nun

Yes mortality risk vs longevity risk......the pessimist vs the optimist

To mitigate longevity risk you can buy the insurance of a state pension or annuity. It's all about probability and as I'm in good health at 53, I have a 50% chance of living to 84 so I like having some guaranteed lifetime income as a compliment to IRAs etc and taxable investments.

jb82

oh yes mortality that was the word I was looking for!

christmasoompa

Only those self-employed and earning under a very small amount can pay Class 2 though (iirc, it's about £7000), anything over that and they have to pay Class 4.

Plus they're contributing to the UK system in lots of other ways, so seems fair enough to me.

nun

If you're self employed in the USA the Class 2 and Class 4 NI rates look cheap. Right now the self employment tax in the US is 15.3% and you also have to pay for health insurance. You can deduct some of those costs on your annual tax bill and potentially get a Government subsidy to help pay the insurance premiums.

jb82

That isn't correct. All self employed who earn over a limit pay class 2 as well. So if i earn 60k I pay class 2 and class 4.

Class 2 earns you qualifying years for a state pension but class 4 does not.

uk residents also use a lot more of the system eg nhs but then that has notbing to do with class 2 contributions.

Steve_

That only applies to people who start paying in after April next year.

Steve_

You can't make all those assumptions, the fact is that the contribution rate goes up with inflation using whatever method HMRC wants to use and the payout goes up with inflation too, so in today's money, the calculation I used is about as good as any. There's no real connection between the contributions and the payout, they're just arbitrary figures.

You appear to be comparing with the alternative of saving, well a 5% interest rate is very speculative, hasn't been that high for years. Which is why state pensions exist obviously, you can't predict what will happen over that long of a period of time.

Money itself at the end of the day is under the control of the Govt., by the time you reach retirement age they could be using Euros or God knows what.

jb82

Transitional arrangements apply to everyone else who hasn't retired yet.

It gets complicated as hmrc will compare what you would have gotten under the old arrangements vs if the new pension was in force since you started working. It gets further complicated with reductions if you contracted out of the s2p or serps or whatever they had before that.

At the end of the day since the weekly pension amount rose by a large amount in essence most will need 35 years now to get a full state pension.

jb82

the government actuaries would make similar assumptions to set the voluntary rates in the first place. If you look at an entire pension based on voluntary rates on average you'd be equally well off as if you invested the money yourself instead of contributing voluntary class 3 (again on average across the population some will get better returns and others worse).

The benefits of voluntary class 3 really come into play to fill gaps if you are close to your retirement age. Or if you are a conservative investor or someone with higher than average life expectancy or someone who values an income for life and doesn't trust annuity rates will be good at retirement.

nun

Yep that's what I understand. I'm 53 and last year I hit 30 years of contributions and got a letter saying that under "current legislation" I would qualify for basic state pension at age 66 and didn't need to make any more payments. However, under the new pension reform I will need 35 yeas to qualify for the flat rate pension so I wrote back and ask them to keep sening me a bill in expectation of the new legislation. HMRC has kept billing me and I expect to get another letter when I hit 35 yeas telling me I didn't need to pay anymore.

jb82

I think many people in your situation would stop paying and are going to have a nasty surprise when they retire that their pension isn't what the new full pension rate is.

i believe you are doing the right thing by continuing to contribute. Of course once the dust has settled a pension statement based in the new rules would clear the air.

Then again you can always pay catch up voluntary contributions if you stop and realise you have gaps. Still a shock as one would have an extra lump sum to pay to the government they weren't expecting. Not sure what would happen if they abolish class 2 and you need to pay catch up though. So again I'd personally do what you are doing.

Also not sure what the Government will do to notify people about the changes

nun

For the individual the benefits of state pension, or any annuity type product, come in mortality credits. If you live longer than average and keep collecting you do very well. They also give you greater income because you get some return of capital. Of course you must give up your principal.

There is also a social aspect of state pension plans as they tend to be progressive and give relatively higher benefits to the lower waged. This is very true with the new UK flat rate pension, although whether the new system will be better overall is debatable. Still the benefits of state pensions in reducing income disparity and poverty and improving social cohesion are pluses IMHO. Obviously there are many that would not agree and see the progressive nature of such schemes as innately unfair.

Steve_

That wasn't my understanding from their press release but I'll take your word for it, so basically the goalposts have moved and may move again if the tories win. And if you think that's the end of it before you reach retirement age, I have a bridge in Brooklyn to sell you...

Steve_

You started working when you were 23? Slacker.

nun

I'm going to be pension age in 2027 and so I'm governed by the new pension legislation.....or any new laws that get past in the next 15 years. Right now it will take 35 years of contributions to fully qualify for new flat rate pension. For me it's a great deal as under the old law 30 years got me 113GBP per week and now with 35 years I'll get 150GBP a week.