State pension ... Anyone nearly there?

MatBin said:
I would suggest that those of us that are currently paying NI do not fully fund the current pension payouts, remember there never was an existing pot that funded pensioners, what we pay today isnt funding our future payouts, it's not invested but paid out now. So, given that, the current payouts are probably funded by a mixture of Ni and tax, as a company he will have paid a large amount of Corporation Tax if he hasnt paid himself much salary, there is no personal allowance for Companies, so every penny of "profit" is taxed. Some of the companies earnings were then paid into a pension fund, which he will draw and pay tax on at a later date. I would suggest his payments into the "system" would not be significantly different had he been paye or working through a limited company, the only difference would have been timing of those payments. Also bear in mind as a company director he wouldnt be entitled to any form of unemployment benefit should his company see its work dry-up, so he took a risk, for him it paid off, for some it didnt/wouldnt.
In truth if he reduced his income tax/NI liability it may have given him more disposable income, but whatever he bought with that income would have attracted some form of tax (VAT etc) or he put it away for a rainy day (pension) thereby reducing his reliance on government payouts again.
I dont personally have a problem with his behaviour, it was/is legal and he'll pay tax at a later date anyway, he may think he wont but I think he will.
Click to expand...

Partially correct; the current NI pot is as you say, funding current pension payments, but there’s no deficit being covered by taxes, there’s a surplus, some of which goes to the NHS, and some held against future liabilities.

So, yes your NI conts will be funding the people who haven’t paid their own.

Of course his payments into the system will be less than if he’d not put the effort in, otherwise why bother, why do financial advisors recommend this if it’s not ‘tax advantageous’?
 
Phil V said:
Partially correct; the current NI pot is as you say, funding current pension payments, but there’s no deficit being covered by taxes, there’s a surplus, some of which goes to the NHS, and some held against future liabilities.

So, yes your NI conts will be funding the people who haven’t paid their own.

Of course his payments into the system will be less than if he’d not put the effort in, otherwise why bother, why do financial advisors recommend this if it’s not ‘tax advantageous’?
Click to expand...
It can be tax advantageous at the time but rules/tax grab regimes change and what was advantageous yesterday may not be advantageous tomorrow, plus there are significant risks (as I am sure you know) of being "self employed".
As an example - you used to be able to pay a dividend (no limit) which didnt attract NI contributions, or leave money in the Company for later payment to reduce liability to the 40% tax rate and perhaps pay yourself (as a psuedo pension) some years later when you wouldnt exceed personal allowance limits and attract tax at 40% which is obviously personally advantageous, plus it reduces your reliance on any govt funded pension, so a win for a future govt, which is why it was allowed.
That's now changed so you can only give a dividend of £2k before it's added to your gross pay and subject to a surcharge which brings into into line with tax/NI rates.
Money which was left in the company will now attract a surcharge, which it didnt before so it may have been better to have taken it as salary and not left it in the company, the advise at the time is now seen as not the best choice given the changes.
So using a tax advisor may not in fact be advantageous at all.

There are a lot of very clever people in the treasury constantly asses how people reduce their tax liability and working out how to close those opportunities unless it suits the government of the time. You have to remember that the govt needs to borrow money as cheaply as possible so getting you and me to stuff a wad into a pension fund that we cant access for a number of years is a brilliant way of gaining access to stable cheap funds, which imho is why the govt (of whatever colour) promotes pension funds and what could, to some, be seen as tax avoidance.
 
Last edited:
MatBin said:
It can be tax advantageous at the time but rules/tax grab regimes change and what was advantageous yesterday may not be advantageous tomorrow, plus there are significant risks (as I am sure you know) of being "self employed".
As an example - you used to be able to pay a dividend (no limit) which didnt attract NI contributions, or leave money in the Company for later payment to reduce liability to the 40% tax rate and perhaps pay yourself (as a psuedo pension) some years later when you wouldnt exceed personal allowance limits and attract tax at 40% which is obviously personally advantageous, plus it reduces your reliance on any govt funded pension, so a win for a future govt, which is why it was allowed.
That's now changed so you can only give a dividend of £2k before it's added to your gross pay and subject to a surcharge which brings into into line with tax/NI rates.
Money which was left in the company will now attract a surcharge, which it didnt before so it may have been better to have taken it as salary and not left it in the company, the advise at the time is now seen as not the best choice given the changes.
So using a tax advisor may not in fact be advantageous at all.

There are a lot of very clever people in the treasury constantly asses how people reduce their tax liability and working out how to close those opportunities unless it suits the government of the time. You have to remember that the govt needs to borrow money as cheaply as possible so getting you and me to stuff a wad into a pension fund that we cant access for a number of years is a brilliant way of gaining access to stable cheap funds, which imho is why the govt (of whatever colour) promotes pension funds and what could, to some, be seen as tax avoidance.
Click to expand...
None of which is under dispute
And none of which alters the fact that old Bumpy chose to manage his tax affairs in a way that means lower paid workers are subsidising his early retirement.
 
Phil V said:
None of which is under dispute
And none of which alters the fact that old Bumpy chose to manage his tax affairs in a way that means lower paid workers are subsidising his early retirement.
Click to expand...
But you/they arent because he's paying out of his savings for his early retirement as he stated earlier and my guess is that he wont be claiming unemployment benefit, which technically he could, he's got private medical insurance so he wont be a burden on the NHS (which I understand spends the vast majority of its budget on OAPs) and if he's taking enough out of his personal pension he'll pay the same amount in tax as he's receiving in pension, so his net income from HMRC is zero.
 
Last edited:
MatBin said:
But you arent because he's paying out of his savings for his early retirement and if he's taking enough out of his personal pension he'll pay the same amount in tax as he's receiving in pension, so his net income from HMRC is zero.
Click to expand...
Nope, his tax affairs mean we are paying his NI conts, so he hasn’t had to pay them. He actually volunteered that information with some pride.:oops: :$

Again, I’m not talking about tax, but purely NI. And the fact he hasn’t shelled out his own NI means the tax payer is paying it for him. His RP will be almost wholly at the cost of the taxpayer (millions of whom probably earn less than him) :eek:. The fact he’s not had to pay his own NI has surely contributed to the amount he’s had available to save for his early retirement. Simple logic.

You seem like a bright bloke, you ought to be able to see that.
 
Phil V said:
You seem like a bright bloke, you ought to be able to see that.
Click to expand...
Thanks :)
Whilst I agree that he hasnt paid NI contributions which I find morally wrong, there was a time when I was "contracted out" as recommended by the then Govt, I was an employed person (PAYE), so in effect didnt pay as much NI as someone who wasnt contracted out, does that mean my retirement will in part be funded by those that didnt contract out? I suppose in some ways it does because that money was invested in a private pension fund and I will reap those benefits (albeit taxable so what I saved I will probably pay back many times over, such is the system).

NI contribution credits can be gained in a number of ways, not working and registered unemployed, being at home with a child (or children), earning insufficient to break the lower limit band (about £8K I think) and finally earning enough to be captured into the system where you contribute an amount designated by the Chancellor. All of which are a very fair way of levying the amount one pays (or doesnt) and what one receives when claiming the pension. However now if you pay NI for less than 10 years you get no pension at all, is that fair, is that morally acceptable?

Putting it very simply I suppose current contributions pay for the current claimants of govt pension, you have put forward a convincing argument that by paying nothing others have had to pay more so the current claimants get a decent state pension (I dont think they do but that's another argument)

I'll concede the point and suggest we string him up :)

Although, there "could" be a counter argument that he saved a few % of his salary by not paying NI at the time it may have been due, but when he starts paying tax when receiving his pensions in a few years time he'll pay back more than he ever saved. After all if the Govt doesnt get enough in tax revenue they will reduce their outgoings (or borrow more, or both) so maybe the state pension will be reduced in it's purchasing power e.g. removal of the triple lock? By paying back more tax than saved NI he's helping to reduce the liklihood of that happening.

A good discussion I think, conducted with dignity, thankyou.
Matt
 
Last edited:
MatBin said:
Thanks :)
Whilst I agree that he hasnt paid NI contributions which I find morally wrong, there was a time when I was "contracted out" as recommended by the then Govt, I was an employed person (PAYE), so in effect didnt pay as much NI as someone who wasnt contracted out, does that mean my retirement will in part be funded by those that didnt contract out?
Click to expand...
No
Your ‘new state pension’ would be reduced due to that underpayment, unless your years since have made up the shortfall.

I had likewise years of contracted out conts (bear in mind we didn’t pay ‘no’ conts during that time, they were just reduced) ;), but by the time I’m old enough for my pension I’ll have made up that time. There’s a calculator available online.

I also doubt very much that when he retires to Greece he’ll be contributing much back to the UK economy.

I don’t want him strung up, I just want people to understand that the savings he’s proud of are at the expense of the rest of us. And maybe before he boasts about it again, he’ll consider the fact he’s mocking those of us who are poorer than him for subsidising his lifestyle.
 
Phil V said:
I had likewise years of contracted out conts (bear in mind we didn’t pay ‘no’ conts during that time, they were just reduced) ;), but by the time I’m old enough for my pension I’ll have made up that time. There’s a calculator available online.

I don’t want him strung up, I just want people to understand that the savings he’s proud of are at the expense of the rest of us. And maybe before he boasts about it again, he’ll consider the fact he’s mocking those of us who are poorer than him for subsidising his lifestyle.
Click to expand...

One could argue, if being pedantic, that whilst you (and I) were paying reduced NI that to enable the Govt to continue to pay the State pension to OAPs at that time others not contracted out had to pay more? Unless of course there was a surplus, in which case the Govt could have reduced overall NI thereby aiding the less well paid.
One could also argue that those that contribute less than 10 years and get no pension are majorly disadvantaged and those that have more than 35 years contributions are being taken for a ride.
 
MatBin said:
One could argue, if being pedantic, that whilst you (and I) were paying reduced NI that to enable the Govt to continue to pay the State pension to OAPs at that time others not contracted out had to pay more? Unless of course there was a surplus, in which case the Govt could have reduced overall NI thereby aiding the less well paid.
One could also argue that those that contribute less than 10 years and get no pension are majorly disadvantaged and those that have more than 35 years contributions are being taken for a ride.
Click to expand...

You could argue all those things, but before you point the finger at ‘contracted out’ conts, it might be interesting to look at the large employers who used those schemes, and not whether the actual employees chose to opt out, I’d guess the vast majority never had a choice, they were enrolled in final salary schemes by their employers.
 
Phil V said:
You could argue all those things, but before you point the finger at ‘contracted out’ conts, it might be interesting to look at the large employers who used those schemes, and not whether the actual employees chose to opt out, I’d guess the vast majority never had a choice, they were enrolled in final salary schemes by their employers.
Click to expand...
I was contracted out by an employer and didnt realise the ramifications until much much later, especially as having left that employer I continued to be contracted out without realising and only in the last couple of years have I realised as my contributions have just about hit the maximum allowed, I could so easily have retired without a full Govt pension, actually mine isnt quite full, but near enough. There is supposed to be some sort of guarantee that those involved wont be disadvantaged but Lord only knows how you either claim it or work it out.
No finger pointing, sorry if it came across that way.
 
Phil V said:
Again, I’m not talking about tax, but purely NI. And the fact he hasn’t shelled out his own NI means the tax payer is paying it for him. His RP will be almost wholly at the cost of the taxpayer (millions of whom probably earn less than him) :eek:. The fact he’s not had to pay his own NI has surely contributed to the amount he’s had available to save for his early retirement. Simple logic.
Click to expand...

If I wasn't paying NI, my pension contributions would be double what my employer and I are currently paying in. I suspect to Mr Bump it is worth considerably more. I'd be retired now at 55 if that were the case, not hanging on until I was 58.

So who's first on the Rota for the all expenses paid trip to Greece then?
 
nilagin said:
If I wasn't paying NI, my pension contributions would be double what my employer and I are currently paying in. I suspect to Mr Bump it is worth considerably more. I'd be retired now at 55 if that were the case, not hanging on until I was 58.

So who's first on the Rota for the all expenses paid trip to Greece then?
Click to expand...
Phil - he made the strongest case and won the "argument" :)
 
Crete is rather less fond of Russians than Cyprus is.
 
Matala? ;)
 
Sitia

It lost it’s gentleness when the airport was finished. I enjoyed the ferry journey and early morning arrival. Easy until the kids arrived!
 
Last edited:
Our house is in Kolymbari
no visitors thanks
:)
 
Mr Bump said:
Our house is in Kolymbari
no visitors thanks
:)
Click to expand...

Don’t worry, I can think of some who, as the song goes will, Walk on By.....
 
You must log in or register to reply here.
Back
Top