The main advantages of the changes proposed are that all in work will have their own guaranteed pension pot and be self reliant and independent of the politicians influence. The State pays into the scheme a part of your National Insurance contributions, which would be put aside for your retirement benefit.
It is envisaged that the schemes will be run by Mutual Pension Societies with Funds mainly invested in National and Social infrastructure of Transport, Energy, Housing, Schools, Hospitals, etc., giving a modest average return of 4 to 6%. Although funds could still be invested in higher yield areas
The recent turmoil in the Stock Markets with its drastic impact on pensions, making retirement impossible for many is a good indication that something needs to change in the system and long term investments.
This should give all in work the minimum pension of £140 per week proposed by the State plus an extra pension based on the contributions paid into the contributory scheme, which would be considerably better than those indicated for the new State Nest Scheme.
The scheme should give a large incentive to save for retirement with a 4% contribution effectively being increased four times, a firm return on NI contributions and clear and stable value for money outcome with the saving fund being seen to do good in ones neighbourhood, promoting growth and pride.
The State stands to make large cost saving on the same scale as the spending review but with less pain. Present basic pension costs represent 50% of NI income which is the level the rebate is set at; for the first ten years State costs follow the present expected increases but over the next ten years stabilise tracking across to the 50%NI income following that thereafter. Rebate costs would be stable matching 50% of income.
Potential State savings start from 10 years; at 20 years they are some £15bn rising to £45bn at 40 years in real terms and depending on the actual population increases. There should also be substantial savings on benefit payments with the improved pension provision. A win-win situation for all concerned.
At the 20 year point, the State relinquishes all responsibility for pension provision other than the welfare pensions and pensioner benefits or any internal Departmental arrangements. Existing schemes would not be affected unless by choice, although Public Sector should change to a similar funded system.
The proposed scheme is for all in work who have no pension provision outside of the State and is aimed to bring them up to the same level of security and excellence of existing Defined Benefit schemes.
The proposals are based on the latest ONS population projections from 2008 to 2033 and 2058, taking increased life expectancy into account and therefore need no delays in retirement age, increases in contributions or reductions in benefits, all put forward as necessary to maintain pensions.
In September next year the State Nest scheme will auto enrol all in work unless they can show good reason to opt out, i.e. adequate alternative arrangements. It will require Employees to make 5% contributions from gross wages, giving 4% nett plus 1% tax relief and Employers will make 3% contributions, giving 8% total.
The money will be collected by the State and managed by them and major Insurance Providers in a Defined Contribution Scheme, renowned for its uncertain and poor performance; where members take all the Commercial risk. This sounds like a re-run of the present National Insurance scheme which keeps all in poverty.
It is planned to give a replacement pension of 15% over 40 years, a pension yield factor (earlier blogs) of 1.9; to keep pace with inflation requires 2.4 giving a pension of 19.2%, whilst the defined benefit scheme proposed should give 30% to 45% and greater security guarantee.
There is a need to demand a better deal, you will be paying the money, making the saving contributions and deserve value for your money, with the knowledge that it is well looked after and secure and gives a reliable and guaranteed outcome.
Savings Annuities Public Sector NHS Teachers Police Local Government Hutton State
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