So, anyone really know about the state pension?

I\’m sure that among the readership here there are one or two who really understand about the state pension system. Across Europe that is.

My basic starting point is that if you\’ve not got a state pension then buying one is a very, very, effective use of money. It is, essentially, an inflation proofed annuity in exchange for national insurance payments. And it is a much better deal than anything you can get on the private market. Simply because those pensions are not paid from the earnings on investments, not even from the premiums being paid, but subsidised out of general tax revenues.

Further, you can, in the UK at least, purchase back years of pension contributions. I think it used to be you could purchase two blocks of 7 years in a lifetime. Now only one block of 10 years maybe.

The NI rates required to just make these pension contributions (which you can regard really as the capital sum purchasing that annuity) make doing so, if you haven\’t already got a full UK pension, a very attractive deal.

OK, here\’s where I now go off into areas I know nothing about.

I would assume that most such state pension schemes across Europe (more importantly, the EU, where they\’re not allowed to discriminate against EU furriners) have similar arrangements. So that mothers who took years out of the workforce, as an example, can top up their pension rights.

So, what\’s to stop someone purchasing pensions in all 27 such EU countries? Not Estonia, obviously, as pensions there are based upon real investment returns.

But is, and I repeat if, other state pension schemes are better than private annuities, and if, I repeat if, it is possible to back purchase years of eligibility, then what\’s to stop someone purchasing 5 or 10 or 20 different state pensions from across the continent?

Anyone know?

13 thoughts on “So, anyone really know about the state pension?”

  1. I don’t know about your latter point, but

    “My basic starting point is that if you’ve not got a state pension then buying one is a very, very, effective use of money.”

    No. They are extremely bad value for money, and the return you get is less than you would get from a private pension.

    Because the state is not bound by law, they have been retroactively altering the terms, making state pensions more and more “means tested”, to reduce costs they can’t afford.

    As a result, people who paid in more than they had to got screwed.

    Google: pensions

  2. Can well remember our school economics teacher, in the mid ’60s, pointing out the perils of non-funded pensions & warning us snotty nosed youths not to expect it’s survival for our benefit. I’ve a horrible feeling he was just about dead on.

  3. Of course he was dead on. Everyone who analyses them looks at the projected payments in and projected payments out, discounts it and finds that there is a shortfall of hundreds of billions of pounds.

    This means that within a few years, the govt simply will not be able to pay. Either they’ll have to print more, or people just won’t get their pensions.

    The recent changes to some govt departmental pensions are tiny; they’re not anywhere close to solving the problem.

    And with the state pension the govt’s making it worse: they’ve recently passed a law to increase payouts.


  4. My wife has been deferring her OAP. On the face of it she should realise the advantage by asking for the extra pension. The alternative, of a lump sum, looks feeble in comparison. But I expect the government someday to means-test the OAP i.e. steal her OAP from her, extra and all. So I’m tempted to recommend that she ask for the lump sum. Anyone care to offer opinions on this topic?

  5. I assume you are talking about the private employee schemes. In Germany there is a public employee scheme they call a Pension and a private company worker scheme called a Rente. the public employees never pay in, so everything they get out comes directly from the public sugar tit.
    In the private company worker scheme, they pay in a percentage of their pay and receive out a percentage of their final paycheck (or aggregate thereof) when they retire. It is fairly common for people to attempt to get out of the system but I have never heard of anyone trying to buy in. Even if it were possible, I don’t know how they would determine what level would be paid in or paid out if one is not one the system.
    In any event, I think one has to consider the very real chance that the government will have to default on at least part of this obligation. The German system is a pay as you go one and the famous Adenauer maxim behind the scheme, “The People will always have children” interestingly ended up not being true. The Germans are not having enough kids to fund the system and retirees expecting 67% of their last paycheck will find themselves getting only a “Minimalrente” (no translation needed)

  6. Dearieme>

    I see things somewhat differently. Means-testing is completely unnecessary if the state pension age is raised to a sensible, sustainable level – say 75 – in the near future.

  7. “How old is your wife?”

    I do not wish to be divorced. By all means answer for (a) someone aged 60-65, (b) 65-70.

  8. As Nye Bevan (Bevin?) said, the secret of the National Insurance Fund is that “there ain’t no fund”.
    The belief in an unfunded pension has been a 40 year delusion. But maybe people are waking up?
    Could the 300,000 drop in public sector employment over the last two years be a consequence of people taking early retirement to attempt to “lock in” their “entitlement”?

  9. Pensions of any type offer an uncertain payout because they are a) dependent on investment returns, b) dependent on population demographics (through annuity rates) and c) dependent on how long you live.

    I’d like to see a calculation showing by how much someone in the mid-1960s would have been better opting out of the state pension.

  10. To give a personal example, I’ve had a private pension since 2001 and I’d be amazed if the amount I would get back now is more than they said I’d get in 2001 for the level of payments.

  11. To get back to one of Tim’s questions: I think you would have to prove your entitlement by a social security number or similar.

  12. I think the answer to Tim’s question is that you can only “buy in” for periods when you were resident in a country and not paying in for some reason. You can’t be resident in more than one country at a time, so it would be difficult to buy 27 pensions. Also when you retire in the EU the local pension office collates all your time/contributions paid into the various EU member state pension schemes, it would then not only become apparent if you’d tried to fiddle the system by pretending to live in 27 countries at once. This would probably be less of a problem than the fact that the state pension is capped, and you’d have paid all those contributions without managing to increase your entitlement.

    Apart from that, I agree the numbers I get from the Deutsche Rentenversicherung look far more promising than the employer’s scheme. I also suspect like other posters here that the government will be unable to keep its promises.

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