Pension credit

My OSP is higher than I would get on NSP. As I did not have enough contributions for a full pension, it is now topped up since my husband died, based on his contributions.

SporeRB01 It is unfair but that is how the cookie crumbles.

When it comes to pension, we all have been given bad advice.

Precisely why we choose maximum in ISA accounts. No advice needed. Tax free earnings growing nicely, quite simple really.

Norah, if people can't afford to pay full pension contributions, being able to pay into ISAs is unlikely to be the solution. It may be simple, but it's not for everyone.

The problem, IMO, is twofold. The first thing is that wages in the UK are low, and if there is a move to raise minimum wage upwards there is an outcry from those whose profits depend on others working for little. This means that there are many people who can't afford to pay into occupational pensions, so rely entirely on the SP.

The second problem is that after decades of the welfare state picking up the tab for those who choose not to work, a pension is seen by many as a right of passage - you reach SPA and you are paid for doing so, regardless of contributions. This attitude is being challenged, and the narrative now is that people have to pay in to get back (the same narrative that is used about people claiming other benefits).

As we are now an ageing society, pensions are expensive for the treasury, and whereas it would be lovely to be able to pay everyone a decent income in retirement, there has to be a difference between those who have paid in and those who haven't. If that difference is not there, resentment and accusations of there being a 'two tier society' ensue. Nobody likes seeing others being given what they have had to work for.

Things are complicated, however, by the fact that older people have to live. If they haven't made provision for their older age they can't be left to starve, and the added benefits of being on pension credit mean that they are brought to the same level (or often higher) than those who have a small occupational pension, and we are back to the resentment and accusations. The social care system makes things worse, as those with relatively small savings see others with none getting free care while they have to pay until they, too, have nothing.

But what's the solution? To bring back workhouses or other punitive measures to force people into saving? There will still be the problem that not everyone can afford to save. Let people starve? Not something most of us would like to see. Make people work until they die? That is already happening in some cases, and younger people who realise that this is likely to be what they are facing are even less keen on paying taxes for older people who may be better off than they are. Renege on the 'deal' (and yes, I know there is no written contract, before someone rushes to point that out) that if you pay in you will get a pension, and means-test the SP? Why would anyone bother to pay in that case? Of course most of us have no option - it is always those on PAYE who underpin the contribution system - but there would be widespread fury and discontent.

It's a thorny problem, which is why it hasn't been solved before now. Up to a point, the 'if you pay nothing in, you get nothing out' is 'fair', but unless there is a massive change in the way the UK has operated since WW2, that will always be weakened by the fact that we don't want to see people starve or go without essentials.

Norah, if people can't afford to pay full pension contributions, being able to pay into ISAs is unlikely to be the solution. It may be simple, but it's not for everyone.

Yes, I find that quite an astonishing statement which shows little understanding of how many people live/lived!

The second problem is that after decades of the welfare state picking up the tab for those who choose not to work, a pension is seen by many as a right of passage - you reach SPA and you are paid for doing so, regardless of contributions. This attitude is being challenged, and the narrative now is that people have to pay in to get back (the same narrative that is used about people claiming other benefits).

I'm not complaining about not receiving the full SP because I did have a period of five years when I paid a Married Woman's Stamp following by a period at home brining up DC (before HRP was brought in
What does annoy me is the poor, or deliberately wrong, advice many women were given.

It surprises me that a friend, who worked for a few years before having DC, received HRP, then did a minimum amount of work for her husband, gets a full SP.

I don't think the right to a State Pension will be sustainable in the future.

Doodledog

*Norah*, if people can't afford to pay full pension contributions, being able to pay into ISAs is unlikely to be the solution. It may be simple, but it's not for everyone.

The problem, IMO, is twofold. The first thing is that wages in the UK are low, and if there is a move to raise minimum wage upwards there is an outcry from those whose profits depend on others working for little. This means that there are many people who can't afford to pay into occupational pensions, so rely entirely on the SP.

The second problem is that after decades of the welfare state picking up the tab for those who choose not to work, a pension is seen by many as a right of passage - you reach SPA and you are paid for doing so, regardless of contributions. This attitude is being challenged, and the narrative now is that people have to pay in to get back (the same narrative that is used about people claiming other benefits).

As we are now an ageing society, pensions are expensive for the treasury, and whereas it would be lovely to be able to pay everyone a decent income in retirement, there has to be a difference between those who have paid in and those who haven't. If that difference is not there, resentment and accusations of there being a 'two tier society' ensue. Nobody likes seeing others being given what they have had to work for.

Things are complicated, however, by the fact that older people have to live. If they haven't made provision for their older age they can't be left to starve, and the added benefits of being on pension credit mean that they are brought to the same level (or often higher) than those who have a small occupational pension, and we are back to the resentment and accusations. The social care system makes things worse, as those with relatively small savings see others with none getting free care while they have to pay until they, too, have nothing.

But what's the solution? To bring back workhouses or other punitive measures to force people into saving? There will still be the problem that not everyone can afford to save. Let people starve? Not something most of us would like to see. Make people work until they die? That is already happening in some cases, and younger people who realise that this is likely to be what they are facing are even less keen on paying taxes for older people who may be better off than they are. Renege on the 'deal' (and yes, I know there is no written contract, before someone rushes to point that out) that if you pay in you will get a pension, and means-test the SP? Why would anyone bother to pay in that case? Of course most of us have no option - it is always those on PAYE who underpin the contribution system - but there would be widespread fury and discontent.

It's a thorny problem, which is why it hasn't been solved before now. Up to a point, the 'if you pay nothing in, you get nothing out' is 'fair', but unless there is a massive change in the way the UK has operated since WW2, that will always be weakened by the fact that we don't want to see people starve or go without essentials.

Solution? Time is needed to save or dig out of a hole.

Decent minimum wage, a living wage, to start. Teach children budgeting and money management skills in school.

Raise the tax bands and increase the top rate. Of course those who work pay taxes. However, it seems quite wrong to pay able bodied people, under 66 years old, who don't work - no known solution.

We have already reached a stage where people on higher rates are choosing to earn less and either work less, or put more into their pensions to keep in lower tax bands. There are also relatively few people in these higher salary rates, (only 4% of workers earn more than £70,000 a year, so even putting the their tax rate up will not make a huge difference.

The simplest way to deal with pension dichotomy, is to limit the state pension rise to keep it in line with earnings and means test it. We would not be the first country to do so.

M0nica

We have already reached a stage where people on higher rates are choosing to earn less and either work less, or put more into their pensions to keep in lower tax bands. There are also relatively few people in these higher salary rates, (only 4% of workers earn more than £70,000 a year, so even putting the their tax rate up will not make a huge difference.

The simplest way to deal with pension dichotomy, is to limit the state pension rise to keep it in line with earnings and means test it. We would not be the first country to do so.

Of course people avoid the 60% tax trap by putting more into their pensions. ISA savings also provide quite effective tax savings.

How could means testing possibly be fair?

How could means testing possibly be fair?
It's how it works in Australia.

Pension Credit isnt 'fair', anything involvingmoney and benefits is going to have cut-off points.

But we have to be realistic. Each generation has to live within the circumstances of its own generation. When pensions were first introduced, life expectancy was shorter so most people only drew pensions for well below 10 years and there were more workers for every pensioner.

Now birth rates have plummeted and seem likely to go lower, there are going to be far fewer workers. Life expectancy has gone up far faster than pensionable age and now a significant number of people end up drawing their pension for over 25 years. What ever people want and like are going to have to give way to the sheer economic practicalities of fewer workers having to pay the pensions of more and more old people. Something has to give.

It seems to me that pensions rising with earnings and means testing is the only sensible way forward.

I completely disagree. It might seem fair to people who had the option to pay a reduced rate and to stay at home for a large chunk of their working life; but to someone who paid NI for 50 years it would be a slap in the face, particularly as being contracted out meant that I had to pay further contributions to get a full pension.

If means-testing meant that I ended up getting the same (or less, when gateway benefits are taken into account) than someone who had contributed nothing, or who had paid less in for a shorter time I would be furious. The fact that things happen in other countries has never been grounds for doing them here, surely? How do we decide which countries to emulate?

I agree that demographic shifts mean that we have to make changes in the way we view benefits of all kinds. It is no longer affordable to have half the working-age population stay at home, or to pay people just for reaching a certain age. But the answer can’t be to continue to penalise those who put money in, in order to pay those who could contribute but don’t.* What incentive does that give for people on low incomes to bother to work at all?

Maybe AI will upend all our perspectives on these things and nobody will have work. What will happen to pensions then?

* This does not include those unable to work because they are sick or disabled, or those caring for the sick or disabled.

M0nica

Pension Credit isnt 'fair', anything involvingmoney and benefits is going to have cut-off points.

But we have to be realistic. Each generation has to live within the circumstances of its own generation. When pensions were first introduced, life expectancy was shorter so most people only drew pensions for well below 10 years and there were more workers for every pensioner.

Now birth rates have plummeted and seem likely to go lower, there are going to be far fewer workers. Life expectancy has gone up far faster than pensionable age and now a significant number of people end up drawing their pension for over 25 years. What ever people want and like are going to have to give way to the sheer economic practicalities of fewer workers having to pay the pensions of more and more old people. Something has to give.

It seems to me that pensions rising with earnings and means testing is the only sensible way forward.

I understand.

However it does seem means testing would be quite unfair to many near the cut off points, causing significant complaints.

Doodledog

I completely disagree. It might seem fair to people who had the option to pay a reduced rate and to stay at home for a large chunk of their working life; but to someone who paid NI for 50 years it would be a slap in the face, particularly as being contracted out meant that I had to pay further contributions to get a full pension.

If means-testing meant that I ended up getting the same (or less, when gateway benefits are taken into account) than someone who had contributed nothing, or who had paid less in for a shorter time I would be furious. The fact that things happen in other countries has never been grounds for doing them here, surely? How do we decide which countries to emulate?

I agree that demographic shifts mean that we have to make changes in the way we view benefits of all kinds. It is no longer affordable to have half the working-age population stay at home, or to pay people just for reaching a certain age. But the answer can’t be to continue to penalise those who put money in, in order to pay those who could contribute but don’t.* What incentive does that give for people on low incomes to bother to work at all?

Maybe AI will upend all our perspectives on these things and nobody will have work. What will happen to pensions then?

* This does not include those unable to work because they are sick or disabled, or those caring for the sick or disabled.

Good explanation.

I've never worked for income, I know it would be quite unfair should others who have worked and paid in be subsidising a pension for me.

Doodledog

I don't mean it would happen for anyone who has been paying contributions but in the distant future and people would have to have plenty of warning.

Allira

Doodledog

I don't mean it would happen for anyone who has been paying contributions but in the distant future and people would have to have plenty of warning.

But how would you persuade people in the future to feel differently from how I do now? A system where those in work pay in, and those who don’t take out is never going to be acceptable, however far down the road the proverbial can is kicked.

The problem is the number of people and ever new reasons for people getting benefits in some way is growing and growing but every time someone suggests that their are other people are in need of help, nobody actually thinks about where the money to meet the need is going to come from and that ft parrotted phrase, tax the rich, gets us nowhere.

Some time in some way, those running the country are going to need to spell out what providing for all these needs will cost and ask people whether they are, for example, happy for basic rate tax to go up by 10p in the pound to meet all this need for pensions, benefits, NHS etc and if not, what needs do they think we should no longer meet.

Again, income tax puts the burden on workers (and pensioners/savers) but not on those taking out. Some sort of compulsory contribution to society needs to be considered, whether financial or not.

Income tax is a compulsory contribution to society.

M0nica

Income tax is a compulsory contribution to society.

But not universal, which I would have thought it obvious is my point.

I don't know how widespread this is, but I know someone who pays an advisor to ensure that she pays no tax. She is married, so she and her husband move money around to minimise their contributions as a couple. She has never worked (despite getting a free university education), has claimed tax credits and so on based on their household income (lower than it would have been had she worked), had child benefit and home responsibility payments for four children, all the while using the NHS, and all the other things she hasn't paid a penny towards.

She gets a full SP, as the advisor ensured that her husband paid the small contribution towards that (nowhere near as much as full NI - just the bit that covers pension) and of course wasn't opted out, so hasn't had to make up 'lost years'.

The family is not poor. They have inherited money and her husband had a managerial role.

It is not just the 'Waynetta Slob' caricatures who bleed the system. Mrs Respectable types can do it too.

And I know that nothing in the above post is illegal. I am not suggesting it is.

Doodledog

M0nica

Income tax is a compulsory contribution to society.

But not universal, which I would have thought it obvious is my point.

I don't know how widespread this is, but I know someone who pays an advisor to ensure that she pays no tax. She is married, so she and her husband move money around to minimise their contributions as a couple. She has never worked (despite getting a free university education), has claimed tax credits and so on based on their household income (lower than it would have been had she worked), had child benefit and home responsibility payments for four children, all the while using the NHS, and all the other things she hasn't paid a penny towards.

She gets a full SP, as the advisor ensured that her husband paid the small contribution towards that (nowhere near as much as full NI - just the bit that covers pension) and of course wasn't opted out, so hasn't had to make up 'lost years'.

The family is not poor. They have inherited money and her husband had a managerial role.

It is not just the 'Waynetta Slob' caricatures who bleed the system. Mrs Respectable types can do it too.

With no income I have never paid income tax. However I also have used the NHS (we usually quickly pay rather than wait, say TKR). Everyone pays sales tax, alcohol, petrol, capital gains, inheritance and more. We all pay taxes.

I think people should take responsibility, saving for old age themselves, apart from pensions. ISA accounts are a good solution.

Doodledog

Allira

Doodledog

I don't mean it would happen for anyone who has been paying contributions but in the distant future and people would have to have plenty of warning.

But how would you persuade people in the future to feel differently from how I do now? A system where those in work pay in, and those who don’t take out is never going to be acceptable, however far down the road the proverbial can is kicked.

I didn't say that.

I'm sure my elderly relative paid plenty in tax in Australia over many years but, for whatever reason, when widowed, did not have a large pension so received an Age Pension.
It was means-tested and variable.

The system seems to work over there, employers and people pay into compulsory superannuation schemes, a personal fund, but not all people earn a large amount so the Age Pension is there as a safety net.

Here workers and employers pay NI but that is not kept in a personal fund for each employee's future pension.

Doodledog

And I know that nothing in the above post is illegal. I am not suggesting it is.

There are spongers at every level of society, but they are a minority. The majority of people pay their taxes and grumble. there is no perfect system and to often ththe best is the enemy of the good.

That is true, M0nica. But it is not good (IMO) that people who don't pay in can get more out than those who do - unless the reason they haven't contributed is that they can't.

Allira I'm a bit confused by your reply. You are quoting my comment that responded to the idea that means-testing would be ok if it came in with warning. Whilst that would give the long-suffering workers time to prepare for a retirement in which they get only an occupational pension despite having funded the state one, it won't stop many of them from resenting it.

The Australian reference is what I don't understand in this context.

The standard rate of Class 1 NIC is now 8%.

Someone working full time, 40 hours pw on minimum wage earning £25,396 pa would pay NIC of £1,026. Someone earning £35,000 would pay £1,394. Someone earning £50,000 would pay £2,994.

Earnings above £967 pw or £50,284 pa are charged at 2%.

Assuming all these people enter the workplace after 5 April 2016 so are not paying into earnings related schemes (Graduated, SERPS, S2P), if they all make the same number of years of contributions, they will all end up with the same amount of single-tier State Pension.

In other words, NIC is just a tax on earnings.

Compare someone who did not work and buys back missing years though Class 3 voluntary contributions. At present this costs £923 per year. Buy back is limited now to 6 years but in the past it was possible to buy back more years. At current rates, every extra contribution year is worth an extra £342 pa in pension. By year four the investment is in profit.

Obviously, buying back years after they have passed means the person isn’t going to be claiming the other contributory benefts that NIC gives entitlement to hence why it’s a little less expensive than for the worker on minimum wage.

Nevertheless, until the single tier pension, the person who didn’t work and paid Class 3 instead is going to get the same SP as the person who did work that year and may have paid a lot more in NIC.

Of the total raised from all kinds of tax, income tax comprises around 28% of the total and NIC 18% including employer contributions. VAT raises about 17%. Other indirect taxes combined raise about 10-12%.

We do all pay taxes but unless someone spends an enormous amount on goods and services, paying indirect taxes only is never going to be equivalent to someone who has had a long working life paying income tax and NIC.

I’d like to see either a flat charge for NIC or see it abolished altogether and incorporated into other taxes, but as it raises around £130 billion a year how would it be done so that everyone expecting what is effectively a flat-rate pension has made an equal contribution?

By 2044, the current surplus in the National Insurance Fund will be exhausted anyway. A scheme that has been self-funding, albeit one generation paying for pensions of the ones before, is no longer going to be.

2024/25 was the first year that expenditure exceeded income. In 2024, Jeremy Hunt cut the NIC rate from 12% to 10% and then 8% resulting in some of the surplus being used to pay contributory benefits.

The surplus is meant to be there as a contingency to meet temporary shortfalls in NIC yield, not to fund regular outgoings.

In 2044, the Treasury is going to have to start putting money into the fund to meet the cost of contributory benefits. We need a radical rethink about how they are funded in the future.

Hi. My neighbour has been widowed recently. She and her husband both received pension credit. Now he's died obviously his government pension has stopped along with his pension credit. Does she now have to reapply for her pension credit? as it was jointly done before? Also would she receive any of his government pension? I am trying to help! Her government pension is around £450 a month...very basic. Thankyou.