Can The State Pension Survive? by Finance News Bulletin
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Published: 15/11/07
The UK has the worst condition pension provision among 25 European countries, according to an international appraisal conducted by Aon Consulting This is the next year running that the firm's European Pensions Barometer appraisal found UK pensions to be inferior to their European Union counterpartsOn average, British pensioners are salaried a condition pension which is worth just a sixth (17%) of average earnings Across Europe, the typical retirement fund comes to more than half of pay (57%), so it appears that British workers are being short-changed when they retire
Then again, although our condition pension is inadequate for much more than basic survival, British pensioners on low incomes can maintain various means-tested reimbursement Adding in these extra payments moves the UK into fifth place in the European league table, with Denmark captivating top honoursThe good news is that although the UK's essential state pension is miserly, we do have fairly high-quality company and private pension options Thus, employees of businesses with high-quality work-related pension schemes fare much better, as do workers who save hard for retirement via private retirement fund arrangements
What's more, unlike many other European nations, the UK's administration has already taken steps to undertake the ‘pensions timebomb' created by an increasingly elderly inhabitants Between 2024 and 2046, the normal state retirement age will add to from 65 to 68 (which means that I won't qualify until I'm 67, worst luck)Of course, rising the retirement age takes some force off the state pension system and helps to get better its affordability
In addition, it's worth noting that increases to the state pension are connected to inflation increasing prices) rather than wage increases Thus, over time, pension incomes tend to fall away as a amount of the standard wageAs well as reforming the state sector, the administration is taking steps to improve the take-up and value of private pensions By initiation low-cost ‘personal accounts' in 2012, and through ‘automatic enrolment', it hopes to add to the number of employees who contribute to a work-based pension
unfortunately, the tax relief paid to basic-rate taxpayers who add to pensions is put to fall from 22% to 20% from 6 April 2008 Thus, in order to uphold pension payments at the same height, non-higher-rate taxpayers will have to pay more into their pensionsSo, what does the future hold for state pensions Clearly, maintaining a sensible state pension could be very expensive, especially as the number of pensioners is put to rise sharply from its current level of eleven million
Thus, unless we are prepared to shoulder a theatrical increase in taxes in order to disburse for state pensions, then the logical conclusion is that pensions will continue to witherbasically, there are three ways that the government can slow or reduce spending on pensions I call this the "three hows" problem:Thus, the condition could pay out pensions later, perhaps by mountaineering the retirement age to seventy or beyond Second, they could ensure that fewer populace qualify for state pensions
Indeed, it's possible that greater than before use of means testing could exclude wealthier folk from qualifying for any condition payments in retirement Third, the state could continue to erode the real worth of pensions by hire them fall behind rising prices and wagesunfortunately, regardless of the tactics that this and future governments adopt, nothing is going to make condition pensions more generous Indeed, I expect to see the state pension slowly whittled away until it is of little worth to all but the poorest fraction of civilization
This would be a great shame, but financial reality usually takes precedent over social harmonyFinally, if you're worried about the decline of state pensions, then my advice is easy The only person you can rely on to look after you when operational life ends is yourself Hence, I'd urge you to start making tactics for departure today, if you haven't done so already
It's up to you whether you contribute to a retirement fund, a tax-free ISA, or spend in shares, property and so on Just be sure to collector something away, or you'll live to regret this missed chance in later lifeMore: Pensions Versus ISAs | put on't Put Your State Pension At Risk | Increase Your Pension Income By 48%Can't find what you require in Retirement And Pensions Try one of our other personal finance areas
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New Tax Rates: Winners and Losers - Published:26/10/07
I know duty can be a pretty tedious subject at the best of times so I'll effort to make this as painless as possible As duty rates for 2008-09 are announced by the Government, will you be better or not as good as off in the new tax yearFirstly, allow's take a look at personal payments Your personal payment enables you to earn the first slice of your profits completely free from profits tax For the 2008-09 tax day the allowance will rise by £210 to £5,435 The silver age group will enjoy a more generous strengthen with an age-related allowance of £9,030 for people aged between 65 and 74 and £9,180 for those aged 75 and over This means next day everyone aged 65 and over will benefit from a tax-free income of £173 a week According to the administration the age-related allowances will allow half of all pensioners to side pace income tax entirelyMarried couple's allowance* (aged less than 75 and natural before 6th April 1935) £6,285 +£250 £6,535The new duty year will also see the elimination of the 10% starting rate of income duty for earned income and pensions This means the first taxable portion of your profits will be paid at the basic speed which is set to reduce from 22% to 20%But remember, while a tax reduction may seem helpful, on the other side of the coin, the lower rate will also apply to your retirement fund contributions At current tax, if you're a basic rate taxpayer and you make a contribution of £78 into your retirement fund scheme you will receive tax relief at the basic rate of 22%, sense your grossed-up contribution will sum £100 However, in 2008-09 you'll need to pay £80 to take delivery of an equivalent overall contributionThe taxable bands for 2008-09 won't be known until the financial plan Report next demonstration but, as a quick reminder, here are the current profits tax rates:Once the 10% starting rate has disappeared, you'll end up paying £223 more on the first taxable portion of your profits, although for earnings above the personal allowance basic speed, tax at the lower level of 20% will applySo let's take a look at how these new rates will work in practice Let's speak you're under 65 and you receive an profits of £25,000 - how will your profits be affectedHappily in this scenario you'll be £16990 better off next day Now let's assume you're a lower earner with an profits of £10,000:As a lower earner you will, in fact, find yourself in a worse position because your tax bill will rise by more than £130 If the calculations are done again but this time based on earnings of £16,000 then the dissimilarity between your current and new tax liabilitiy is trivial at just over £10 usually speaking, the new rates will be detrimental to those with earnings below that height as a greater proportion of their income will draw tax at 20% Meanwhile those earning in excess of £16,000 are likely to advantage from the 2008-09 tax ratesNow let's think national insurance contributions (NICs) The threshold beyond which NICs are owed will increase from £100 to £105 per week NICs won't be payable below this amount The rates will remain unaffected at 11% of earnings between the primary threshold and the upper earnings boundary (UEL) and 1% above the UELAs you can see the UEL will add to dramatically from £670 to £770 per week This will mean populace earning between £34,480 and £40,040 will have to pay NICs at the higher speed of 11% rather than the 1% rate which is currently payable on pay over £34,480 People earning around £34,480 are probable to benefit most from the new tax tax as a greater proportion of their income will be taxed at the inferior basic rate of 20% while their NICs will stay the sameSo there you have it A brief summary of how the main tax rates are probable to affect you in 2008-09 If you'd like to look at the full range of changes go to Income tax allowances, National Insurance aid, Child and Working duty Credit rates 2008-09 and other rates© Copyright 1998-2007, The Motley Fool Limited All rights reserved This fabric is for individual use onlyPlace of Reg: England & Wales Company Reg No: 3736872 VAT Reg No: 735 7818 01.
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Increase Your Pension Income By £1,000 - Published:14/09/07
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the remaining fund to purchase an annuity Alternatively the fund can be rehabilitated to cash and paid out with a 35% tax inference Many investors have been put off annuities because benefits are usually misplaced on death but USP appears to have served up a solutionThese are all valid reasons for choosing USP, but perhaps the greatest benefit is the prospect of sketch a greater income than a conventional annuity can give Based on current limits the maximum annual income a 60-year-old male with a £75,000 pension finance can take from a USP plan is £5,850 But if he used his pension finance to purchase an pension instead, even choosing the most competitive annuity supplier available, he would still end up with around £1,000 lessDoes USP sound high-quality to you Well it can be, but not astonishingly it comes with several crucial caveats which I'll outline nowagreement suggests USP is better-suited to HNW (high net worth) individuals who drop into the 'sophisticated investor' group Typically you'll need to accumulate a pension fund of £100,000 plus to make USP feasible Unfortunately, this precludes most of us since the average pension pot is less than a third of that But USP is becoming more popular with the number of active tactics rising fastUSP is a much riskier strategy than just purchasing an annuity because your fund leftovers invested and therefore exposed to ongoing investment risk If the assets you select suffer poor asset returns, your USP fund may not be able to completely support your income withdrawals, chiefly if they're high Poor performance may force you to decrease the level of income you draw from the planIt's significant your fund achieves a critical yield, where asset growth allows the income drawn from USP to at least match the income that would have been produced by a conventional annuity if you had chosen that alternative at the onset Because of this, USP plans require ongoing reviews to ensure the worth of your fund hasn't erodedThe 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Basic state pension - Published:16/11/06
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