How Safe Is My State Pension ?

How Safe Is My State Pension?

How Safe Is My State Pension

Here in the UK we all contribute into a national insurance scheme which is designed to give us a basic state pension currently £144/week. ($200).

The terms, conditions and payout of this pension scheme have been amended by every single government that I can remember and the UKs current Conservative Government has done more amending than most. The most notable change being the age at which people qualify for their pension being put back from 65 to 68. This change is expected to save the government nearly £500bn over the next 30 years.

Another big pension change is currently in process, with the introduction of compulsory private pension saving for employees who are now having to start saving up to 8% of their salaries into a government backed National Employees Savings Trust. This is in addition to the State Pension Scheme.

Whilst I am totally in favour of people saving towards their retirement, and being financially self sufficient, I’ve always had a sneaking suspicion that the government have introduced this new pension savings scheme as a back door attempt to make long term cuts to the state pension, with the ultimate aim of abolishing the state pension altogether.

At present – people in the UK pay National Insurance on their income at a rate of 12% on earnings between £140 and £770 a week. On top of this employers also have to pay national insurance on the salaries that they play to their employees at a rate of 13.8%.

So the government rake in 25.8% of these earnings via National Insurance Contributions (which in theory are meant to fund the UKs welfare state) – and thats before we pay any tax !!! which is banded at 20%, 40% and 45% depending on how much you earn.

And then not forgetting that we pay sales tax, and a myriad of other taxes on the goods and services that we buy with the remainder.

Wow – thats a hefty tax burden.

I reckon that our indebted government would love to abandon their State Pension promises – and this was reinforced by a report from an influential government “think tank” called the “Institute Of Economic Affairs” which has stated that our countries future pension burden is unbearable in a report released today. The government love these “think tank” reports and factor them into their long term planning. How long will it be before young people stop being allowed to join the state pension scheme ?

Most people in the UK rely on the State Pension as a back stop to their financial affairs. To provide their income in retirement.

As this backstop is meddled with, amended and devalued it leads people to ask ” how safe is my state pension ”

The answer has to be NOT VERY !

Once the new compulsory pension scheme is up and running, how long will it be before politicians decide to turn off the State Pension tap.

If there was ever an incentive to save for your retirement – this constant changing of government policy must be a massive red flag that you need to take action.

 

 

 

 

 

 

 

Comments

  1. A great topic. Here in the U.S. as part of the latest budget deal, brokered by Senator Murray (D) and Representative Ryan (R), cost of living adjustments (COLA) for military retirees will be 1% lower than the consumer price index (CPI) that it is tied to. As a retired soldier, you can imagine that I – and a lot of other veterans that have served – are not happy.

    The bottom line is that nothing is safe from the politicians…excluding their own pay and benefits. It behooves people to develop as many retirement income streams as possible and recognize that one or more of them will likely be negatively impacted by forces beyond their control.

  2. Sorry to hear your pension is not what it once was. I am a Teacher that depends on a pension from the State of Arizona to provide for most of my retirement income. When I started teaching 17 years ago I paid 2.35% of each paycheck. This year I am paying almost 11%. My benefit has not gone up and I have not received a raise in salary in over 6 years while my job responsibilities have steadily increased over the years. I love my job but am not satisfied that my take-home pay has steadily decreased while my job responsibilities have steadily increased!

    • That seems to be the state of the relationship between employers, employees, and retirement plans. More and more employers are looking to reduce their own obligations (e.g. move away from defined benefit plans to defined contribution [e.g. 401(k)] plans and require greater contribution input from employees, such as you have experienced.

      Being aware of the changing landscape and acting accordingly (e.g. contributing more to retirement plans such as IRAs, developing multiple retirement income streams, etc.) is a must.

    • getrichwithme says:

      Hi Paul
      I guess that your a “victim” of changes in interest rates. When interest rates were much higher in the 80’s and 90’s they made financial projections using growth rates that are “fanciful” in todays low interest low inflation climate.
      Unfortunately state workers are always an easy target when cuts need to be made

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