Treasury now in charge of “Pension Wisdom”.
Another Monday, another set of pension headlines. The Treasury announce that the Guidance Guarantee is no more and hereafter the delivery mechanism for the help we’ll be getting at retirement will be called “Pension Wise: Your money. Your choice”.
A very political slogan which the Treasury regard as their brand.
You can register at gov.uk/pensionwise to get on the fast track for pension guidance. But woe betide you if you brand yourself “pension wise” or offer to make anyone “pension wise ” (unless of course you are not on the Treasury’s approved supplier list.
The Pension Plowman speaks advisedly. I am not pension wise, never have been- never will be. I’m just plowing my furrow (Paul Lewis is my compliance officer)
Hargreaves Lansdowne publish important research to make us pension ****.
Meanwhile Tom McPhail has managed to steal some of the Treasury’s thunder by releasing research from a freedom of information request that suggests 2m of us retiring between 2016 and 20120 won’t get the full state pension.
(Presumably this is not being “pensions wise” because Tom was wise before the event -the Treasury news being embargoed!)
Tom’s news is not a surprise for those “in the know” because they applied for a BR19 from the DWP telling them their likely entitlement under the old rules. Going forward there will be new rules which won’t likely give much more than the old rules as the new state pension won’t cost much more than the old two tier structure of Basic State Pension and Second State Pension.
What will happen is that a COD (contracting out deduction) will reduce your full entitlement if you were in a contracted out occupational pension scheme, elected to contract out using a personal pension or did not pay your full national insurance (class 4 contributions) because you were self-employed .
The old basic state pension was £115 pw+ and the new system is £155 pw – and most people will be somewhere in the middle. The hope is that as more people pay full rate national insurance for longer , more people will get the full £155.
Those people who are getting considerably less than £155 pw from 2016 may have an incomplete NI record because of time living abroad and here the complicated rules about transferability of pension rights between countries kicks in.
Why is all this important? Well there are 52 weeks in a year making £155pw worth just over £8000pa. To buy an annuity that increases like the state pension you would need a personal pension pot of around £215,000 which (I suspect) rather dwarfs the value of your personal pensions (average pot today around £30,000).
Being Pension Wise means knowing the value of your options
If you went into the Pension Antiques roadshow with your personal pension in one hand and your state pension in another , you might be surprised to have your (full) state pension valued (typically) at seven times the value of your private pension.
Which is why Hargreaves Lansdowne’s piece of research is actually rather more important than Pension Wise. Well done Tom Mcphail for your impeccable timing!
Being Pension Stupid means taking stupid decisions which leave you pension poor
Ironically , it is because we don’t understand the value of the various types of pensions that we take foolish decisions. Self-employed people are not taught that the reduced rate national insurance contributions they pay, come at the cost of reduced state pension and they have no idea of the value of the state pension they have given up.
Many people who contracted out into state pensions , remained contracted out well beyond the point where it was economically viable for them to do so. Only when they retire will they be able to compare the value of their rebate only personal pension with the Contracting Out Deduction (and the comparison won’t generally favour the personal pension). Similarly older woman, who defaulted into the lower stamp, will only find the cost of this decision when they compare their pension to what they’d have got if they’d paid the man’s rate. Hopefully they will still be able to make up some or all of the difference with a special payment (on decent terms).
This pension freedom stuff is sexy but it is not the only show in town
All this complicated stuff, close to retirement is generally being ignored in the pensions debate. Even in Tom’s statements on the radio this morning, the main thrust was about the importance of the decision about what to do with the personal pension money.
I have yet to hear any adviser suggest that one of the best uses for tax-free cash (arising today) is to purchase basic state pension for tomorrow (if you are close to your state retirement age).
There is of course an issue here, it is a further part of the problems with pensions advice. No one is getting paid for advice on state pensions because no-one is paying for individual pensions advice. Employer advice is centring (properly) on the employer’s schemes, IFAs and benefit consultants are busy guiding people into vertically integrated master trusts and SIPPs while “Pensions Wise” has an agenda to help with pension freedoms.
It will be up to TPAS and the Citizens Advice Bureaux and any other approved suppliers to inform people of options surrounding state pensions, but as with this morning’s announcements, the battle between the noise surrounding the immediate satisfaction from private pension freedom, may drown out the really important news about people’s state pensions.
Get your BR19 here
I’d urge anyone who is approaching retirement now to use the DWP’s BR19 service. It should have been an on-line service by now but it is – as manual services go, pretty quick and informative and accurate.
If you want to apply to know your state pension rights, you can do so by clicking here