(Almost) everything you need to know about pensions but don’t beIt was good to see some new faces at the January branch meeting to hear Mike Taylor, our very own Pensions Champion, explain the basics of what members need to know about pensions. Here’s a crib Mike kindly wrote for those who missed it. The State Pension
Everyone with a record of national insurance (NI) should get some state pension. If you are working for an employer, they pay in ‘Class 1’ contributions for you. If you are self-employed, it’s ‘Class 2’. Provided the NI contribution record is complete, a single person now draws £87.30 per week — from age 60 for a woman, and 65 for a man.
Retirement age
The retirement age, at which you stop paying NI and start getting a pension, is changing: if you are a woman born on or after April 6, 1950, it will rise from 60 to 65 during 2010–20. For both men and women, it rises to 68 after 2020.
Payment record
Your record may be incomplete – you may have been at university or have worked abroad. You get NI credits if you draw, say, maternity or unemployment benefit, but not if you have been in tertiary education. Today, a man retiring at 65 needs to have paid NI contributions for 44 ‘qualifying years’. For a woman retiring at 60, it’s 39 years. From 6 April 2010, the number of qualifying years for a full pension will fall to 30 for both men and women. If you are retiring between now and then, you should check on your NI payments record. An unlucky few will lose out: if you retire on April 5, 2010, and have only 30 qualifying years, you will get a reduced pension.
You can fill gaps in your contribution record by paying voluntary ‘Class 3’ contributions. Whether this is a good idea will depend on your own circumstances. You can check these and other details for yourself at www.thepensionservice.gov.uk
Most people will have some other form of provision than the basic state pension, to save them from what the BBC has called the ‘pensioner’s dilemma’ – eat or heat? It could be savings, it could be property but for most it will be an ‘occupational pension’ provided by their firm. There has been a lot of publicity about pension fund failures, but in fact it’s only been a tiny minority of schemes. The main dangers are embezzlement or collapse of the firm, but the government does offer some back-up.
Company pension schemes
Most people offered a firm’s pension take it, because it’s usually a good deal. Like many good deals, company pension schemes were fought for and won by generations of workers who went before us. They constitute a very important part of your terms and conditions, which is why it is so important not to allow companies to undermine them.
Employer’s contributions are in addition to the normal salary.
- The employer usually bears the scheme’s running costs.
- You may choose to retire early – albeit with a reduced pension.
- Benefits may be passed onto others when you die.
- With tax breaks, the government in effect tops up the savings.
- The two basic types of firm’s pension are:
1. Defined benefit. The employer promises a pension based either your salary either at retirement (‘final salary’) or over the course of your career (‘career average’). The employer is obliged to pay up: he or she bears the risk that savings may not cover the pay-out.
2. Defined contribution. Also known as ‘money purchase’, under this scheme, the final pension varies according to how much is saved, how well it is invested and how it is converted into a pension on retirement. The employer guarantees just the level of contributions: you bear the risk of getting a smaller pension than you hoped.
You may have heard of the ‘pensions black hole’ – that firms’ pension schemes cannot cover their liabilities. The situation has improved lately, because the stock market had been doing well; better firms have put more money into their funds, but it does explain why firms have become more stingy.
Personal pensions
You can also save into your own money purchase scheme during your working life – a ‘personal pension’. This could be a good idea if you:
- are self-employed;
- have no employer’s pension;
- have an employer who offers a ‘group personal pension scheme’ (GPSS) or a ‘stakeholder pension’; or
- want to top up other pensions.
The finance company charges administration costs, which is a drag on the final value of the pot. In a GPSS, the employer may negotiate low charges on your behalf.
To make pension saving more popular, there are ‘stakeholder pensions’, which have:
- low costs;
- low and variable contributions;
- the right to move to another scheme without penalty; and
- a ‘default investment’ option, taking the onus of choosing where to invest off you.
Your employer must offer you a stakeholder pension if:
- there are five or more employees; and
- there is no firms’ pension, nor a GPSS to which the employer is contributing at least 3% of your pay.
Want to know more?
Always seek professional advice tailored your own personal circumstances. The Consumers’ Association has produced a very good and clear guide, the ‘Pension Handbook’, by Jonquil Lowe (2006).
It is in your own interests to take stock early and decide whether you want to make alternative provision, how much to save into a personal pension, or to take the various options available to top up the state pension or your firm’s scheme. Much can change between now and when you retire, in terms of legislation, financial market conditions, interest rates and inflation. There are no safe options, but you can try and make a ‘best guess’.
The NUJ has set up a pensions advisory group for chapel reps to exchange experience and get expert advice. A resolution from the Oxford branch to this year’s Annual Delegate Meeting applauds the move and calls for the union also to give backing to campaigns for a state pension that would allow all elderly people to live in dignity.AW 2008-02-03
|
