Steve Webb answers your pension questions

0:02Welcome to This Is Money podcast sponsored by Trading212. Download the Trading212 app today and open a cashizer with promo code TIM to get the 12 month bonus promo rate of 4.8%. Terms apply. I'm Georgie Frost and joining me and Simon Lambert today is a very special guest for a very special anniversary. From inheritance tax and withdrawals to the state pension and the mistakes that could cost you thousands to Steve Webb has been diligently answering your questions and he's just hit a very impressive milestone. His 500th column for This Is Money. So today we celebrate by getting Steve to do even more work and answer even more of your questions.

0:41Don't forget you stay up to date with all the latest breaking money news. Just go to thisismoney.co.uk or download the app. Now, before we delve into some of the questions that readers have sent in, especially for you for this special podcast edition, 500 columns over a decade. your time at This Is Money is almost as long as This Is Money's podcast but not quite Steve did you ever imagine when you started out that you'd be doing this all these many years later

1:09Steve Webb: no I'm not sure I would have done if I'd realized it it's a 10 year stretch no it's been it's been one of the most rewarding things I do to be honest it keeps me in touch with what if I if I can use this phrase real people think because I spend my life in the painters industry and you talk to people who understand the jargon and the language and it's so easy to forget what folk you've got life to lead do and don't understand so it keeps me in touch enables me to help individuals and occasionally help large groups of people so you know I appreciate the chance to do it you say the stretch is 10 years Steve

1:42Simon Lambert: no we'll still be doing this for your thousandth column what are you talking about a particular case or question I appreciate 500 articles but you've had a lot more questions than that that stayed with you?

1:53Steve Webb: I think it has to be the whole set of messages we had about state pension errors. And it sort of started with a trickle and turned into a flood and ended up with an£800 million bill for the government. And I still remember one of them. So this was where we found that readers had been underpaid their state pensions, widows, married, ruined, the over 80s. And I remember talking to one chap who rang up and we'd looked into his widowed mother's pension and he was sure it wasn't paid correctly. And when the Department for Working Pensions phoned him up, they said, are you sitting down? He said, yeah.

2:25Steve Webb: And they said, your mother's owed under£18 ,000. Wow. And obviously that's an extraordinary amount of money. And in one case, you'd think you'd pop the champagne corks, but you can't help thinking how much better her quality of life could have been if she'd actually had the money when it was due, because she was now in a care home. I'm not sure she would have understood what was going on. And it was bittersweet, really, but it just showed you the scale of the problem for some people. So, I mean, you've been working with Steve and Tanya on these columns for years. What stands out for you? What is it about Steve that's enabled this longevity, as it were?

2:56Simon Lambert: Well, firstly, I would say that one of the things that really stands out for me is that Steve's column runs on a Monday morning. And we know that every Monday morning, that means we're going to have a great story to stick at the top of the This Is Money homepage. And you would not believe what a relief that is for somebody running a website 364 days a year. We try not to publish anything on Christmas to know that every single Monday is looked after by something that is really, really good. Beyond that, obviously, there's the fact that I think the most important thing is a combination of things.

3:36Simon Lambert: So wrapped into one, it's the helping readers with the problems, but it's also the helping readers understand pensions. And I think this is one of the best possible ways that people can get their head around the pensions landscape. And it is going to be the case that not every single question is relevant to everyone. There'll be a question about something that's happened to someone in retirement that's not relevant for someone in their 30s who's just starting out and saving. There'll be a question about saving for retirement in your 40s that's not relevant for someone who's already retired. There'll be a question about defined benefit pensions that, you know, if you've only got a defined contribution pension, as the vast majority of us in the private sector now do, you know, isn't relevant.

4:24Simon Lambert: But just knowing all of that stuff and digesting all of that information builds a huge amount of confidence for people in understanding pensions. And if people are confident in understanding pensions, then they can ignore some of the noise that goes on with the incessant government tinkering with pensions that does us no favours and get on with saving for retirement and feeling like they are well equipped when in retirement to turn those savings into an income for the rest of their life and ultimately live a richer financial life. Absolutely right. Well, Steve, limber up. Let's get stuck in. We're going to start with inheritance tax because that is clearly something that has got people concerned.

5:09The rules are changing, of course, from April next year. Simon, if you would just briefly outline what is changing.

5:17Simon Lambert: I will be brief. If you want to know all about it, listen to last week's podcast where we went into tons of detail on inheritance tax. ultimately what you need to know about inheritance tax is as an individual you can leave up to £325 ,000 free of inheritance tax you can leave your assets free to your husband wife civil partner if you're married or in a civil partnership if you own your own home and have children or grandchildren there's an extra£175 ,000 residence nil rate band that you can use to offset against value of your home. So if you combine it as a couple, you can pass on up to a million pounds.

5:55Simon Lambert: But if you're single, obviously it's less. And if you don't have children, it's less. The big change is that up until now, pension pots have not been liable for inheritance tax. As of next April, they will be. They will be added to your estate for inheritance tax purposes. So unspent pension pots, and that is going to nudge a whole load more people into having an inheritance tax liability, because to build that kind of pot that you need to rely on for the rest of your life, you need a large sum of money. And it's surprisingly easy to build up a large sum of money if you start early and save regularly.

6:31Which is what we always tell people to do. Steve, what do you make of the changes?

6:36Steve Webb: My big worry is the impact they're going to have on the people whose job it is to sort out estates often of loved ones. So what we loosely call executors, or that really means executing a will, personal representatives, what the government call them. But people who are, after someone's died, possibly a loved one, possibly when they're feeling bereaved and dealing with grief, this is a whole batch of extra bureaucracy they're going to have to deal with. And just to give you one example, you've got six months before interest starts applying on the tax bill that you should pay. And you've got to contact all the pension schemes, hear back from them, deal with what they've told you, go back to them, get them to do stuff.

7:12Steve Webb: and I can think of one pensions administrator who's been in the headlines recently who could gum up the entire thing for six months without even trying and so people are going to be caught frustrated trying to get replies from pension companies to get information to give to HMRC to pay the bill that they want that you know they want to pay because they have to pay if you see what I mean and they're just going to be caught in the middle and I think it's just going to be horrible for people in that position. Yeah all right Steve question. Hi Steve I have had a final salary pension since 2010. Will the upcoming changes making pensions liable for inheritance tax next April affect me?

7:47Steve Webb: Possibly is the answer to that question. So Simon was absolutely right when he referred to pension pots and this policy was really about modern defined contribution pot of money type pensions. And it's pretty clear if I've got a pot of money, I haven't spent it all by the time I die, that counts. But it's not quite as simple as to say therefore final salary type pensions are completely excluded. There can still be payments from those schemes which would count and they are generally things like lump sum payments. So if I give you an example, some pension schemes will say if you die soon after you start drawing your pension, so you only ever got it for a year or two, they'll pay you some extra up to as if you'd had it for five years, that kind of idea.

8:26Steve Webb: It comes as a lump sum. If it comes as a lump sum in that situation, it counts. Likewise, we don't think generally death in active service will count. So if you're a teacher and you die while you're a teacher, that probably any lump sum probably doesn't count. But if you stop being a teacher and are doing something completely different, so a death in what they call deferment, so when you're not actively paying into the scheme, that may well count. And we're waiting for further guidance and information from HMRC. But basically, you have to contact all of the pensions of which the deceased was a member, just in case there are payments that would count.

9:02Steve, is there anything that we can do as individuals before the inevitable happens to make life easier for people? Yeah, absolutely.

9:13Steve Webb: Yeah. I mean, it is record keeping. It is knowing where, you know, I used to work for a firm called Royal London. They produced a free booklet called When I'm Gone and you could literally just fill it in. And it was everything from what you wanted to happen to the pets to where your bank accounts were, who the broadband supplier was and also pensions. And obviously, you have to be careful about documents like that and keep them somewhere safe and all the rest of it. But, you know, having this all in one place is just going to make your loved one's life so much easier. You know, what's the address of the pension company?

9:41Steve Webb: Where do you have pensions? That kind of thing. And the other thing to say is a lot of this stuff is digital these days. And at one level, that's easier for us. But actually, for someone who comes after you, well, do they log in using your username? Do they know what your password was? Do they have to pretend to be you? Probably not. But then if not, then who do they, you know, so thinking about things that might be digital and even, dare I say, printing some of them out could actually help people. All right. Two questions about giving money to family members without falling foul of inheritance tax.

10:12I said inheritance tax was a worry. So one reader wants to make regular contributions to the sips of family members. Very generous, but understands that third party contributions have to be made as lump sums. So can they instead transfer money regularly into their relative's bank account for them to pay into their pensions? I suppose two parts to that. Is it true about the third party contributions have to be made as lump sums and can they instead transfer money regularly?

10:37Steve Webb: Yeah. So I don't think there's any rule that prevents a regular payment into somebody else's pension. It may well be that the receiving pension scheme gets a bit sniffy about it. They would rather have to deal with one transaction rather than a whole series of transactions. I don't think I'm not aware of any particular tax law that stops that happening. But the big issue here is this idea of avoiding inheritance tax by making what are called regular gifts out of surplus income. And it's probably worth us just understanding what that is. And there were several words I just used in that sentence, which are crucial to all of this.

11:09Steve Webb: So the key word here is surplus income. So it's got to be spare money. So whoever is giving it doesn't need it to live on. So they've got their income. they can meet all their regular bills and outgoing and there's this regular surplus on top so it's got to come out of that bit that's the first thing so it's surplus the second thing is its income so you can't have a pot a lump sum an inheritance or something and just bung that across that's not a gift out of regular income that's a gift out of capital so it has to be a gift out of regular income and i think the third thing to remember is that it is about um it's an individual thing So it is when somebody dies, it's their estate, their inheritance tax, their gifts out of their income.

11:54Steve Webb: But the important thing is to remember it's surplus and it's regular as well. And the crucial thing is to document all of this stuff. As you mentioned earlier, Steve, I mean, record keeping, absolutely essential. And we had a question come in about exactly that, because we do always say, don't we, Steve, keep records. But what do we actually mean? What records, this person says, my wife and I plan on giving£500 monthly by standing order out of our joint bank account as regular gifts out of surplus. It would become exactly what you're talking about. What records do we need to produce and is it OK to gift from a joint account?

12:27But the first one, the records. Yeah.

12:29Steve Webb: So after you die, the person dealing with your estate has to fill in a set form, an IHT form from H &M Revenue and Customs. And they will want to know basically three things for each financial year. They'll want to know your income, your individual income, your individual spending to prove that the income more than covered your spending and documents of regular gifts. And you'll need documents to prove this, bank statements and all of that kind of thing. So keeping records as you go will make life a lot easier for the person who has to fill this form in. But I want to stress these are individual gifts from individual income.

13:05Steve Webb: So paying from a joint account is not so much the whose name is on the account. Hang on a minute. well whose income are we paying out of and if it's you know two parents well one of them dies so which which bit of income and which bit of spending and which gift so i think it's far cleaner to do it from separate accounts in a single person's name because it's then obvious whose income it was whose gift it was who expended it was it gets very muddy because because if it's a joint account you've got to disentangle all of this stuff and proving well this was covered by this person's income and this by this is just very messy.

13:39Steve Webb: But do it with advice because you can get this thing wrong. And if you get it wrong, the IHT bill could be thousands. Goodness me. Right. A question for anyone approaching their mid-50s. From April 2028, the normal minimum age for accessing private pensions rises from 55 to 57. This reader is caught in that transition. So can Steve suggest how a person could potentially access a small amount of their defined contribution pension in order for it to be classed as accessed at 55, but not trigger the money purchase annual allowance. I'm keen to retain the option to access my pension fund at 55, but still want to retain the option to contribute up to the£60 ,000 annual allowance if I keep working.

14:22Simon, quite a lot to unpack here. The money purchase annual allowance, what is that all about?

14:28Simon Lambert: Well, this was something that was brought in to stop people doing something called pension recycling. When the pension freedom rules were introduced many moons ago, when a certain person was in the government, they created a huge amount of liberation for pension savers. No longer did most people need to buy an annuity with their pension pot that locked them in to fixed income for life. Instead, they could take it in a much more flexible manner. now on the basis that until the age of 75 you can still pay into a pension and get tax relief this created an opportunity for people to take money out of pensions pay it back into a pension collect the tax relief take money out of pension pay it back into a pension collect tax relief take money and so on so a new allowance was brought in which means that once you've done that once you've done something that is considered to have triggered this, you can only pay a certain amount into a pension and benefit from tax relief.

15:28Simon Lambert: And it stops people just running money round and round and round through a pension and picking up tax relief. And I must say that on that note, there are some people over the age of 75 still working who would like to still be able to pay into a pension and get quite grumpy about the fact that they are no longer allowed to have tax relief on their pension contributions. One of them is my own mother. Before we dig more into this, Simon, someone asked me the other day, why on earth would private pension age rise from 55 to 57? It's my private pension. I can take it when I want. Well, the idea was that it would track 10 years behind the state pension age.

16:12Simon Lambert: The state pension age is rising. And so, you know it should also rise it raises a very interesting and difficult question if we continue to raise the state pension age in the future though because the higher the state pension age goes the more people who want to retire in their you know late 50s or even at 60 for example are going to need to rely on their private or workplace pension savings but if they aren't allowed to get those and that age keeps going up, then it creates an issue. Now, obviously, 57 isn't so bad. But what happens if it goes to 59? What happens if it goes to 60? What happens if it goes even higher?

16:57Simon Lambert: And it is leading to certainly amongst some people who've got ideas of retiring in their mid-50s, for example, a bit more pressure to be salting money away in ISAs as well, where they can draw a tax-free income from it whenever they like without having to worry about that age moving. And I know from speaking to lots of people who've got that kind of, I want to retire in my mid-50s vibe going on, that that is something that they are thinking about quite acutely, is the, what if they suddenly move the goalposts by a long way on me? Steve, your thoughts on what Simon said on both of those points?

17:31Steve Webb: Yes. I mean, I suppose the answer to the question, why is there a lower limit at all? If you were HMRC, you'd say, well, because we give you a tax break to lock your money up when you're younger for the purposes of supporting yourself in retirement. And if you're taking it at, you know, 52 or 37 or something, that's not what you're doing. So you can kind of see why there is a limit. I would not have increased the 55 at all. It's created all sorts of mad anomalies. So there is a date of birth. I think there's one day in 1973, I wrote a column about where if you're born on that day if you don't take your money out on your 55th birthday sort of just after your birthday party it's then locked up for two years you know it's that it's an overnight change on the 6th of april uh 2028 uh it moves to 50 from 55 to 57 and i i just can't see what the point is because if someone's going to take their money at 55 or 57 either way it's not going to support them when they're 70 odd so what's the point but hey now on the reader's specific question is well if I take just a little bit, I want to take a little bit out of my pension at 55, because the government said if you take a bit out at 55, they won't impose the 57 limit on you.

18:40Steve Webb: It would be a bit mad to say you can take a little bit out at 55, and then we put the shutters down on something you've already opened. So that's why the reader wants to do this. The only thing that you can do that wouldn't trigger the money purchase annual allowance is take tax-free cash. So the money purchase annual allowance is triggered by taking taxable cash. So a lump part of which is taxed. If all you take is tax free cash and leave the rest in drawdown, which you can access when you want, once you've opened it, you'd be okay. Now, obviously that might not be what the reader wants to do, but that is the only way I can think of that you could do what they want to do.

19:15Right. Okay. Well, staying with accessing your pension, a question about drawdown. My query, says the reader, is if I take my 25 % pension lump sum and move the remainder to a sip, and the SIP increases in value, what is the best way to then take money from the SIP? Is it 25 % of the gain or do I need to take from the main pot and X is tax-free? Thank you. Simon, just do me a favour. What is that question asking?

19:42Simon Lambert: Something very confusing, which I think may be due to people being easily confused by the rules. I believe the question is asking if I take my 25 % pension tax-free lump sum, You can take up to 25 % of your pension as a tax-free lump sum. The limit on this is£268 ,375. Is that right, Steve? I think it might be£275, but I wouldn't swear to it. Okay, right. So anyway, it's in that ballpark. And once you've taken that, the rest of your pension is taxed at income tax rates. Or alternatively, what you can do is you can take multiple amounts of money from your pension. And the first 25 % of each withdrawal is tax free.

20:38Simon Lambert: what you can't do which is i think what this question is alluding to is take your 25 tax-free lump sum and then get 25 tax-free on all of the rest of the money that you take out in multiple slices you just get that 25 but you don't have to take it all in one go and i think that steve is something that people often don't realize isn't it i think that's right i think you've explained

21:03Steve Webb: that very well obviously so they used to be essentially you took your tax-free cash and then the rest was taxable and then when pension freedoms came in they created this new thing which has this horrible phrase of plus uncrystallized funds pension lump sum but they call it taking it in chunks chunking chunking and in that way you say right i'm going to take my pension but in in chunks and every chunk will be a quarter tax-free up to and three quarters taxable and one of the reasons you might do that is because the money goes on growing so in that scenario, your pot is getting bigger. And each time you take a quarter of each withdrawal tax free and the rest taxable.

21:38Steve Webb: But what you can't do is ride two horses. You can't say, oh, my tax free cash now. Oh, I've got this taxable thing. It's gone up. I'm going to take a chunk tax free. You can't do that. It's one or the other.

21:48Simon Lambert: And Steve, if you want to take your 25 % tax free lump sum, but you decide not to take all of that lump sum in one go, say you just take the equivalent of 15 % of your pension and there's another 10 % left. Is it the case that that lump sum is decided at the point when you take that initial amount and it's not that you can keep your pension invested and then you get 10 % of the larger amount in the future?

22:14Steve Webb: I think that's right. It's something that you would talk to your provider about, to be honest, because providers want to keep things simple. So they would rather that you just did one or the other and you took what you wanted to take, but trying to keep separate accounts and which bit you've drawn on is messy. So some providers might say, look, you know, you don't have to take 25%, but make a decision. That's it for part one. Companies are spending trillions on AI. Governments are ripping up the old economic rulebook. Global power is shifting and populations are getting older. The world is changing.

22:43But what does that mean for our money and where we invest it? Hi, I'm Georgie Frost, financial broadcaster and journalist and host of Investing Unlock. Now, last season, we covered the fundamentals, how investing works, how to build a portfolio and why we make the financial choices that we do. But this season, we're widening the lens, looking at where the world is heading, what that could mean for markets, the risks, the opportunities and how investors should respond. I'll be talking to some brilliant minds from finance and far beyond, from former chancelless Jeremy Hunt and legendary investor Nick Train, to TV wine expert Helen McGinn and BBC tech presenter Spencer Kelly to cut through the jargon and work out what it all means for your money.

23:20So whether you're an experienced investor, just starting out, or simply curious about what's happening in the world, this is for you. Subscribe now to get new episodes of Investing Unlocked on Apple Podcasts, Spotify or YouTube at Investing Unlocked UK. Welcome back. The next subject clearly struck a nerve with readers. Two people written in both frustrated that their state pension is taxable, particularly after choosing to defer it. So one worked in hospitality for more than 50 years, then carried on working for another three and a half years to boost their state pension. They're questioning why they're now paying income tax on that pension when benefits such as universal credit and personal independence payment are tax free.

24:01Another reader feels they're being penalised for having worked longer and built up an enhanced state pension. Firstly, Steve, why is a state pension taxable at all? And what is this idea of delaying to boost the state pension?

24:15Steve Webb: The reason it's taxable is that it's a national insurance benefit. I know as soon as I use the word benefit, you'll get angry letters, but that's what the law has always said. Ever since it was created, all national insurance payments are described as benefits. But then, you know, if we get a fringe benefit at work, a free gym membership or something, we don't think that's, you know, offensive or insulting. It's just a benefit. So it's a benefit in that sense. It's a national insurance benefit. And the idea of these, so unemployment benefits, sickness benefits, widows benefits, retirement pensions were all about replacing earnings.

24:46Steve Webb: so you didn't have earnings because you were sick unemployed your husband had died or you were too old so you got this benefit instead of a wage and wages are taxable so the things that replace wages are taxable that that's the logic to the extent there's ever a logic in any of these things so it's always been the case it's not a new thing but it didn't used to matter in quite the same way because the tax threshold was so much further away so pensioners used to get extra tax allowances for being pensioners, the basic state pension was way below that. So in a way, if all you got was a state pension, for most people, it was covered by a tax allowance.

25:20Steve Webb: So we didn't really have these conversations. The reason it's come to the fore is obviously pensions have gone up quite a lot, triple lock and all of that. Tax thresholds have been frozen for years at a time of high inflation. And suddenly people can see the pension being taxed in a way that was largely invisible to most people before. So in regards to this reader question, I know you spoke about the benefit there and people getting angry about this, but they have explicitly compared it to universal credit, personal independence payment. How do you respond to that comparison? Yeah. I mean, so disability benefits like personal independence payment are supposed to meet the extra costs of being disabled.

25:58Steve Webb: So they're supposed to put a disabled person and a non-disabled person in kind of the same place. So if I, I don't know, if I need to take taxes because I can't use buses and I have an extra cost because of that, PIP covers the extra cost and puts me back exactly the same place in theory as the non-disabled person. If you were to then tax the extra bit, you wouldn't be doing that because you'd only be giving them 80 % or 60 % or whatever. So that's why they've historically not been taxed. So attendance allowance isn't taxed, disability living allowance isn't taxed, PIP isn't taxed. You could tax it, but then you wouldn't be achieving what you're trying to achieve.

26:34Steve Webb: Universal credit is different. I mean, frankly, if you're on universal credit, you're almost certainly way below the tax threshold. So it's all slightly academic. Simon, what's your views on this? Do you get a lot of angry questions about this?

26:45Simon Lambert: It's an interesting question. And it was one we were talking about in the office yesterday, actually, and saying that we should do an article and ask an expert question on just this. And actually, I was musing that it might just be a historic thing. And I think that's something that Steve alluded to there is the pension's been around for a long time. and you know when it was designed it was designed as taxable universal credit hasn't been around for that long and actually if you were going to design something like universal credit or if you were going to design a pen the state pension now if you're going to start from scratch if a pension didn't exist and you designed it now at the level it's at with tax thresholds where they are you you probably wouldn't make it taxable because it's just more giving people money and then taking Taking it back off them in tax is complicated.

27:39Simon Lambert: It's easier just to be able to give people money and then not take it back off them and just give them a bit less money in the first place. That would be the sensible place to start. We were musing on maybe there's just that going on as well. It's like, you know, if you were going to design universal credit, even if universal credit was above that level, you'd just go, well, do you know what? We should just pay people a bit less of it in the first place rather than paying it to them and then taking 20 % of some of it back.

28:06Steve Webb: And I think as well, in the past, people's state pension had two bits. It had the basic pension, which was kind of meant to be enough to live on. And then some people had an earnings-related state pension on top, but some people didn't. They had a company pension instead. So it would be a bit weird if the SERPs pension, the earnings-related pension, wasn't taxable. But if you opted out into a company pension, it was. So you always have to think how these things interact with each other. In the new world of the flat rate state pension, where most people will soon get the same amount and it's roughly the tax threshold, it's a weaker case.

28:37Steve Webb: But of course, if you said the state pension wasn't taxable, it would cost the government a fortune and then they'd have to put taxes up to make it up.

28:42Simon Lambert: And I think there's also a point here as to why is it such an issue that state pension is going to be taxed? And this is something that really vexes people. And the reason why it's an issue is it puts it in the same position as when you get a pay rise at work. The difficulty is, So say you've got the state pension and it's at the tax threshold, which it is soon going to be. Now, still, almost all of the state pension is tax free. It's still within the personal allowance. It's only like a little bit that's going to be taxed. But that little bit that's going to be taxed includes the annual increase in the state pension.

29:25Simon Lambert: And if you're increasing the state pension in line with inflation so that it maintains its purchasing power, then at the moment, the state pension would need to go up by 3.1%. But if in future, that's now in the taxed element and you increase it by 3.1%, 20 % comes off that. So the state pension is no longer keeping pace with inflation. The state pension is only keeping pace with inflation at a rate of 80 % of the rise in the cost of living. And this is the same with people's pay rises at work. And this has become a much more acute issue due to the fact that so many people have been pulled into high rate tax.

30:05Simon Lambert: And this stealth tax that's been going on for years, where we've dragged loads more people into paying 40 % tax. The reason why that's such an issue is it means that they're losing 40 % of their pay rise. So if they get a pay rise that matches inflation, and actually most people are lucky to get one that matches inflation. Quite a lot of people get one that doesn't. But that's your baseline. You want it to match inflation. But actually, it's not matching inflation. You're not keeping pace with the cost of living. You're falling behind to the tune of 40 % in your pay rise. And that's why this thing is an issue for people.

30:39Simon Lambert: And that's how it affects them in real life in their pockets, is that actually, they are not maintaining their purchasing power. They are steadily getting slightly poorer. All right, then. Brings us neatly to another reader who's taken deferral much further. 73 years old, still working, and have deferred their state pension for nine years. A basic rate taxpayer and say that claiming their state pension now would push them into the higher rate band, but they're not planning to stop working anytime soon. Good for you. But Steve, should they claim their state pension now or carry on deferring?

31:12Steve Webb: it makes me very nervous when people go on deferring for a very long time because the extra boost you get on your state pension for each year you delay doesn't change as you get older

31:24Simon Lambert: but the number of years you've got left does so when you retire at the age and you think shall

31:30Steve Webb: defer for one year you look at how much extra you'll get on your pension think how long you might live say 20 years or something compare that with what you've given up you know a year without a pension and the two numbers are pretty similar that's the way the system's designed but if you've been retired for 10 years you still get the same extra amount on your pension but you've only got 10 years to claw it back for example 10 years to claw it back through a higher pension so the maths gets worse and worse and worse with every passing year now there may be reasons to do this if you are working getting a good wage and you don't want to lump a pension on top of it to pay higher rate tax i get that but it just makes me worried when people defer for for super long times you know because you can't get a lump sum anymore so you used to be able to defer for as long as you wanted and get all the missing pensions a big fat lump so i'm taxed at the basic rate if you're a basic rate taxpayer happy days you can't do that anymore so all you're going to get is a higher pension which you probably won't have long enough to claw back uh i mean slightly depends on tax so i just i can't give advice without knowing the individual circumstances but it makes it's like this it makes me nervous.

32:33How do you work it out though? Like whether delaying state pension is really financially worthwhile for you? What are the sums you should be doing in your head?

32:40Steve Webb: Yeah, so you get an extra 5.8 % on your pension for each year you put it off. So you know that number. You don't know how long you'll live. You can go on a very cheerful Office of National Statistic website, which I think used to be called something like When Will I Die? I think it's called How Long Will I Live? And it tells you on average how long you go on for, but it also shows you the range. It shows you that a quarter of people of your age live to this and a quarter live to all that sort of stuff. But yeah, you could take the middle person, 50 % of people, and work out, well, okay, I'm going to go a year without a pension, but I'm going to an extra 5.8 % for 10 years, work it out.

33:16Steve Webb: Well, 10 years, I mean, I've just said 5.8 % times 10 is 58%. So you've given up 100 % of your pension for a year, you've got 58%. That doesn't feel like a great deal to me. All right. To end, one for public sector workers and retirees. Can you shed any light on the ongoing civil service pension McLeod decision, please? I retired last year and I'm still waiting for news. I know I'm owed extra pension. Do you know when I will get it and if I will be compensated for the wait? Steve, can you briefly explain to us what the McLeod ruling is all about? the issue is that the government indeed of which i was a part reformed public sector pensions teachers nurses civil servants judges firefighters and all of that and the plan was if it ought to come in in 2015 and then some people said well hang on a minute what if i was about to retire or i've made all my plans and suddenly just change all the rules at the last minute that's not fair so what the government did was put in a sort of transitional thing that said generalizing here if you're 10 years away from retirement, we won't touch things.

34:23Steve Webb: So you'll stay in the old system if you're 10 years away from retirement. And Ms. McLeod, who was actually a member of the judge's pension scheme and a firefighter as well, took them to court and said, hang on a minute, if I'm a year or a day, the wrong side of a divide, I'm completely on a different system. And that is age discrimination and various other sorts of discrimination. And the court said, you're right and that has caused carnage in the public sector pension scheme because the to put it right people such as your reader have got to now be given a choice and a cloud choice as to whether they want for the period from 2015 to 2022 and the whole new system switches on for everybody for that seven-year period do they want to be on the old rules or the new rules so they now have to be given a quote as to what their pension would be under the old or the new and then they have to make a choice.

35:15Steve Webb: It's absolute carnage. And so some people, of course, have been waiting for the paperwork. They haven't even been given the choice yet. So they've started with the people who are in retirement or close to retirement, and then they're working back. And you say the dread word, civil service pension scheme, and horrors and delays and admin come on top. So in principle, you should get the information, you should be able to make your choice. If the administrator messed up, caused the delay. They should, in principle, pay you compensation and interest and so on. But they're so sunk on just sending the blooming letters, it will be a very long time before we're talking about compensation and interest.

35:51So the reader just sit tight and wait?

35:55Steve Webb: Well, the one thing you can do is, you know, I hesitate to say contact your MP because a lot of people say, well, that's always time. But actually, Capita, the administrators of the scheme, extreme fast track cases that have been raised with them by MPs. That's what they do. So they have thousands, literally thousands of cases, letters from MPs that they push up the queue, and then they still don't get sorted out overnight. I mean, there's still thousands in the system, but that is one way. So I would say to someone, if it's urgent, if you really need it sorting quickly, if you need to jump the queue for a very good reason, then get your MP onto the case.

36:32Steve Webb: If you just kind of, you know, life's going on, you're okay, you'd like to know at some point, then it's up to you whether you want to try and jump the queue. But of course, every time you jump the queue, somebody else is going further down it, unfortunately. No, absolutely right. Well, Steve, after 500 columns, 10 years, goodness knows how many pension questions, some reflections. We have something of an event coming up, financial thing, government, budget. What would you want? And I don't just mean one budget, I mean moving forward. of everything that you know and that's extensive and I imagine some of the things that you've learnt too, as you said, you're continually learning.

37:13How would you put that all together and think, right, this is how we can improve the pension system for everybody?

37:21Steve Webb: I think boiling it down to its simplest, a lot of the readers who I respond to are in a good place. They've got choices to make and they've got choices to make because they've got a pension, because they've saved, because their employer's paid in, because they've had tax relief, and having a pension gives you choices. And one that's going to become increasingly important is the ability to retire when you want to rather than when the government says so. So with pension aids going to 67, 68 and so on, if you want to stop work at 60 or 63 or something, having a pension gives you that freedom. So for all the negative press we hear and pension scandals and the government's mucking about and so on, these remain incredibly important tools, but most of us aren't building them up fast enough.

38:01Steve Webb: So if I ruled the world, not that I ever did, but if I ruled the world again, it would be that business as a pension commission reviewing all this stuff. It would be getting the automatic stuff that happens in work without us having to choose what to do, getting those contribution rates up as fast as possible. Because, you know, for all the negative stuff you hear, pensions are still a damn good thing. And we just want more people to have more of them so that they've got choices. Because if you haven't got any money, you haven't got any choice. Absolutely right. And the system needs improving, etc.

38:32But what about ourselves? What's the biggest mistake or misunderstanding that you see people making with their pensions that could make such a difference?

38:42Steve Webb: I think the biggest thing people don't do is that they don't engage, they don't find out, they don't know where they stand. And I'll say something now and I'll try to mute the size on the other microphones here. but the pensions dashboard we've been talking about for a long time i've tested it i've used it myself it's up and running in in trial in beta or whatever they call it i think by the end of next calendar year i'm expecting it to be live and i think that will be transformative and we'll be writing lots of articles about it i'm sure but directing people there just because you can't make a plan if you don't know where you're starting so you know just finding out where you start keeping those darn pension letters even if you don't read them straight away just don't bin them so that you know where you start so then you can make a plan and hopefully that will be easier than it has been in the past.

39:29And finally Simon a tip from you.

39:31Simon Lambert: So my tip would be to check the details and also ideally try to keep hold of your paperwork and I will explain why this is my tip from two opposite ends of the pension spectrum. Firstly I know of people who have been auto enrolled into company pension schemes at companies where the company pension scheme is more generous than auto enrollment. And this is quite commonplace. A lot of company pension schemes are more generous than auto enrollment. But when they are auto enrolled, they are auto enrolled into an auto enrollment pension scheme where they're paying in 5%, their employer's paying in 3%.

40:19Simon Lambert: They could have joined the better company scheme, but that's not what they get auto enrolled into. They have to choose to join that one. So check what your company offers and what pension scheme you are in at your company and make sure you're in the one that provides the best benefits. Pay in as much as you need to, to make sure you get the maximum contribution from your employer. If you are a public sector worker, you must realize how valuable your defined benefit pension is. Loads of people I know who work in public sector, doctors, you know, senior doctors, teachers, etc. To this day, do not realize quite how good their pension is.

41:10Simon Lambert: You must take full advantage of it. Check the details, take full advantage of it. And at the other end, I saw an instance which happened when my dad died, right? He was a member of the company pension scheme. He'd worked there for a long time. It was a final salary scheme. He was going to be, my mom was going to get, you know, whatever percentage it was of his pension. It was a lower percentage than he thought that she would get. I went through the paperwork and I was reading the paperwork and it turned out that my dad was a member of a variation of the pension scheme that had previously existed which meant that actually my mum was going to get a larger percentage of his pension than the pension scheme had told her she was going to get if I had not noticed that she would have been being paid a lower amount ever since he died they would never have they would never have spotted that mistake they would never have corrected that mistake she'd still be getting a lower amount now so if you can keep the paperwork and if you're in the position where you are an executor or a loved one has died check the paperwork as well um it's really important to to engage as steve said and to check the details steve yeah you're nodding along there absolutely and it's awful isn't it

42:31Steve Webb: really that you know you've you've lost your father the last thing you want to do is pile plough through paperwork but it's so good that Simon was so assiduous and did that and you know it's a it's a sad truth that pensions have become so complicated that even the people who run the schemes sometimes make mistakes you know if something just doesn't look quite right you've got to challenge it. Absolutely right Steve as I said you've got 500 more at least columns to write so how can people get the questions in? The email address is pensionquestions at thisismoney.co.uk and we get a great variety in every week.

43:05Steve Webb: And if I, no spoilers here, but I've written column 501 if I tell you that I didn't know the answer to the question that came in and I've been checking with my colleagues and we've had great debates around the office about the exact answer and it's taken us a few days to work it out. So still learning at column 501. Oh, wow. We look forward to that one. Steve, thank you so much and congratulations and thank you on behalf of all the readers and listeners. Simon, thank you and thank you for listening. You can keep up to date with all the latest Breaking Money news. Just go to thisismoney.co.uk or download the app.

43:36And if you have any comments or questions, team or anything you'd like them to look into, Simon?

43:40Simon Lambert: You can email us at podcast at thisismoney.co.uk. You can come to thisismoney.co.uk forward slash podcast. You can come to thisismoney.co.uk forward slash Steve-Web if you want to read all of Steve's columns and join me in celebrating what an amazing achievement it is to do 500 columns. We are eternally grateful to Steve and our readers more to the point are even more eternally grateful to Steve. Super stuff. And if you like our podcast, why not rate us wherever you found us? It helps other people find us too.