UK pensions: could someone please explain this to me?

[Blue Velvet]

New UK pension scheme is unveiled

Plans for the automatic enrolment of workers into a new pension system have been unveiled by the government. From 2012, workers not in occupational pension schemes will be enrolled in "personal accounts" unless they opt out, under the White Paper's plans. Staff will pay in 4% of their salaries and employers 3%, with an extra 1% from the government in tax relief.

http://news.bbc.co.uk/1/hi/business/6169321.stm




In this case, could someone please explain why we need this when we're already paying National Insurance? Is there a snowball's chance in hell that National Insurance payments will be reduced? Is this yet another tax rise under a different guise? I must admit, despite my political leanings, that certain taxes are really doing my head in, particularly council tax... particularly based on where I live.

Also, when you are nearing the State retirement age, we invite you to claim any Retirement Pension you are entitled to.

http://www.hmrc.gov.uk/nic/ynino.htm

 

[Jaffa Cake]

I can't explain any of this stuff myself, but I asked Miss Jaffa Cake – who works for HMRC – and she said;

Is there a snowball's chance in hell that National Insurance payments will be reduced?

I'm told that NI goes towards the Health Service and apparently not towards pensions, which comes out of a different pot. I was actually quite surprised to hear this, I thought that it went towards state pensions as well.

Is this yet another tax rise under a different guise?

I'm told not, but then again I don't work for the Government.

She sums up "Basically, it's so they can try to get out of paying you a state pension, really."

 

[Blue Velvet]

I'm told that NI goes towards the Health Service and apparently not towards pensions, which comes out of a different pot. I was actually quite surprised to hear this, I thought that it went towards state pensions as well.

According to Wikipedia:

Initially, the most important contributory benefits were the State Retirement Pension and Unemployment Benefit.

But... surprise, surprise:

As the system developed, the link between individual contributions and benefits was weakened, and the overall revenue from NI stopped being hypothecated. This meant that link between of overall social security budget and National Insurance revenue has been broken, with revenue from NI going into the general public purse and benefits similarly being funded out of the general public purse.

http://en.wikipedia.org/wiki/National_Insurance#History


Stealth tax in my view... political chicanery, particularly as:

At the same time the unfairness of a tax that is levied on the wage income of all workers but not on dividend or interest income has been criticised: at the extreme this leads to the contrast between a low-paid worker who has to pay the tax on his income and a wealthy owner of income-bearing assets who does not.

Still, I've done rather well out of the NHS here, so I guess I should ****.

 

[Lau]

Hmm, interesting. I've been sent letters though saying that I didn't pay enough National Insurance in 2002 or something, and so I may get a reduced pension. rolleyes: ) So does that mean if you don't pay enough you get less of a pension, but it doesn't actually go towards your pension? Odd.

 

[Jaffa Cake]

Just before I read your reply BV, I asked her "Are you sure about the pensions and National insurance thing?" She replied, "Well... I think that's the case..."

Bloody civil servants, eh?

But I certainly wouldn't put it past our mighty leaders to squeeze as much as possible out of us as quietly as possible, so I'm with you on that one.

 

[Blue Velvet]

Hmm, interesting. I've been sent letters though saying that I didn't pay enough National Insurance in 2002 or something, and so I may get a reduced pension. rolleyes: ) So does that mean if you don't pay enough you get less of a pension, but it doesn't actually go towards your pension? Odd.

You can make up contributions voluntarily within a given timeframe. I think it's six years but yeah, the more you read into these things, the more it becomes a morass of confusing and politically-slippery language.

 

[kretzy]

Sounds like what we call superannuation here. Essentially, it's like a retirement fund for you so that the government doesn't have to pay you (or minimise) a pension once you retire.

All employers here have to pay a minimum of 9% into and employees superannuation fund. There is also the option of contributing to the fund voluntarily which has the incentives of government co-contribution and lower taxation.

Once you retire, this money becomes available to you in stages - similar to a pension.

From the little I know of National insurance, I was under the impression that it was like superannuation, unfortunately not by the sound of it.

 

[Graeme A]

I used to work on the NIRS/NIRS2 systems about 10 years ago and its all considered a bit pot to grab whatever they can out of. This is not money guided in to the health service, its just Treasury cash.

NI contributions are just used to measure how eligible you are for benefits in terms of 26wk flags or 52 wk flags, and how much you paid in. If I had to pay it now, I would go for quarterly payments (for contributions) and take out a private pension. The SERPS thing is crap. The best pensions in the UK are reserved for the Civil Servants and MP's; the rest of us can go to hell on a handcart as far as they are concerned.

 

[Queso]

The tax system is unnecessarily complicated in the UK. Ridiculously so. I contracted out of SERPS about six years ago, although this year the Revenue decided not to pay the money they owe my pension fund for some reason. They're investigating why right now.

People keep trying to convince us to go back to SERPS but f**k that. By the time I retire they would have found some reason to scrap it anyway. I'd rather have the money somewhere where I can at least have some control of it.

 

[toontra]

One thing worth knowing is that the amount of years' contributions needed for the basic state pension will almost certainly go down next April from about 42 for men and (I think) 37 for women to 30 for both, so don't go paying voluntary arrears to bring you up to the current eligibility threshold just yet.

 

[AndyR]

When i started my previous job we all had interviews with the pensions company where they explain things to you. It went a bit like this.

Him: Ok if you pay 2% of your salary, the company pays 3% so by the time your 65yrs old you'll have a pension of £350,000
Me: GREAT!!
Him: But then you get taxed on it so you only actually get £105,000 which isn't enough to last you.
Me: Well thats carp, if the government want me to budget for my future which I am doing, why tax me on it to make it insufficient.
Him: I know, its rubbish, off the record, buy property instead or move aboard, you'll be better of than saving for a pension.

And this isn't a small fry company either. Suffice it to say I only pay the minimum, moved my mortgage to a One Account and should have it paid of 11yrs early, then I'll bu**er of aboard!

 

[angelneo]

We have an almost identical scheme here, where we contribute 20%! of our salary and the employer contribute 13%. Personally, I don't like this, it feels like they are babysitting you, forcing you to save money for your retirement. Also, I would rather invest it on my own than to let the government decides and then keep the surplus of the investment with my savings (after deducting the interest rate given to me)