State pension should be linked to wages

[kzb]

2 hours ago, TenYearToGetMyMoneyBack said:

Certainty that they won't run out of money in retirement.

But that is not special to your "deferred" annuities.  Any annuity has this property, not just a deferred annuity.

What is so special about a deferred annuity in this respect ?  I can't see anything to be honest.

[kzb]

1 hour ago, scottbeard said:

Indeed.  And THAT is relevant

Why do you pick on this point, when the post to which I was replying was riddled with lies ?  Why don't you have a go at cbathpc, with the obvious untruths being spread there ?

1 hour ago, scottbeard said:

though Medicare only pays part of medical costs whereas the NHS covers all of them.

So overall given the high costs of healthcare in retirement it’s by no means clear that US pensioners are better off

As I am sure you recall, some time back we were looking at that OECD report.  In there, it attempts to detangle all the different costs and benefits for pensioners in different countries, and come up with comparable numbers.

Even with that method, the UK state pension came well down the league table of comparable nations.  I was actually quite surprised that the USA came out ahead of the UK on this measure, but yes even the USA was ahead of us.  When you look at our peer group, France, Germany etc, we are well behind.

 

[TenYearToGetMyMoneyBack]

1 hour ago, scottbeard said:

On the deferred annuity - why not just buy a normal immediate annuity?

I am assuming that the US style deferred annuity would be cheaper if you didn't want it to start until your were. for example, 75. I suppose you could do like the first article I posted and set aside some of your pension fund to buy an annuity when you are 75.

Regarding scheme rules I have certainly looked at those for the two DB schemes I am in. The fixed rules just seem to be a cut and paste from Government legislation. One that has prompted lots of discussion is the rule that says that in payment pensions only have to increase by a maximum of 2.5% copied from here  https://commonslibrary.parliament.uk/research-briefings/sn05656/   If inflation and investment returns stick at about 5% L&G will be having a bumper decade.

The other scheme rules are full of words like may. In fact drawing your pension at all before 65 is at the discretion of the scheme and the company.

  

[kzb]

1 hour ago, TenYearToGetMyMoneyBack said:

I am assuming that the US style deferred annuity would be cheaper if you didn't want it to start until your were. for example, 75. I suppose you could do like the first article I posted and set aside some of your pension fund to buy an annuity when you are 75.

Yes here in UK we'd simply hold back from buying an annuity until it suited us to do so (if ever).  Keep hold of your pension pot under your own control.

This could be described as "deferring" your annuity, but the financial products are not called deferred annuities.  They are simply annuities that start at age 70, 75, 80 or whatever.  You get a better rate the older you are. 

If you die before you buy an annuity, your spouse or offspring can inherit your pension pot.  If you die one week after buying an annuity they keep it and your offspring have lost inheriting your pension pot.

So I really don't understand why anyone would even want a deferred annuity.  Ordinary annuities are bad enough, without making it even worse.

[kzb]

1 hour ago, TenYearToGetMyMoneyBack said:

One that has prompted lots of discussion is the rule that says that in payment pensions only have to increase by a maximum of 2.5%

This is something this lot on here will cheer.

Boomers on final salary pensions capped at 2.5% maximum increase have lost out in a big way.  Trebles all round.

The inflation index 2020 to October 2023 is 1.214.

Over three years, the pension increase is 1.025 to the power of 3, which is 1.077.

So those boomers are now 13.7% poorer in real terms within just 3 short years.  Heaven knows what will happen over say 30 years of retirement.

I would've thought this lot on here are out partying to celebrate.

[TenYearToGetMyMoneyBack]

1 hour ago, kzb said:

This is something this lot on here will cheer.

Boomers on final salary pensions capped at 2.5% maximum increase have lost out in a big way.  Trebles all round.

The inflation index 2020 to October 2023 is 1.214.

Over three years, the pension increase is 1.025 to the power of 3, which is 1.077.

So those boomers are now 13.7% poorer in real terms within just 3 short years.  Heaven knows what will happen over say 30 years of retirement.

I would've thought this lot on here are out partying to celebrate.

If you haven't realised I am a youngish boomer, hence my interest in pensions. I'm hanging on for another 6% uplift in my main pension in April, which will be slightly more than my salary increase then. The younger, but now retired, colleague who I keep mentioning has decided to upsize now he has retired. That actually might make sense. As people keep saying you can't take it with you, and with the way things are going the cash aren't taking might not be worth much in a decades time.  

[kzb]

6 minutes ago, TenYearToGetMyMoneyBack said:

If you haven't realised I am a youngish boomer, hence my interest in pensions.

Same here, it's funny how we get interested in pensions now isn't it.  I recall when I was about 25 basically telling an older colleague to get lost and stop boring me with pension talk in the brew room.

8 minutes ago, TenYearToGetMyMoneyBack said:

I'm hanging on for another 6% uplift in my main pension in April, which will be slightly more than my salary increase then.

You might find that increases above 2.5% are discretionary.  It depends on the scheme I think.

What will happen eventually is they will all be offloaded onto the likes of L&G, who won't understand discretionary increases.

[RentingForever]

15 minutes ago, kzb said:

Same here, it's funny how we get interested in pensions now isn't it.  I recall when I was about 25 basically telling an older colleague to get lost and stop boring me with pension talk in the brew room.

You might find that increases above 2.5% are discretionary.  It depends on the scheme I think.

What will happen eventually is they will all be offloaded onto the likes of L&G, who won't understand discretionary increases.

This is happening now with a small deferred pension I have with BP. They're in talks to sell their whole pension fund off to an insurer. I'm keen to access it as soon as I can - in the new year - as you can still take it at 55 with minimal reduction. Reading this thread that sounds like the first thing that would go when sold off!

(Edit: I mean getting sold off is the thing that is happening. Discretionary increases stopped years ago, despite the company being awash with cash)

 

Edited December 18, 2023 by RentingForever

[TenYearToGetMyMoneyBack]

29 minutes ago, kzb said:

Same here, it's funny how we get interested in pensions now isn't it.  I recall when I was about 25 basically telling an older colleague to get lost and stop boring me with pension talk in the brew room.

You might find that increases above 2.5% are discretionary.  It depends on the scheme I think.

What will happen eventually is they will all be offloaded onto the likes of L&G, who won't understand discretionary increases.

No there aren't any discretionary increases once the pension is in payment. The rules for in service career average increases are more generous, otherwise "The great resignation" would have been more like a stampede.

Yes they have already offloaded all the existing pensioners to "Just Group" who like L&G will have no interest in discretionary payments. I just hope @scottbeard doesn't come back saying something like "Oh no. Not that lot".

[scottbeard]

56 minutes ago, kzb said:

What will happen eventually is they will all be offloaded onto the likes of L&G, who won't understand discretionary increases.

20 minutes ago, TenYearToGetMyMoneyBack said:

Yes they have already offloaded all the existing pensioners to "Just Group" who like L&G will have no interest in discretionary payments. I just hope @scottbeard doesn't come back saying something like "Oh no. Not that lot".

It's not about insurers "not understanding" or "not being interested" in discretionary increases...the insurance policy will pay out what the pension scheme trustees who bought it paid for it to pay-out, no more no less.  Same as if you take out an annuity yourself with 3%pa increases....every year you get 3%, no discretionary increases.

As for Just.....well they are a well known insurer, so no better or worse than L&G I would suspect!  Insurance companies are generally very secure and covered by the FSCS.  There are no guarantees in life but insurance companies are amongst the safest institutions around.

[kzb]

12 hours ago, RentingForever said:

This is happening now with a small deferred pension I have with BP. They're in talks to sell their whole pension fund off to an insurer. I'm keen to access it as soon as I can - in the new year - as you can still take it at 55 with minimal reduction. Reading this thread that sounds like the first thing that would go when sold off!

(Edit: I mean getting sold off is the thing that is happening. Discretionary increases stopped years ago, despite the company being awash with cash)

 

If it is really true that you can take it with "minimal" reduction as early as age 55, then perhaps you should do it.

A short time ago on this forum there was a way of looking at it which had not really occurred to me.  For example I could take one of my DB pensions at 64 with 3% reduction.

The point being you have to live for the next 32 years before you start being worse off by taking it a year early (because you have an extra year in payment).  That's age 96, and you have to wonder what are the chances of getting to that age, and even if you do, if you will be bothered by then.

If you could take it at 55 (10 years early) with a 5% reduction (I'm guessing what minimal means) you would have to live to over 200 before you had less money out of the pension scheme overall.

Having said that, it takes no account of inflation.  If your inflation indexing is capped at 2.5%, you are risking that inflation won't exceed that for the rest of your life.  Clearly recent experience says caution is needed with that assumption.  That is the downside of taking it early.

 

[scottbeard]

5 minutes ago, kzb said:

If you could take it at 55 (10 years early) with a 5% reduction (I'm guessing what minimal means) you would have to live to over 200 before you had less money out of the pension scheme overall.

Having said that, it takes no account of inflation.  If your inflation indexing is capped at 2.5%, you are risking that inflation won't exceed that for the rest of your life.  Clearly recent experience says caution is needed with that assumption.  That is the downside of taking it early.

I might argue though that if you were particularly worried about inflation reducing the purchasing power of your pension in the future that should make you MORE inclined to take it early, and get more value now (whilst £1 still buys more).

The flip side is that many schemes pay greater increases in deferment (ie before you start drawing it) than in retirement, so the inflation protection can (in SOME not ALL schemes) be better whilst left untouched than whilst drawn. 

[kzb]

13 minutes ago, scottbeard said:

I might argue though that if you were particularly worried about inflation reducing the purchasing power of your pension in the future that should make you MORE inclined to take it early, and get more value now (whilst £1 still buys more).

The flip side is that many schemes pay greater increases in deferment (ie before you start drawing it) than in retirement, so the inflation protection can (in SOME not ALL schemes) be better whilst left untouched than whilst drawn. 

At least one of my deferred DB pensions is indexed to RPI whilst in deferment.  In fact I think it is indexed to RPI without cap whilst in payment too.   Which is good.

The other one, I think it is RPI without cap whilst in deferment but capped at 2.5% in payment.  So I am pleased I did not claim that one early.  By claiming it say two years ago I would've lost out big time with the recent hyperinflation.

So yes, @RentingForever needs to look carefully at these aspects of the pension scheme before deciding.  Also look carefully if some of it is discretionary, because you can bet you won't get anything discretionary in the future.

 

[bearishonhouses]

On 18/12/2023 at 09:19, kzb said:

US pensioners have access to Medicare.

Yes - they do. But they have to pay and the cost is currently $175 per month ($2,100 pa, £2,700 pa). And that is for fairly basic coverage. Most individuals who can afford it take out supplementary coverage - that give greater flexibility and choice of doctors to be seen etc. And having paid for extra plans, there are copays involved.  

And basic medicare does not include coverage for medications. Drug coverage plans can cost 'not much' to $3,000 pa. All of them will still involve copays - so drugs will still not be free. 

[kzb]

2 hours ago, bearishonhouses said:

Yes - they do. But they have to pay and the cost is currently $175 per month ($2,100 pa, £2,700 pa). And that is for fairly basic coverage. Most individuals who can afford it take out supplementary coverage - that give greater flexibility and choice of doctors to be seen etc. And having paid for extra plans, there are copays involved.  

And basic medicare does not include coverage for medications. Drug coverage plans can cost 'not much' to $3,000 pa. All of them will still involve copays - so drugs will still not be free. 

If they've made the required social security payments, (like our National Insurance) through their working lives they are covered by Medicare.  As I understand it, there is no $175 per month in retirement, if they've "paid their stamp".

If you are a poor pensioner, you are eligible for Medicaid, although I don't know just how poor you have to be to qualify.

Don't forget, here in the UK, you have to pay for social care.  That is not free unless you are poor.  If you need long term care after a stroke or you have dementia, more than likely you will pay for it.  NHS dental service is basically non-existent and anyway is expensive, and you will pay for that as well.  Also opticians and deaf aids, you have to buy them.

Anyhow, all this is not particularly relevant, because the OECD compensated for different health systems when they did their comparisons.  If US pensioners do pay more for healthcare (and I suspect they do), then that must be more than compensated for elsewhere, because the USA comes out ahead of the UK when everything is taken into account.

[RentingForever]

6 hours ago, kzb said:

At least one of my deferred DB pensions is indexed to RPI whilst in deferment.  In fact I think it is indexed to RPI without cap whilst in payment too.   Which is good.

The other one, I think it is RPI without cap whilst in deferment but capped at 2.5% in payment.  So I am pleased I did not claim that one early.  By claiming it say two years ago I would've lost out big time with the recent hyperinflation.

So yes, @RentingForever needs to look carefully at these aspects of the pension scheme before deciding.  Also look carefully if some of it is discretionary, because you can bet you won't get anything discretionary in the future.

 

Thanks both - sounds like I need to investigate further.

[kzb]

Net and gross pension replacement rates: Average earners, in percentage -OECD 2023

 

It seems the UK has gone up a few positions in the league table since last time I looked at this.

I have to admit we are now slightly ahead of the USA on net replacement rate, 54.4% versus 50.5% for someone on average income.

But I don't see why we are sidetracked into comparing only with the US.  Surely we should be looking at our European peer group countries ?  After all most of you are EU lovers, so surely that is the ideal we should be looking to.

If you look at France, Netherlands, Spain, Italy, Austria, Denmark, Belgium they are all well ahead of us.  Although it has to be said we are very close to Germany, only marginally behind (54.4% versus 55.3%).

So we do seem to have improved a bit, but we are still below OECD average and EU average.

@bearishonhouses

@scottbeard

 

[bearishonhouses]

4 hours ago, kzb said:

If they've made the required social security payments, (like our National Insurance) through their working lives they are covered by Medicare.  As I understand it, there is no $175 per month in retirement, if they've "paid their stamp".

If you are a poor pensioner, you are eligible for Medicaid, although I don't know just how poor you have to be to qualify.

Don't forget, here in the UK, you have to pay for social care.  That is not free unless you are poor.  If you need long term care after a stroke or you have dementia, more than likely you will pay for it.  NHS dental service is basically non-existent and anyway is expensive, and you will pay for that as well.  Also opticians and deaf aids, you have to buy them.

Anyhow, all this is not particularly relevant, because the OECD compensated for different health systems when they did their comparisons.  If US pensioners do pay more for healthcare (and I suspect they do), then that must be more than compensated for elsewhere, because the USA comes out ahead of the UK when everything is taken into account.

I think that if you check, you will find that:

Part A - hospital coverage - is available to _all_ 65+, no premium if the individual, or their spouse (current, deceased, or divorced) has paid 'contributions' for 10 years. If less than 10 years, coverage available but premium payable.
Part B - general doctor coverage -  current premium for everyone - irrespective of 'contribution' paid by self or spouse is $164.90 per month. If income is 'high' (more than $175k for a couple) additional premium is payable.

(https://www.hhs.gov/answers/medicare-and-medicaid/who-is-eligible-for-medicare/index.html)

 

 

[kzb]

42 minutes ago, bearishonhouses said:

I think that if you check, you will find that:

Part A - hospital coverage - is available to _all_ 65+, no premium if the individual, or their spouse (current, deceased, or divorced) has paid 'contributions' for 10 years. If less than 10 years, coverage available but premium payable.
Part B - general doctor coverage -  current premium for everyone - irrespective of 'contribution' paid by self or spouse is $164.90 per month. If income is 'high' (more than $175k for a couple) additional premium is payable.

(https://www.hhs.gov/answers/medicare-and-medicaid/who-is-eligible-for-medicare/index.html)

 

 

I don't profess to understand the US healthcare system, other than to say it's about the last model we would want to follow.  But do look at my post above where the OECD has corrected for all these things, and we are only slightly ahead of the US on net pension replacement rate.  If you factor in that the average US income is significantly ahead of ours, it could still be that the state pensioner in the US is better off than the equivalent here.

Anyhow, how did we get sidelined into comparing with the US in the first place?

Surely our comparison is with that shining beacon of truth, known as Europe?

Why are we not comparing with France, Netherlands or Spain?

Edited December 20, 2023 by kzb

[sexton]

Social Security from 16 years in the USA pays me about £150 more per month than a full UK pension even with taking it at 62 and a deduction for my UK state pension. Had a few years where I hit the top limit for contributions.

13 qualifying years in the UK pays me £304 + £175 for my wife(no UK contributions) per month.

 

[jiltedjen]

But again it’s not just pension amounts. It’s about the context of the country those pensions are paid in.

UK has enriched the older generation - used our north sea old, sold it when oil was cheap, and used the proceeds to cut taxes, which directly got fed into property prices.

The older generation didn’t pay enough in to cover their demands, and benefitted from our finite recourses without funnelling back into productive assets or infrastructure.

the old therefore are asking for more money from the younger generations who are currently suffering from the olds actions.

Therefore pensions should be much lower for the old, and any future increases should be pegged and hard-linked to the working population.

that way the old can suffer from their own actions (salting the ground) as much as the young do.

The old should really be paying back what they stole. 

Given the context the old have a very very sweet deal indeed, enriched and triple lock, yet still moan it’s not enough?

politicians know full well the demands cannot be met and it’s not moral to meet them either.

if anything we need some claw-backs and make it legal to discriminate based upon age, to have laws targeted at the old generations to allow special tax rates to apply. 

it’s insane that we let one generation take so much, ruin the UK, and then get more and more money each year.

I kind of feel each generation enriched themselves once they get their hands on power. 

But this time that can’t be achieved via money printed, but re-distribution of assets.

once way to force the old to sell up is to squeeze state pensions so they are forced to downsize. make them pay for their own retirement. 

 

Edited December 21, 2023 by jiltedjen

[kzb]

3 hours ago, jiltedjen said:

But again it’s not just pension amounts. It’s about the context of the country those pensions are paid in.

UK has enriched the older generation - used our north sea old, sold it when oil was cheap, and used the proceeds to cut taxes, which directly got fed into property prices.

The older generation didn’t pay enough in to cover their demands, and benefitted from our finite recourses without funnelling back into productive assets or infrastructure.

the old therefore are asking for more money from the younger generations who are currently suffering from the olds actions.

Therefore pensions should be much lower for the old, and any future increases should be pegged and hard-linked to the working population.

that way the old can suffer from their own actions (salting the ground) as much as the young do.

The old should really be paying back what they stole. 

Given the context the old have a very very sweet deal indeed, enriched and triple lock, yet still moan it’s not enough?

politicians know full well the demands cannot be met and it’s not moral to meet them either.

if anything we need some claw-backs and make it legal to discriminate based upon age, to have laws targeted at the old generations to allow special tax rates to apply. 

it’s insane that we let one generation take so much, ruin the UK, and then get more and more money each year.

I kind of feel each generation enriched themselves once they get their hands on power. 

But this time that can’t be achieved via money printed, but re-distribution of assets.

once way to force the old to sell up is to squeeze state pensions so they are forced to downsize. make them pay for their own retirement. 

 

JJ you are deluded.  No pensioner voted for what went on back then, any more than you vote for what this lot are doing.

Going back to linking pensions only to incomes, why don't you make the business case for it.  We have not had that so far, but we were doing this as professionals it is the first thing that would be asked of us.

How about going back to the start of the triple lock, and see what the state pension would be by now, had it only tracked the median wage instead of being triple locked ?

I am curious to see what it would be.  I suspect it wouldn't be much less than it is now.

[Insane]

4 hours ago, jiltedjen said:

UK has enriched the older generation - used our north sea old, sold it when oil was cheap, and used the proceeds to cut taxes, which directly got fed into property prices.

Cut taxes LOL. What Taxes have been cut? 

It was often said that North Sea Oil was used paying over 3 million people who were unemployed not for Tax Cuts. 

4 hours ago, jiltedjen said:

The older generation didn’t pay enough in to cover their demands, and benefitted from our finite recourses without funnelling back into productive assets or infrastructure.

Have you got some data to back that up?

4 hours ago, jiltedjen said:

The old should really be paying back what they stole. 

Given the context the old have a very very sweet deal indeed, enriched and triple lock, yet still moan it’s not enough?

politicians know full well the demands cannot be met and it’s not moral to meet them either.

if anything we need some claw-backs and make it legal to discriminate based upon age, to have laws targeted at the old generations to allow special tax rates to apply. 

it’s insane that we let one generation take so much, ruin the UK, and then get more and more money each year.

I kind of feel each generation enriched themselves once they get their hands on power. 

But this time that can’t be achieved via money printed, but re-distribution of assets.

once way to force the old to sell up is to squeeze state pensions so they are forced to downsize. make them pay for their own retirement. 

How about getting the young on Tax Credits and Housing benefit just because they spatt out a few sprogs to pay back what they are stealing? 

[jiltedjen]

If pensions were pegged to average wages, voting patterns would be for the greater good. People who have reason not to vote for policies which damages wages and productivity (no more voting for HPI)

also pensions should be pegged to take-home pay after taxes. 

also we don’t end up with this situation of one generation crushing the younger generations.

imagine the old voting for tax cuts and investments, and house building as it brings average wages up and makes UK more competitive.

 

[kzb]

39 minutes ago, jiltedjen said:

also pensions should be pegged to take-home pay after taxes. 

Like I said, calculate what the pension would be now, if that had been done.  Since they started the triple lock.

The tell us how much it would've saved the government.