Pension - Can I opt out?

[balky12]

A bloke retired from my work last month with a £25k a year pension and my first thought was "why does a man in his late 60s with his own home need nearly £2,000 a month income?" It's actually more than that when you add in the State pension on top.

Well if that is after tax that's true. Still only ~£70 a day. Depends what level of luxury you are accustomed to. Couple nice holidays with the other half/ family will eat in to the majority of that.

I sit there and look at my dads (maxed out, the reduction of the cap peeved him a bit) and think why on earth does he need a ~£60,000 annual salary when he retires. His answer? 'Well why the **** not? Worked hard all my life, why should I scrimp in retirement'. Fair play to him.

 

[Sagalout]

Why when I'm older would I want a lower standard of living than I have now? I have a lot of hobbies and I'll have a lot more time to enjoy them. Other than walking the dog, most of the others require cash!

 

[Kemik]

Interestingly enough, current Government proposals suggest taxing pension contributions now and then paying out tax free. One way to shake up the industry!

 

[EvilRob]

Problem for the employer would be if they had 300 people employed all who wanted payments to their own pension - it's 300 seperate payments/direct debits etc which is WAY harder to control, over a single monthly payment to one provider etc. Never going to happen

Why would that be so difficult? They seem to manage it pretty easily with staff wages.

My company also pays my expense reimbursements into a different account than my salary without any apparent issues.

 

[booyaka]

Why would that be so difficult? They seem to manage it pretty easily with staff wages.

My company also pays my expense reimbursements into a different account than my salary without any apparent issues.

Not just the payments - but manageability in a single scheme is much simpler for employer. Also harder to deal with each 3rd party if issues arise etc. Ain't going to happen for most employers.

Imagine your own account with 300 direct debits to different companies, for different people, for different amounts, potentially changing each month, some starting, some stopping etc etc. Also employer premiums, employee premiums, when is it taken from payroll - do the employers hold it etc? (certainly pension companies only take payments on certain dates etc) - just too many additonal complications when a single monthly payment to one provider does the same job.

Payroll ultimately is one big payment, sent the same day. Payments to lots of pension companies is much harder to manage.

 

[Mercenary Keyboard Warrior]

Why would that be so difficult? They seem to manage it pretty easily with staff wages.

My company also pays my expense reimbursements into a different account than my salary without any apparent issues.

Yes its not a massive issue but would be differing levels of work to differing companies depending how they setup their systems.

What typically works with a decent size payroll system is :
It contains records of employee bank details so knows where to pay the net amount from (and would normally generate an electronic file for process via some means). Then the other entries, NI, tax, student loans, pension etc would not be paid directly from the payroll system but would be on the balance sheet of the company and another mechanism would pay each one. Normally far more manual.

IF every person was allowed to have their salary deducted pension paid into what ever scheme they wanted then logically payroll software would adopt to allow this as extra details.
Some of the complexity comes also in that the pension providers oftern have their own system in place, portals, specifically formatted files etc, so they are not the same to deal with as a bank where you can simply send a BACs payment and the funds will be creditted to the correct account.

Nothing is insurmountable and code can be changed to cater for this but its not out of the box deliverable.

Lots of differing ways that expense can be processed so it depends on your employer typically. Those that pay via they payroll software don't/can't typically offer payment to a different account, those that have a dedicated piece of software or who use the accounts payable system tend to be able to accomodate a different account as the systems tend to be unlinked. I worked for one financial company that went from not allowing a different one, to allowing it back to not allowing again.
As they developed and evolved the systems flows (ie data between systems) was optimised for lowest manual effort. The end state was that the only employee data was collected and maintained in the HR system by HR and fed the data to relevant systems as required, e.g. bank details to the expenses processing system was a weekly feed that updated any changed records, in the background with no manual intervention.

 

[D.P.]

I suppose that depends on your policy? In all of my pensions, the full amount goes to my wife.

It dosnt even done on pension, merely age of death. Under 75 the beneficiaries get 100%, over 75 they can get the whole lot taxed at 45% but exempt from inheritance tax, or just draw down on it annual and get taxed at the beneficiaries marginal rate (I.e., it is treated just like regular income, so if wife didn't work then first 11k a year would be tax free, next chunk would be taxed at20%).

 

[D.P.]

People who don't live simple lives want 25k+ when they retire and own their own home. Quality of life should improve the older you get, and I for one don't want to be scrimping on anything when I'm in my dotage. If all goes well I should have a £40k+ pension when I retire and I will use that money to treat myself and my family until such a time as I pop my proverbial clogs.

Here here, the other thing is it is a valuable tool to ensure your beneficiaries are sorted out financially, avoiding inheritance tax.

 

[D.P.]

I don't think this is coming as a given right.

Eg my current employer selects the investment advisor and they recommend the pension supplier. In my case Aegon.

Possibly George will give more rights but bear in mind the company need to make the payments to the pension provider so they wouldn't want every employee making their own arrangements.

I don't know if this applies to the UK but here in the US I can simply transfer investments from my employers pension into any other private pension I want to set up. My CEO suggested I do this because a different pension provider has lower few and a 2% sweetener for opening a new account. Pay e player want switch pension providers themselves because we share it with our larger parent company.

 

[D.P.]

Interestingly enough, current Government proposals suggest taxing pension contributions now and then paying out tax free. One way to shake up the industry!

In the US you have the choice, and can setup both. The tax up front approach works when you have maxed out the tax postponed pension, and moreover if you are worried about taxes during withdrawal due to having a very large pension potter you can pay use a tax up front pension to mitigate this.

 

[peige]

eh?? your private pension contribution is your own, the government can't touch it in the slightest.

Not really

http://www.telegraph.co.uk/news/ukn...id-on-pensions-costs-Britain-100-billion.html

http://www.telegraph.co.uk/finance/...sion-tax-raid-and-others-since-Seventies.html

Governments come and go, they tinker to take money, its a historical fact.

I'm not saying its not wise to take advantage of the current deal but who knows what they will do in the next 30 or so years, we all thought we were doing the right thing back then too.

 

[Mercenary Keyboard Warrior]

I don't know if this applies to the UK but here in the US I can simply transfer investments from my employers pension into any other private pension I want to set up. My CEO suggested I do this because a different pension provider has lower few and a 2% sweetener for opening a new account. Pay e player want switch pension providers themselves because we share it with our larger parent company.

Yes its an option but I wouldn't suggest it for people not 100% confident in what they are messing with, and those that are would know this for themselves

EDIT : just to add, the majority of schemes have penalties to stop you moving funds, so the issue is that you need to seriously boost returns to cover the impact of the likely fess you will get charged to move the funds.

Not sure if you can do that with nest. its typically horrible and anyone whos employer has just not bothered to look at alternatives needs to be plagued by the employees to change it.

 

[Mercenary Keyboard Warrior]

Not really

http://www.telegraph.co.uk/news/ukn...id-on-pensions-costs-Britain-100-billion.html

http://www.telegraph.co.uk/finance/...sion-tax-raid-and-others-since-Seventies.html

Governments come and go, they tinker to take money, its a historical fact.

I'm not saying its not wise to take advantage of the current deal but who knows what they will do in the next 30 or so years, we all thought we were doing the right thing back then too.

Things will always change, thats the one thing you can bank on.

Taking the main issue of the articles you quoted, the impact was that the tax benefit of dividends being in effect gross for pensions shaved some % off the returns funds received. Its no different to George adding the tax exempt savings from next year, its tinkering with taxation.
That will certainly never change, what you have to do is adapt and change as the legislation adapts and changes. However all that said I think you will see more measures to encourage pension savings, certainly under the tories.
Some of the old criticism of pensions was to do around what you could and couldn't do with your own saved money. Much now swept away by George in theory even if the pensions industry is lagging in delivery.

Sorry just to say, those articles give the impression from the headlines that he took money from the funds with the term "raid", he did no such thing, its poor media reporting sensationalism. He reduced the future value by removing a tax perk, in effect diverting lots of future revenue from being reinvested back into funds to being diverted to the government coffers.
Typical new labour in effect, increasing tax on people but not in a way the majority would understand.

 

[D.P.]

Not really

http://www.telegraph.co.uk/news/ukn...id-on-pensions-costs-Britain-100-billion.html

http://www.telegraph.co.uk/finance/...sion-tax-raid-and-others-since-Seventies.html

Governments come and go, they tinker to take money, its a historical fact.

I'm not saying its not wise to take advantage of the current deal but who knows what they will do in the next 30 or so years, we all thought we were doing the right thing back then too.

That is state pension and complex tax changes, which is exactly why you want a private pension that the government can't fiddle with.
I can ask my pension provider to despite my pension in my bank account right now, I pay a 10% on top of any income tax.

 

[peige]

That is state pension and complex tax changes, which is exactly why you want a private pension that the government can't fiddle with.
I can ask my pension provider to despite my pension in my bank account right now, I pay a 10% on top of any income tax.

I'm sorry but saying the government can't fiddle with a private pension is comical, they could tax any aspect of pretty much anything and historically have. Even if they don't get the pot they could tax the proceeds in 30 years time.

But I agree, take advantage of the current system but always with caution, we all know the Tories won't stay in forever and who knows what will be done in 4 or 5 governments time in the name of progress.

 

[D.P.]

I'm sorry but saying the government can't fiddle with a private pension is comical, they could tax any aspect of pretty much anything and historically have. Even if they don't get the pot they could tax the proceeds in 30 years time.

But I agree, take advantage of the current system but always with caution, we all know the Tories won't stay in forever and who knows what will be done in 4 or 5 governments time in the name of progress.

They can change taxes on anything, unless you want to shove money under your beds here is no way of avoiding it (and even that they could tax)

Put it in a savings account and they can tax interest, invest the money and they can tax the gains. Heck, they can simply go into your bank account and swipe your money as witnessed recently to cypress etc.

 

[Pipe & Slippers]

Interestingly enough, current Government proposals suggest taxing pension contributions now and then paying out tax free. One way to shake up the industry!

!! Another excuse for nay-sayers to delay saving

 

[The_Abyss]

There's most likely be a protection regime put in if they make such substantial changes such as moving to TEE from EET. Around a dozen are already in place.

The most likely next change is to harmonise the rate of tax relief, probably at between 20 and 25%. Higher rate tax payers really should be piling money into their pensions before 5 April 2016.

 

[EvilRob]

Not just the payments - but manageability in a single scheme is much simpler for employer. Also harder to deal with each 3rd party if issues arise etc. Ain't going to happen for most employers.

Imagine your own account with 300 direct debits to different companies, for different people, for different amounts, potentially changing each month, some starting, some stopping etc etc. Also employer premiums, employee premiums, when is it taken from payroll - do the employers hold it etc? (certainly pension companies only take payments on certain dates etc) - just too many additonal complications when a single monthly payment to one provider does the same job.

Payroll ultimately is one big payment, sent the same day. Payments to lots of pension companies is much harder to manage.

Sounds like a load of rubbish to me. It's no different from a payroll system really. That also has hundreds of payments to hundreds of different accounts of different amounts, which may vary every month.

If it was a requirement for a company to do it, it could be done extremely easily and the systems to manage it would quickly be developed.

 

[Mercenary Keyboard Warrior]

There's most likely be a protection regime put in if they make such substantial changes such as moving to TEE from EET. Around a dozen are already in place.

The most likely next change is to harmonise the rate of tax relief, probably at between 20 and 25%. Higher rate tax payers really should be piling money into their pensions before 5 April 2016.

I suspect they wont do it, but you never know

I can see why George would like the idea, tax now rather than later, especially attractive when trying to balance the books as in effect he would start double dipping collecting tax against funds starting to be used and tax on new contributions