Is it worth contributing to a pension, as the state pension wll probably be means tested?

S

smithers

Registered User
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Hi,

I am trying to decide whether to invest in a pension or whether it will just end up being means tested and because I have it I will not get the state pension. What is the likelihood of this happening? Everyone knows the state pension is unsustainable so if I do have my own private pension are they likely to say well now you don't get the state pension. It's always a concern in this country, if you have nothing you get provided for or if you try to provide for yourself at all you get nothing. What do people think? Is it worth the risk and making the sacrifices to save into a pension?
 
I've 27 years left to the state pension. I'm not even considering there being a state pension for me.

Mrs_90 is in Civil Service so hopefully she will get hers and I'll have my own.
 
There is little doubt in my mind it will be means tested. The question is when, and at what level the means test starts. I would still provide for one and worry about it later. Don't use it as an excuse. At least save for retirement in some fashion.
 
I have had the pleasure of working with older people of various demographic financial background and means, none, not even the wealthiest ever said they could not do with a little more so do put monies away for your future, paddle your own canoe, old but solid advice.
 
Joe_90 said:
I've 27 years left to the state pension. I'm not even considering there being a state pension for me.

Mrs_90 is in Civil Service so hopefully she will get hers and I'll have my own.
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So you're counting on the even more generous public sector scheme living up to its promises?!

I'm a civil servant and my wife is also public sector and I'm trying not to count on our occupational schemes delivering at the crazy DB levels they're currently promising... I'm assuming some apocalyptic event (aka the Germans/ Chinese paymasters) will happen between now and our retirement in 30+ years...
 
Quite a gamble to take...

I personally don't think it will be means tested as it will mean the party that brings it in will be run out of government. The whole idea of PRSI payments is that it provides for your pension at 68 (I know it's spent on general expenditure but that's another topic). How is a government going to introduce legislation saying that for those who worked for 40 years and paid their taxes get nothing while those that didn't get €12,000 a year?

Then there is the cost of the benefit. The State pension would cost you about €300,000. The average pension fund is €8,000. How are they going to administer that one? You can't have someone who had a private pension getting a small monthly pension while someone who spent their way through life getting more than them. They can't administer the child allowance so that those on high salaries don't receive it. There's no way they can administer variable pension benefits.

The truth is, €12,000 won't give you a great retirement. You also want more than one income stream for when you do retire. Private pensions are a great way to save for retirement, so put one in place and try to have other savings too.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
This is a real dilemma. If you squander your money now, the state will look after you in retirement.

If you save hard, especially via a pension scheme, it's very likely that the state will say "You are ok, we must allocate the scarce resources to those most in need i.e. those who didn't bother with a private pension."

There are two solutions.

1) Force everyone to contribute to a pension, so that they won't need an OAP when they retire.
2) As I have suggested elsewhere, put people's PRSI contributions into an individualised account. The more you have on retirement in that account, the more pension you get. Then cut the non-contributory pension dramatically.

Brendan
 
SBarrett said:
Quite a gamble to take...

I personally don't think it will be means tested as it will mean the party that brings it in will be run out of government. The whole idea of PRSI payments is that it provides for your pension at 68 (I know it's spent on general expenditure but that's another topic). How is a government going to introduce legislation saying that for those who worked for 40 years and paid their taxes get nothing while those that didn't get €12,000 a year?

Then there is the cost of the benefit. The State pension would cost you about €300,000. The average pension fund is €8,000. How are they going to administer that one? You can't have someone who had a private pension getting a small monthly pension while someone who spent their way through life getting more than them. They can't administer the child allowance so that those on high salaries don't receive it. There's no way they can administer variable pension benefits.

The truth is, €12,000 won't give you a great retirement. You also want more than one income stream for when you do retire. Private pensions are a great way to save for retirement, so put one in place and try to have other savings too.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
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The "vulnerable in society" argument will take over Steven. This is the way the country is heading. Initially the means testing will be a fairly high level to catch the prudent "fat cats" only, then lowered.

I could roll back and make part of your argument 20 yrs ago as follows: the "whole idea of PRSI payments is that it provides for your pension at 65"

 
SBarrett said:
Quite a gamble to take...
The State pension would cost you about €300,000. The average pension fund is €8,000.
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Out of curiosity Steven, I assume by this you mean that the average of all pension funds, not just those of people at retirement age, is €8,000. Even given that it seems shockingly low but I assume that the average for people over the age of 50 is higher?
 
In response to the OP, the state pension is pretty minimal really, especially if you have been accustomed to a more ... generous ... pay cheque. Not saving for your own pension will mean that your possible income is limited to whatever the government of the day provides, in all likelihood, you will have little or no say in the matter aside from which party you vote for. Even in the worst case scenario with a future regime deciding that self-provision, prudence, forethought and planning on your part should be <ahem> rewarded by them refusing to pay out on the basis of your contributions, if you have the means to do so you will accumulate a fund that will yield a higher income. Even if you don't, gambling on a single income stream is ill-advised. At present the tax incentives for putting money into your own pension are good, in effect you are getting the state to contribute towards your private pension fund, might as well take advantage of that while it is available.
 
I agree this is a dilemma .
overall I agree with sbarrett.

I think it's the non contributory oap that needs to be tackled relative to the contributory but i doubt it will be .
 
mtk said:
I think it's the non contributory oap that needs to be tackled relative to the contributory but i doubt it will be .
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As I have suggested in this article

A person who works for years and pays PRSI should get a much higher pension that someone who has been on the dole all their life. The non-contributory social welfare pension also needs to be reduced from its current level. For example, it's €377 for a couple in the Republic compared to €309 in the North.
 
SBarrett said:
I personally don't think it will be means tested as it will mean the party that brings it in will be run out of government.
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Unfortunately I think you're being too optimistic.

The government changed one test for the pension, the age limit by 3 years to 68.

They increased the number of contributions needed. I believe it's currently 48 per year to retirement age. I'd guess that not many will get full pensions in future as they'll have periods of unemployment and working until 68 won't be common.

They reduced limits on pension fund sizes and contributions and have made no effort to increase them even slightly in line with inflation.

They launched the pension levy on private funds. Compare the reaction to the 2.2B pension levy with the reaction to water taxes which took in around 200m.

A government could easily announce they were means testing pensions for people with their own income of maybe 75k as a starting point. Might even win them votes from our electorate.
 
so-crates said:
Out of curiosity Steven, I assume by this you mean that the average of all pension funds, not just those of people at retirement age, is €8,000. Even given that it seems shockingly low but I assume that the average for people over the age of 50 is higher?
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No that is the average value of pension funds at retirement age.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
it may be reduced or kicked further into old-age, but I can't see it ever being removed. The whole point of the contributory pension is you contribute, then you get the benefit. There's a direct link and an implied contract - the government can't just say to people that have contributed 20, 30, 40 years that they'll get nothing, there'd be war over it. For many people who pay PRSI the pension is the only real benefit they'll ever see.

More likely is some sort of radical reform changing it to something akin to an obiligatory defined contribution scheme, but they'd still have to provide benefit to those who paid in under the old system.
 
No doubt State Pension will be changed and fiddled with.
But I think we are suffering from too much (austerity) (not trusting government) .
Times have gone from negativity to positivity and back again , ! and we have all become experts in demographics etc !

There will be changes and if they end up being negative , I think I would prefer some hit on my private pension to relying on an underpressure state pension.
So get a pension and worry about 2060 then !

At worst you will have something.
 
Gerry Canning said:
No doubt State Pension will be changed and fiddled with.
But I think we are suffering from too much (austerity) (not trusting government) .
Times have gone from negativity to positivity and back again , ! and we have all become experts in demographics etc !

There will be changes and if they end up being negative , I think I would prefer some hit on my private pension to relying on an underpressure state pension.
So get a pension and worry about 2060 then !

At worst you will have something.
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Austerity means to reduce public expenditure. I see nothing wrong with that if a government is not spending more than it earns and avoids creating liabilities for future generations.
I have no reason to trust the government and personally I don't want to be hit on my private pension while other people squandered their money while I was saving. See the Ant and the Grasshoper.
 
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