, it is just not possible.

The time for a rethink is well overdue.

Regards

Mick

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quote:

Originally posted by Mick Parry:
Longevity is bloody expensive.

The simple answer is you and the employer need to put more into the pensions pot.

Indeed, and there aren't many volunteers for dying young so things are going to get worse.

You can pay more/work longer/die sooner. And that's it.

I'm fond of saying, the world is a shit hole...

EW

I disagree. Some people are shit-holes.
The world is simply the place where they all live.
Right next door to us!