Further Pensions Update

[reheat module]

My understanding:-
Currently, auto-enrolment of Comapany Pensions is 2% minimum; comprised of 1% from Employers, 0.8% Employee contribution and 0.2% given through Govt Tax Relief.
This is due to change in April 2018 and again in April 2019.
In April 2018, the rate changes to 5% minima, with a base 2% from Employers.
In April 2019, the rate changes to 8% , with 3% from Employers, 4% Employee and 1% Govt Tax Relief.
Although not new, (these were given as part of a Company induction some 24months previous), they are worth awareness.
The option to 'Opt-Out' remains, but personnel will receive no Company Pension.
There is no mention, from what I read so far into continuance of 'Salary Sacrifice'.
I do have a concern over people with no Pension plan/Pension pot as to the future. Also, the naive individual in me (noting the increase in Company contributions), is thinking that their pot fund to pay for this is also earmarked as "Next year's staff pay-rise fund"... as the change is enforced, will people stand any chance of a pay rise? Where will the money come from to pay for personal contribution increases?
Self employed, without pension plans, over 45 with a family to support may be concerned.
I do feel something must be done...but...What a mess.

[jem60]

Having been my own boss for 39 years, retiring at 61, I found it amazing that many of my colleagues in the same trade had made absolutely NO provision for later life!. Yet they seem to be responsible enough to have families etc. Being basically a one man band, I had to finance my pension from my own pocket. I started very early, and am well satisfied with the result. I wish youngsters would look further than the end of their noses sometimes, and put a pension scheme in place before they lash out on expensive holidays, flash cars, a larger family etc.,. Catering for your later needs in life is absolutely vital. If you don't help yourself, nobody else is going to and you will regret it when you wish to retire. I don't wish to sound smug because I am in a good position, but I was young and poor when I started in business, but put hard earned money in a pension pot AS SOON AS I POSSIBLY COULD!!.

[paddyboy]

Hear, hear, John

Never had my own business, but always paid the max into both private and company pension schemes from my early 20's

Having had my forecast, I am now retiring to enjoy the benefits

Patrick

[Pen Pusher]

For 31 years, 1.5% was deducted monthly from my Civil Service pay for my Civil Service pension. Having had to retire early I'm living off that now and have another 3 years til the state pension kicks in.

Brian

[Malcolm]

My understanding:-
Currently, auto-enrolment of Comapany Pensions is 2% minimum; comprised of 1% from Employers, 0.8% Employee contribution and 0.2% given through Govt Tax Relief.
This is due to change in April 2018 and again in April 2019.
In April 2018, the rate changes to 5% minima, with a base 2% from Employers.
In April 2019, the rate changes to 8% , with 3% from Employers, 4% Employee and 1% Govt Tax Relief.
Although not new, (these were given as part of a Company induction some 24months previous), they are worth awareness.

These rules were first legislated for in 2012, but won't come into full effect till 2019. So it's difficult to argue that companies weren't aware of them. I agree that public awareness is low, but one way to look at it is that for a 4% employee contribution you will build an 8% pension entitlement, and that's in addition to your state pension.

The option to 'Opt-Out' remains, but personnel will receive no Company Pension.

You cannot opt out until you've been opted in for (at least) one month. And you must be opted back in every 3 years. IMV opting out is foolish, and shouldn't have be allowed by legislation but we are where we are. You're declining free money. Ok you can't spend that 'free' money today, but you will be able to at age 55/57 and your future self will thank you for it. I'm 2 years from reaching 55, and thankful I started saving about 10% of my salary when I was in my early 20's.

There is no mention, from what I read so far into continuance of 'Salary Sacrifice'.

There is also no mention of abolishing it either. Doing so would cause problems with major DB/Final Salary schemes including the NHS/Firemen/Police etc.

I do have a concern over people with no Pension plan/Pension pot as to the future. Also, the naive individual in me (noting the increase in Company contributions), is thinking that their pot fund to pay for this is also earmarked as "Next year's staff pay-rise fund"... as the change is enforced, will people stand any chance of a pay rise? Where will the money come from to pay for personal contribution increases?

Pension contributions are a tax deductible expense for a company, and there is no Employers National Insurance contribution either. It's also not allowed to opt out of the pension and take the money saved as extra salary. So yes unscrupulous employers could do what you say and actually save money, but realistically it'll all come down to supply and demand of labour at the lower end of the salary scale.

Self employed, without pension plans, over 45 with a family to support may be concerned.
I do feel something must be done...but...What a mess.

Someone self employed, with no pension plan and 45 has basically been burying their head in the sand for the past 25 years, and these rules don't change anything for them. If they're lucky they'll get to retire on the full state pension of £159 per week. If that's not enough then they'll have to work till they drop.

[jem60]

Nice one, Patrick. More time to scan your lovely nostalgia shots PLEASE!!!.

[AndrewBarclay]

Gentlemen, thank you for your contributions on what is a serious subject.

[steamy]

it's going to be a huge issue for people currently in the 40 and below bracket at the moment.

Defined benefit schemes are being wound down (the final salary pensions) and being replaced with defined contribution, they're basically you get what you put into them, whereas DB schemes are paid once you have hit a certain age, or given a certain amount of service.

Even with a generous pension scheme, I think I'll be working to beyond mid 60's, and that's over 30 years away

[reheat module]

I think from the entries so far (which seem to give a good grounding in Pension education), also eludes to a certain age group, show that we are now very much aware of Pension benefit, perhaps more so than when we were younger!
One thing I have attempted to install within my children is to save for the Pension.

[jem60]

Hi, Reheat. It IS a difficult problem for youngsters. I have two daughters, both grown up, one with children, one without. Chalk and cheese they are. Younger earns a six figure salary so no problem there. Older, following a divorce with children sometimes struggles, and has started a Pension scheme, but finds it very hard, after expenses to find the cash to contribute to it. For modern youngsters, I think that simply being able to meet the rent payments and living costs make it very hard work for a lot of the current generation to see a meaningful way of having a comfortable retirement in the future. Certainly, the youngsters I know are envious of our older generation, and the easier way of life we oldies have. Sometimes I think their only hope is an inhertance.[If there is anything left after Care Homes etc...] But, all is not lost. I am sure Mr. Corbyn has all the answers!!!.

[Nighthawke]

Nice one, Patrick. More time to scan your lovely nostalgia shots PLEASE!!!.

Hang on a minute, won't Mrs P have a say in that? I thought retirement +wife was a recipe for having less time I still have a few years to go so would appreciate the truth please

[jem60]

Nighthawke. I have an Airline Captain friend who retired six months ago. In his Christmas card, he wrote that he was thinking of going back to work, because at least he had a day off then!!!.

[Sparts99]

I've been paying into various pension funds since 1987. I'm trying to consolidate them into as few providers as possible as I'm less than 10 years away from retirement (I hope) and actually looking at the different funds performance. Total pension pot looks pretty big, but the annual income I'm seeing from the illustrations is pitiful, so I'm getting my 25% tax free lump out this month. Might as well, who knows what might happen next week/month/year?

[iainpeden]

I've been paying into various pension funds since 1987. I'm trying to consolidate them into as few providers as possible as I'm less than 10 years away from retirement (I hope) and actually looking at the different funds performance. Total pension pot looks pretty big, but the annual income I'm seeing from the illustrations is pitiful, so I'm getting my 25% tax free lump out this month. Might as well, who knows what might happen next week/month/year?

Be careful on that - I have heard that HMRC get informed you have just had a payment, assume it will be a monthly rather than annual/one-off event and alter your tax which then takes ages to sort out.

[Malcolm]

I've been paying into various pension funds since 1987. I'm trying to consolidate them into as few providers as possible as I'm less than 10 years away from retirement (I hope) and actually looking at the different funds performance. Total pension pot looks pretty big, but the annual income I'm seeing from the illustrations is pitiful,

You shouldn't pay too much attention to pension illustrations. They make a shed load of assumptions which are usually very pessimistic and assume you'll be buying an annuity. The annuity rates are currently at an all time low (typically 2% ish), and in any case annuities are a decreasing part of the market. If you are one of the few for whom an annuity is the best choice then your local IFA (note IFA not FA) will be able to get a much better rate than you can by going direct to the insurance company.

Typical drawdown modelling for people retiring before state pension age is to take up to about 6% of your pension pot per annum between ages 55 and 67, and then when your state pension starts at 67 reduce the drawdown to 4% ish. Your income isn't guaranteed (like it would be with an annuity) and the remainder of your pot remains invested in whatever it was previously. Your pot may continue to grow (UK stock market has averaged 5% above inflation long term). Your pot may occasionally crash in value when the stock markets take a dive. The volatility may not be acceptable to some people, but if you're ok with it then you should be able to easily double the amounts shown on your pension illustrations.

so I'm getting my 25% tax free lump out this month.

Not usually a good plan unless you have an immediate need/use for the 25%. You'll be taking money out of a tax free/exempt shelter where it can grow just like it always has, and putting it into what? Cash savings will struggle to get more than 1-2% interest, which is less than inflation. If you get more than £1K interest per year you'll have to pay tax on it. Stocks and shares ISAs may be suitable, but annual contributions are limited to £20K.

Might as well, who knows what might happen next week/month/year?

If you die before age 75, the remainder of your pension pot passes to your wife or kids or charity or the local dogs home (you nominate who) tax free.

[Malcolm]

I've been paying into various pension funds since 1987. I'm trying to consolidate them into as few providers as possible as I'm less than 10 years away from retirement (I hope) and actually looking at the different funds performance. Total pension pot looks pretty big, but the annual income I'm seeing from the illustrations is pitiful, so I'm getting my 25% tax free lump out this month. Might as well, who knows what might happen next week/month/year?

Be careful on that - I have heard that HMRC get informed you have just had a payment, assume it will be a monthly rather than annual/one-off event and alter your tax which then takes ages to sort out.

That's true for taking income from the remaining 75% - usually easier to start taking 12 equal monthly payments rather than one huge yearly lump sum. However, taking just the 25% tax free pension commencement lump sum (PCLS) should not cause HMRC to do that.

[paddyboy]

Nighthawke/John

SWMBO has already volunteered us both for work on the North Norfolk Railway: me as platform supervisor/guard, and she as buffet assistant, both out of Weybourne station

Lord knows what other stuff is up her sleeves

To get back to the gist of the post, I know from the many younger peeps I work with, that they are mostly on the ball and know that it is vital they put monies away for a rainy day, but with all the outgoings (these are the sensible ones) it is proving very difficult to make provision for the future

[Sparts99]

Thanks for the responses. Yes I do have a use for most of the 25% that is an investment, but some will be used for a long held desire for a months long long trip eastward. I don't want to wait until I'm not fit or able enough to do it.

[jem60]

Enjoy that, Sparts. It's all about ticks in boxes. Last big one on our 'bucket list' is Alaska Cruise on May 2nd. I guess yours will include Singapore. Cleanest [and most souless] city ever. Thailand etc hugely hot [lovely]! Have fun.[ I am available to carry bags etc.]

[reheat module]

Perhaps an opportunity for a timely 'bump' - especially as the new rate era of April 2018 (see OP entry) approaches fast.
It's never too late, even for that little provision.