Texted from here
All yesterday I was getting texts about the Sunday Times 5 point pension plan. There is nothing that so excites my friends as someone else’s pension agenda,
Here is one response I’ve received to yesterday’s blog in which I praised the paper for bringing pensions up the reading list but lamented the lack of focus in the proposal.
If our only focus is to increase the amount going in we risk alienating ordinary people just as we have company owners, for whom the financial demands of trustees have become one reason why pensions and risk have become synonymous.
Put another way, people should sacrifice cash today for cash tomorrow not just out of fear, but out of satisfaction that money committed for the future is money well spent.
To remind ourselves, the Sunday Times are focussing on a five point plan
- Give savers the chance to top up ten years’ worth of national insurance contributions to boost state pensions
- Increase employer pension contributions to a minimum of 5 per cent through auto-enrolment
- Ensure employers continue pension contributions for staff on statutory maternity or parental pay so that parents do not miss out
- Increase in line with inflation the amount that can be paid into a pension of someone not working
- There should be a dedicated pension commission so that all parties agree big pension changes
The following comments were received by text. My additions are in brackets
Extra contributions to State pension
I fear there is a lot of misunderstanding.
People now reaching SPA are under the post 2016 rules. This requires 35 years of qualifying years – which can be with (purchased) credits. That needs 35 out of a possible 52 years (to be credited). So who does not achieve that?
We need proper evidence to decide whether people who don’t should be able , as now, to get an extraordinary good deal or not.
There may be special cases where some should but I doubt it until proven. If we decide not we need to remember that NI is taxable but contributions are not tax deductible and then set the price accordingly by age etc.
We need to be careful to be sure it is worthwhile. I remember student friends encouraged to make up a qualifying year when they were young but in fact that year was not needed.
A second issue is whether people with a full record can buy more additions to full NI. So in effect government annuities and how that might work. Feels like should be state decumulation only CDC! Alongside my state lifetime CDC of course.
I queried whether Martin Lewis hasn’t shown that there is a good deal to be done
Martin Lewis is correct, but the prices need to be changed. It is CURRENTLY a good deal because it is a scandal.
Like self employed contributions. It needs analysis if it is to be one a better publicised option largely for (1) migrants (2) better off people who take time out of work. For both people (analysis) should be about be the giveaway it is.
Like a lot of pensions, what is done is either poorly thought through or based on deliberately wrong decisions because they suited decision makers.
Increasing employer contributions
I agree your comment. We need to review :(A)fairness.(1) Why does someone earning £9k get nil employer cont,(2) someone earning £15k opting out get nil employer cont(3) someone earning £18000 get about 2% if they stay in (and if employer only pays the minimum required)(4) someone earning £42k get about 2.6%.(B). IgnoringDo lower earners “need” it if they aspire to the PLSA lowest illustration?(C) is the increase necessary?Should higher earners have that level of compulsory employer money paid into a pension?Has any work been don’t on the wider economic impact of such an increase. On prices and employment. Are we happy that is fair?
I asked who should be asking these questions
It is what DWP should always have been asking. Also.What is the role of(1) working and earnings for longer perhaps part time(2) other savings especially for those with average and above average earnings.Who ONLY has pension savings. Also for such people inheritance is not irrelevant.
Contributions for those on maternity and paternity
Neither here nor there. Again disproportionately favours those people who can afford long periods of maternity or paternity leave And who have good levels of maternity pay. Danger of affecting employers attitudes to maternity pay above statutory level.
Inflation link minimum contributions all can pay
No comment needed
Call for a dedicated pension commission
No chance ever of a pensions commission inked by someone who agreed to propose what government wants EVEN IF or PERHAPS especially if they cloud it with copious research. But unreliable or narrow research. See Turner Commission
Verdict
My correspondent’s verdict on the proposals was that they were “pretty lame. There had been no proper analysis of the main issues resulting in no useful proposals.
This isn’t a pretty blog and this is not a pretty subject. Getting pensions right requires the rigour of our best thinkers and my correspondent, despite him licking ice-creams on the Promenade des Anglais as he texted – is one of our great pension thinkers