Zurich AVC Statements online

[nataddick]

jetblack - you are right about the higher rate of NI that is payable this tax year. It has gone up following the end of contracting out from 10.6% to 12% on the relevant band of earnings above £155 p.w. A couple of points are that :-

1. In return for the higher rate of N.I. payable, is an accrual rate of 1/35th of the new State Pension at £155.65 p.w. which equates to approx £4.44 p.w. As the value of the new State Pension increases each year so does the effective accrual rate. So I am not convinced that you are actually worse off. No one likes paying more to the Govt but that is a whole new debate !

2. Paying pension contributions via PSE reduces the overall amount of N.I. payable each week thus reducing the net cost.

I appreciate that pension planning is a complex area with a mine field of options available. I am lucky to have worked in the business but still get tripped up over all the rules and regulations that are applied by various bodies. That is why the pension forum is so valuable for people to share their views. The information is usually 'out there' sometimes we just need a pointer so we can check it out ourselves !

[jetblack]

Sorry - I may be a little confused here - so apologies in advance.

But a) I didn't opt out of the PSE, b) there is the exact same amount going into my Flexiplan today as there was 12 months back and c) I am worse off by circa 2.25% net in my pay packet.

Looks like that for me at least, whilst they've given to me with one hand (PSE) they have more than covered their costs with the other hand (increase in rate of NI contributions - which is, lets not forget, liable on all my income (unlike income tax)).

I'm worse off today than I was 12 months back and there appears to be the exact same amount going into my AVC (I just checked on the Zurich website).
I have no idea wether my situation is the exception to the rule or not. But, like I say, judging by the payslips this financial year that appears to be exactly whats happening here.

Scammed again - story of my life

[mark.cup]

No PSE was brought in to lessen the blow but the ceasing of opting out and the NI increase have only happened at the start of this tax year

Also like stated above many of us who have a reasonable number of years could actually be a decent amount better off building £4 something a week on your state pension for every year we now pay full NI

[RobertT]

Sorry - I may be a little confused here - so apologies in advance.

But a) I didn't opt out of the PSE, b) there is the exact same amount going into my Flexiplan today as there was 12 months back and c) I am worse off by circa 2.25% net in my pay packet.

Looks like that for me at least, whilst they've given to me with one hand (PSE) they have more than covered their costs with the other hand (increase in rate of NI contributions - which is, lets not forget, liable on all my income (unlike income tax)).

I'm worse off today than I was 12 months back and there appears to be the exact same amount going into my AVC (I just checked on the Zurich website).
I have no idea wether my situation is the exception to the rule or not. But, like I say, judging by the payslips this financial year that appears to be exactly whats happening here.

Scammed again - story of my life

The amount you’re paying into your AVC as per your wage slip is the gross amount. What actually happens is you get what’s known as tax relief at source, which basically means that for every £1 you pay in, you get £0.20 taken off your income tax, so it’s only really costing you £0.80.

PSE effectively reduces the cost to you down to £0.68 as has already been mentioned.

National Insurance is only payable after the first £155 you earn per week.

You may be worse off in terms of your take home pay due to the increase in NIC’s, but PSE means that you’re not as worse off as you would have been.

These things will vary from person to person to some extent, but personally my take home pay has reduced by about £2.15 per week due to the increase in NIC’s caused by contracting out ending, although I saw an increase of around £4 per week when PSE was first introduced. EDIT: having just checked it was actually an increase of £6.78 per week.
However as my state pension entitlement is increasing by £4.44 per week for each year I’m paying these extra NIC’s, then at that ratio I will only need to receive the state pension for about half as many years as I’m paying that extra amount to get my money back. And anything after that is ‘profit’.

You are not being scammed, you are paying more NIC's, but in return you're getting a higher state pension.

[jetblack]

It seems to me that we are being taxed more today for a benefit that may or may not materialise tommorrow, and whose real value may alter over time. The politicians have shifted the burden away from income tax to NI so that they can say on telly that they are reducing income tax and so score brownie points - meanwhile the real tax burden has increased.

So basically, I am meant to accept the (quite large) hit to my take home pay because I'm going to be better off for it when I start drawing my state pension ? Even though by the time I retire there will be around 4 % more pensioners than there are today - and so the strain on public finances (read, state pension) will be increased in direct proportion ? But we are going to be drawing a bigger pension than we would have under the old rules ??

It all sounds a bit fishy to me. You (we) are trusting a lot to luck - and are having to place trust in people that are looking to reduce public spending. Doesn't add up.

But yes - I can't remember how much my pay increased by upon the introduction of PSE, as Robert pointed out. But I reckon it was less than the reduction I've just seen. I used to keep hold of my old payslips until recently, so I can't check anymore. The house was full of the bloody things. It was starting to get depressing.

Sorry to have gone a bit off topic here - but its all relevant.

Is RM AVC's worth it ? Yes, definitely, and for various reasons. I personally am still putting in a good chunk of my income into them (around 1/3 to be specific)

[RobertT]

It is true that governments can change things in the future, you only have to see how much the pensions system has been altered over the last few years to know that it could change again at some point. But that’s the case for lots of other things too.

But contracting out has now ended for all defined benefit pension schemes – it ended in 2012 for DC schemes. And it means that we are now building up more state pension than we were before. It’s only fair that we pay more for it, surely?

I think the overall cost to the government of the new ‘single tier’ state pension is supposed to be cost neutral. There will be some losers and some winners, but those who have some contracted out company provision and still have the time to accrue more NI years from 2016 onwards, should benefit. I suspect there’s lots of posties in that position, I’m certainly one of them.

If I was at state pension age now I would get about £125 per week which equates to a basic of around £119 plus about £6 state second pension, and if things stayed as they were that is the maximum I would ever get, not including inflationary increases. However, under the new system £125 is just my ‘starting amount’ and I can increase that up to the maximum of £155 just by paying a small amount of extra NIC’s per week. I should have reached that amount in 7 years time, which coincidently is actually when I’m planning on giving up work.

Based on current amounts and adding a little for inflation etc, it will take me less than 12 months to get back those extra NIC’s when I start getting my state pension. Or to put it another way, in return for paying an extra £2 or so now, I’m getting another £30 per week in retirement.

Yes there is a certain amount of luck to it, but that goes for the AVC’s that you’re investing 1/3 of your pay into aswell. You’re putting you faith in the success of the underlying investments held in those funds. They may perform well or they may completely bomb, who knows?

[mark.cup]

Let's be honest it's all a game of chance to some degree but with the job getting ever more demanding and our bodies taking the brunt of this trying to build a pot of gold for an early exit seems a wise move

Most of my office don't care in the slightest about pensions and would say I'm mad for paying in what I do without understanding the tax and NI savings through PSE let alone the free cash Royal Mail put in the Bonusplan scheme

I also suspect if I manage my goal of 100k plus tax free funded by AVC's and the largest pension possible I will by called a jammy git rather than patted on the back and called smart

[RobertT]

Let's be honest it's all a game of chance to some degree but with the job getting ever more demanding and our bodies taking the brunt of this trying to build a pot of gold for an early exit seems a wise move

Most of my office don't care in the slightest about pensions and would say I'm mad for paying in what I do without understanding the tax and NI savings through PSE let alone the free cash Royal Mail put in the Bonusplan scheme

I also suspect if I manage my goal of 100k plus tax free funded by AVC's and the largest pension possible I will by called a jammy git rather than patted on the back and called smart

I think most people in my office are probably the same as in yours. A few might have some AVC’s or possibly other pensions or ISA’s tucked away, but the majority have no interest in pensions whatsoever and look at me with amazement if I mention the word. I think most of them will end up having a long and hard working life lasting well into their 60’s and possibly even into their 70’s in some cases.

I’ve been paying into both Bonusplan and Flexiplan for over 20 years now and have benefitted from good returns on my investments over that time. My Bonusplan is worth over 4 times as much as I’ve paid in myself thanks in part to the RM contributions that so many other posties seem determind not to take advantage of. While before Zurich took over the administration of the AVC’s, my Flexiplan was invested via Norwich Union/Aviva, who paid in another 6% on top of whatever I put in.

I’ve probably made a few sacrifices along the way in building up the amount I’ve got, I could have had more holidays for example. But the longest holiday of them all, retirement, should arrive for me at least 10 years earlier than it would’ve done otherwise.

[nataddick]

I recently got an up to date State Pension Statement showing that I have 42 years N.I. contributions as at the end of the 2014/5 year. My State Pension is forecast to be roughly £138 but I welcome the prospect of gaining another 5 years pension under the new rules in return for paying a very modest net increase in my N.I.contributions during the same period. This means my State Pension will then be at the new flat rate in 5 years time. The small increase in the N.I.'s now is significantly less than funding the additional pension gain by the purchase of an annuity.

[jetblack]

I think most of them will end up having a long and hard working life lasting well into their 60’s and possibly even into their 70’s in some cases.

Yes, just read this article about life expectancy and retirement. "If you are one of the twentysomethings who can expect to live until you are 100, at what age can you expect to retire? If you put away 10% of your earnings into a pension and expect to live on 50% of your final salary, the answer is that you will have to work into your early 80s."

I’ve probably made a few sacrifices along the way in building up the amount I’ve got, I could have had more holidays for example. But the longest holiday of them all, retirement, should arrive for me at least 10 years earlier than it would’ve done otherwise.

Yes, thats my plan as well.
I think that as a nation we are encouraged to spend rather than save. I read once that the germans on average save 10% of their income, whereas in the UK its only 1%.
In fact, we in the UK are not only encouraged to spend all that we earn , but to also take on extra debt and to spend that as well. Its no way to run an economy, nor your personal finances and planning either IMO.

[mark.cup]

I've been doing bonusplan for around 20 years I'm 40 now but what with buying a house then having a family followed by a costly divorce consider myself lucky that I paid off my ex and kept all my pension...

Only now that I am back on my feet have I started flexiplan around 2 years ago and hope I can really hit it for the next 20 years