Who will win and who will lose if state pension is

1st April 2011

The BBC revealed the news after it was apparently briefed in advance by ministers; therefore it uses the journalistic code ‘understood' to report the story here.

The official announcement is expected next week.

So how does this benefit investors? According to some experts it will end a system that penalises the thrifty.

Put another way, it means that it may be worthwhile to save even for those in low income groups.

Currently those savings are subject to means-testing and those who haven't saved at all still get their pension upgraded to around £130 a week for a single pensioner.

However the process of reform is likely to be a complicated one.

The new pension would be created by a merger of the basic state pension and the minimum income guarantee which tops up pensioners who have few other sources of income with means tested state benefits.

It would also probably involve collapsing in the pension credit, which allows pensioners to shield a proportion of their pension savings at roughly 60p for every pound saved, providing those savings do not exceed £10,000.

In addition, those pensioners with entitlements built up through contributing a proportion of their earnings into the state earnings related system through  SERPs and its successor the State Second Pension may be brought into the system.

The Government says that accumulated entitlements will still be preserved but it remains unclear how this might happen.

If all this seems complicated, it is.

In addition, some bloggers are predicting trouble for the Government in that people already retired by 2015 will still be subject to the means-tested system.

With many of the poorest and oldest pensioners not claiming the MIG, this could prove controversial as outlined here on the Money Debate .

14 thoughts on “Who will win and who will lose if state pension is”

  1. Dutch says:

    Shaun,

    So let me get this straight.Imputed rents are dropping while house prices are rising?

    1. Anonymous says:

      IMHO house prices are a function of (loose) credit but rents are a function of wages (with house prices and interest rates thrown into the mix but with wages providing an upper bound).

      We have falling wages in real terms so rents must fall too.

      Yet apparently in the UK we are getting richer and the woeful indicator GDP is “up”.

    2. Anonymous says:

      Hi Dutch

      The imputed rent situation is not quite that simple so let me take a step back to explain the position. Last June the Office for National Statistics offered new methodology which sent it onto a higher plain.

      “As can be seen in Table 2 above, the net effect of the new method is not zero for total UK HHFCE (or for GDP). This is because the increase in imputed rentals expenditure is larger than the reduction
      in maintenance and repairs.”

      This raised GDP by £20.8 billion in 2010 and £17.6 billion in 2011. Nice work if you can get it!

      But if we return to a simple narrative imputed rents were increased for the past (back to 1997) with the implication that the new methodology would be raising them now and in the future (as in higher than they would have been if it was not changed).

      The change in the latest GDP numbers tells us that the nominal imputed rents are lower but do not worry inflation was lower too because we are now using the CPIH. Oh and the answer or the real value is the same so nothing to see here move on…

      Overall though the numbers are now higher. Whilst the water is getting ever more muddy.

      1. dutch says:

        Thanks for that explanation Shaun.

        The whole notion of imputed rents is utterly bizzarre.

  2. Andy Zarse says:

    Hi Shaun, I think this whole rebalancing debate is more akin to what is happening across the other side of Manchester; David Moyes keeps telling us he is rebalance his squad. Yet nothing seems to change, but in the meantime everything is fine. Well, all’s fine except being knocked out of all major competitions and a terrible streak in the Premiership. Living in cloud cuckooland seems to be easy when your remuneration and pension are softened by big pay packets and index linked pensions.

    1. Anonymous says:

      Hi Andy

      I do have a lot of sympathy with David Moyes though. Fergie was as skillful in timing his departure as he was at the other managerial arts. He had a group of players which we weaker than in the past and to an extent got lucky last season as the other contenders misfired.

      Oh how David Moyes must wish for a lucky break…

  3. Dutch says:

    ‘So we see that the housing market boom continues along the vein which I
    discussed on the 14th of this month and it is dragging consumption with
    it.’

    Just one point here.The housing market boom-in terms of prices at least-does seem restricted to the SE,the bulk of cities up the M1 corridor having seen few rises in the years since 2003.Another side of the rebalancing that’s not as rebalanced as those ingovt claim.

  4. forbin says:

    Hello Shaun,

    To re-balance the economy would take something like the Marshall plan…….. hmmm the Great Gordo said we would build our own wind genrators and be first in Renewals ……. yeah right we purchased them abroad

    Same with all the rebalancing rubbish thats spouted by all three colours in HMG . I just dont think their hearts are in it

    think of Tony Blair, I mean realy , would you put HMG moniey to something that gets 10-15% or into Banks……..

    if you don’t think the Banks run this country – I’d suggest you take another look…….. seems that way to me

    Forbin

    PS: I’ll check my bills from tescos about popcorn later Shaun, seems you got me on that one !

    1. Anonymous says:

      Hi Forbin

      The price of toffee popcorn has shot up there. A 200 gram bag went from 85p to £1 and now £1.10 in short order. Knowing that I wish I had kept a record …

      UK governments talk about re-balancing and then pump up the housing market.

  5. Anonymous says:

    Hi Shaun,

    I believe the DMO tracks Gilts trades. The consumer statistics agency could try to track all consumer spending and tabulate the results into a accurate index based on actual spending and consumption.

    1. Anonymous says:

      Hi ExpatInBG

      I completely agree that modern technology should be used in such a way as it gives us the opportunity perhaps for the first time to process enormous amounts of data. The only catch is the poor record of public-sector IT schemes…..

      1. Anonymous says:

        Collecting data is a bigger issue for the smaller sellers. Those below the VAT threshhold don’t have spare money to provide this data. Small ebayers, market traders and burger van people sometimes try to work under the tax radar

        As to the UK govt, they’d do themselves (and us) a huge favour by keeping things simple. Just look at the complex mess our personal taxation rules are.

  6. Noo 2 Economics says:

    Hi Shaun,
    I’m confussed.

    What is the difference in what they are measuring when they say “GDP is estimated to have increased by 1.8% in 2013” and then “Between Q4 2012 and Q4 2013 GDP in volume terms increased by 2.7%”.

    These are the same periods aren’t they? So what is “GDP” and “GDP in volume terms”?

    1. Anonymous says:

      Hi Noo2

      The Office of National Statistics had a go at explaining this in today’s bulletin.

      “Growth for GDP and its components given between different periods. Latest year on previous year gives the annual growth between one calendar year and the previous. Latest quarter on previous quarter growth gives growth between one quarter and the quarter immediately before it. Latest quarter on corresponding quarter of previous year shows the growth between one quarter and the same quarter a year ago.”

      Putting it another way GDP for 2013 at 103.2 (2010=100) is a measure for the year as a whole (a type of median/average) but the Q4 number is at the end of it and is 104.3.

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