Monday, June 2, 2014
Balley Price Holdings Management: Used to be that paying lower tax was considered commendable for it ended up reducing burden on state – Today, it’s more like an insult
Ponder this: About 80% of above 50 years of ages will get lower than £155 weekly. It was inevitable that some will win and some will lose when the fresh flat-rate weekly state pension of £155 was applied.
The Government had vowed it would not cost the nation more than that. Hence, if several individuals will end up getting much more than the present state payout of £113.10, surely the extra money would have to come from other sources.
But the announcement has been consistently clear: Anyone who has paid the amount required by the National Insurance of 35 years of contributions will receive a weekly pension of £155. However, our evaluation of the small print on the new flat-rate has shown this to be untrue.
About 80% of over-50-year-old citizens who have faithfully paid their regular National Contributions all their life will end up receiving below £155 each week.
Why? Because at a certain time they were in a final-salary program and were contracted out of the State Second Pension — a plan that permitted employees to jack-up their state retirement payout. Since they chose out of these extra payments, workers were allowed to pay a lower rate of National Insurance contributions of 10.6% and not 12%.
The justification from the present Government is that these workers should not receive or claim the new higher basic state retirement pay for having paid lower tax then. This is in spite of the fact that, in the present administration, they would have been eligible for the full amount of basic state pension.
It certainly is a frustrating development for many. How can the Government expect people to become responsible retirement planners if at this late period retirees are unsure as to how much they will actually receive?
And that does not take into account the complication that will ensue when the inflation-related increases in guaranteed minimum retirement income will be removed. For many years, the Government has covered these increases; but it has now turned around by saying that it was only a misunderstanding, not a firm commitment.
However, many official declarations have shown that this is not really the case. The latest official reports state that the Department for Work and Pensions is correcting this history — and extricating these files from the Parliamentary archives.
A rather cunning way of denying a pension vow: Pretend it never really happened. These amendments to the national pension are an unfair decision to impose upon hopeful people who will be disenfranchised of their dreams during their expected life of retirement.
So complex is the equation that even the Department for Work and Pensions is not certain what contracted-out employees will receive.
Moreover, people are being punished for a judgment they took twenty or thirty years ago — a step which, in general, was done by someone else, since many company final-salary plans involuntarily contracted workers out of the state second pension.
Looking in from the outside, it appears just to decrease the payments of those who have not contributed the entire rate of National Insurance. But this is not a case of getting something for nothing. By opting to pay the lower rate, they were surrendering their right to receive the state second pension.
It used to be that paying lower tax then was considered commendable for it ended up reducing burden on the state. Today, however, it is more like an insult. And you could end up being penalised.