Pensions?

[Guest Tracker]

Almost anyone is allowed to invest £3600 a year gross into their own personal pension these days and if you have a few quid not doing very much here is a thought that might be of interest.

 

If you invest £3600 you will only pay £2880 as the nice government pays the other £720 for you in the form of 20% tax relief, although you will have to wait about three months for him to do so.

 

Bear in mind that the fund value might go up or down in the intervening period between investment and vesting dates.

 

At that point, if you wish, you may then take what is known as an 'Immediate Vesting Pension Annuity' of which you may take up to £900 which is 25% of the fund as a cash lump sum leaving £2700 in the fund to provide an income which can be guaranteed to be paid for life or for 10 years if you die sooner.

 

At about age mid sixties the annuity interest rate is about 7%, give or take a fraction, and an income of 7% on £2700 would be about £189 a year.

 

Not a lot I know but considering that your £2880 will have already given you £900 plus a further guaranteed £1890 over 10 years (or more depending how long you live) making a total of at least £2790 it has to be worth considering?

 

On the down side you lose the ability to spend the £2880 as this is now locked up in a lifetime annuity.

 

An alternative is keeping your cash on fixed term deposit for about 4% less tax at 20% - if you are lucky - which over ten years will net you about £92 a year income with no spendable cash but your capital remains intact for someone else to inherit or for you to spend if you so choose - but you lose the income if you do spend it.

 

It is different and not neccesarily any better or worse that the alternatives but the pension idea will probably not suit many people and I am not suggesting that anyone take it, but at least if you decide against it you would do so having had the opportunity to first consider it.

 

It's not perfect, but then what is, and if you want to explore it further there are many websites that will show you how it works.

[Klyne]

Just glad I was in a non contributory final salary scheme. I think my brain would hurt if I had to work out annuities:-)

 

David

[CliveH]

As an IFA I really do not like pensions – Stakeholder or otherwise. The only was to benefit from a pension in my professional opinion is to become a Civil Servant so that you pay nothing for the whole of your working life and then the tax paying public pay you an Index linked pension guaranteed to pay you a percentage of your salary based upon length of service for the rest of your life.

 

As such you would pay nothing for this benefit and so you could only possible benefit from it.

 

Sadly for the rest of us taxpayers we end up trying to plan for our retirement whilst being forced to pay for all those Civil Servant, Index linked Final Salary based pensions as well as trying figure out what the hell we are going to survive into retirement.

 

If you are in a company scheme where if you put in a £, this is matched by a £ from you employer – then yes – best to go for it. But otherwise pensions have been reduced to being of REAL benefit to Higher Rate Tax Payers only.. The benefits for your average basic rate taxpayer are so reduced as to be hardly viable.

 

In the 1990’s I was writing Annuities that were in double figures – OK so we had inflation in double fig’s. as well so it was not all good news – but it did mean that a person who had a pension pot of £100K could get an annuity of circa £10K a year at age 60 which meant that they only had to survive 10 years and they had effectively got their £100K back.

 

I have to say I have found annuity rates a lot lower than the 7% tracker indicates – In fact I would say that unless you have an “Impaired Life” where a specific annuity could be organised, on average the annuity rate is a bit below 6%. And after tax paid on the income generated then the net return is closer to 5%. Which means at age 65 if you set up a pension annuity you actually have to live longer than the expected mortality of an individual in order just to get your own money back. Put simply, with a net annuity rate of 5%, then a pension fund would take 20 years to be paid back to you. (100% / 5% = 20). So if you retire at age 65 you HAVE to make it to 85 just to get your money back.

 

So what happens if you live longer than the average life expectancy having taken out a pension annuity? Let’s say you live to 90?

 

Well you win.

 

If you live a long time then each and every year you live you are guaranteed your pension income from a pension annuity. So if you live till 90 then your pension fund is converted to 25 X 5% = 125% of the value of the fund you put in at the start.

 

So what happens if you die earlier than you expect?

 

Well you lose.

 

Because once you buy an annuity then you have lost control of the capital. If you die before your capital has all been paid to you, then your capital is used to pay the income to those lucky souls that live far longer than expected. So if you die at age 80 then all you get out of the “kitty” is 15 (80-65=15) X 5% = 75% of what you put in.

 

Thus Annuities are sometimes called the mirror images of life assurance. With Life Assurance we all pay a small amount into a kitty because none of us know who of us is going to die. It is a bit like a lottery. Sad thing is – if you win – you are dead. But your family gets the pot.

 

With an annuity, you have accrued your own pot, but you sacrifice the pot to secure a regular income. But here if you lose the lottery, you die and so lose the pot that you have built up. Some one you have never met and you do not know ends up benefiting from the income generated from your pension savings.

 

Technically it is wrong to say that Annuity providers “keep” the funds of those that die early. Because they have to keep back sufficient funds to ensure that there is always enough to pay those that live longer than expected. And let’s face it – on average - WE ARE ALL LIVING LONGER THAN EXPECTED these days!!

 

So what do I suggest?

 

What Tracker outlines is entirely correct apart from what I see as the rather ambitious 7% annuity rate. But even so I will use that in an example.

 

You pay £2880 into a Stakeholder Pension and the Government makes it up to £3600 with tax relief. From which you can then take 25% Tax Free Cash of £900. So a 7% annuity on the remaining £2700 produces a gross income of £189 which after tax would be £151 a year for a basic rate taxpayer.

 

If you get 4% gross on the £900 Tax free cash then that would be £36 which after tax would be £29 a year

 

So the total income would be £179 pa. BUT!!! – you would have taken £2880 of your money and reduced it to £900 in return for a life time of income at 7% gross.

 

So if you set all this up and then in the euphoria of converting £2880 of your hard earned wonga to just £900 you step out in front of a bus and die then £900 is all your estate would have of that £2880 to give to your loved ones.

 

So let’s compare with an ISA for example. Here you can utilise the same funds as within a pension (but I am not talking cash ISA’s here though they do work but the interest rates are so low that they [Cash Isa’s]are not, at the moment a good bet) – So if we assume you take 5% income from the £2880 you could have placed in a Stakeholder pension then this would produce an income of £144 a year tax free and if you die early then the entire £2880 is available to be distributed as you wish and as set out in your Will (Which I assume everyone has written? – If not – WHY not?? – there are no good reasons for NOT having a Will!)

 

So on the face of it the capital is protected if you DO NOT use a pension, but the income is slightly less.

 

BUT- I would say that the annuity rate of 7% would be very, very hard to achieve. If you want a joint life annuity to include your spouse – then 7% could be virtually impossible. But if you can get it and security of income is important and you are not concerned with leaving anything after your death, then Stakeholder Pensions are something you really should consider.

 

But the reality for most people is that other investment options such as ISA’s, or Unit Trusts utilising the annual CGT allowance, or Investment Bonds where the 5% “Income” facility can be use and if you travel abroad a fair bit, do not forget Offshore Investment Bonds where the 5% “Income” facility still applies but as EU Citizens we can make use of the International Finances Centres of Dublin and Luxembourg as well as the UK Dependent States of the Channel Isles and the IoM..

 

From a professional viewpoint – I can see far better overall options available than pensions.

 

And I cannot see this changing until the rules change to allow individuals to treat and utilise the money in their OWN pensions funds as their OWN money – which of course it is.

 

Though HMR&C would beg to differ.

 

[Brock]

As a Civil Servant, I contribute to my pension scheme since it was reformed some years ago to reduce costs. It is not free despite what people think. The bit that is 'free' is also part of my pay and benefits package. The Civil Service pension scheme is less beneficial and more expensive for me than the one I was in when I worked in the private sector.

 

And before anyone starts bashing the Civil Service, let me say it is bloated and inefficient but we would need a separate subject for discussion, not the hijacking of Tracker's subject.

 

[CliveH]

"The annual cost of the UK's unfunded public sector pension schemes looks set to more than triple to nearly £80 billion during the coming 50 years, a report showed.

 

Payouts to the two million pensioners who belong to these schemes totalled £19.3 billion in 2008/09, a 38% increase in real terms since 1999/2000.

 

The report said the rise had been driven by more employees retiring each year, which was a substantially more significant factor than people living for longer. Within the total, employee contributions accounted for £4.4 billion, a 56% rise since 2008/09, with the taxpayer's share of the costs standing at £14.9 billion."

 

http://money.uk.msn.com/news/articles.aspx?cp-documentid=152521173

 

Why is it that whenever anyone mentions the state of the unfunded public sector pension plans in the perfectly acceptable context of pensions you get a civil servant bleating on about the thread being "hi-jacked" or some such nonsense.

 

In total - the costs are enormous! In another, older report looking at the overall costs:-

 

"The cost of paying for inflation-linked pensions for civil servants has soared by £27 billion over the past year, according to figures slipped out by the Government as Parliament rose for the summer holiday.

 

The total cost faced by the taxpayer has risen to £128 billion - equivalent to £5,000 for every household in Britain, the Conservatives said yesterday.

 

Benefits system is too complex, say MPs Philip Hammond, the Conservative Treasury spokesman, said the total liabilities for civil service pensions had risen 50 per cent in two years.

 

According to a Cabinet Office report, the total liability of the civil service pension scheme in 2006-07 was £128.7 billion - compared to £101.3 billion for 2005-06."

 

http://www.telegraph.co.uk/news/uknews/1558730/Civil-service-pensions-cost-up-27bn-in-year.html

 

 

I am "hi-jacking" nothing - the subject is pensions and the value of them. I state again that only being a Civil Servant and getting other people tp contribute to your pension scheme makes any pension sense. For the rest of us, we have OUR pension pots taxed - a civil servant does not. Because we tax payers fund their pensions - as well as trying to fund our own.

 

[Guest Tracker]

Hi Brock - point taken - but my view is that mentioning civil service pensions is not hijacking the thread.

Threads evolve just like normal conversations and any related or unrelated observation is always welcome!

It is not MY thread - I only started it!

 

My own view on civil service pensions is that they are far too generous to be sustainable in the long term as the actual contribution made by the recipient bears no relationship to the benefits.

I have no objection to the civil service pension being the best in the land but at the very least the beneficiaries should be paying a lot more for it and the rest of us paying a lot less for THEIR pensions.

I also feel that in general civil service pay is too high given the sick pay, holiday and pension rights that the career guarantees.

No where else in the UK can you get such a secure job for life with so many inbuilt guarantees at somebody else's expense simply by being there, doing as little as possible and keeping your head below the parapet for as many years as you can get away with!

 

But that's just the way I feel and I don't blame the civil service for fighting to keep their benefits - turkeys don't often vote for Christmas now do they!

 

CliveH - I had a quote today on Hargreaves Lansdown for a pension annuity at just over 7% on a low five figure fund, age 65, single life 10 year guarantee - Legal & General I believe were just best although the usual suspects were close behind - Prudential & Aviva (Norwich Union as was)(Aviva - bloody silly name!)

 

As stated it may not be for everyone but it is worth looking at.

[CliveH]

Hi Tracker - have a look at the FSA website which gives excellent comparative tables and allows you to play with the different parameters.

 

http://www.fsa.gov.uk/tables

 

I just used it to look at a 65 year old Male, wanting a 10 yr guarantee on a single life basis, and it gave a rate of 6.3% (it actually gives the gross monthly fig but it is easy to convert this to a %'age.) This 6.3% would net down to 5.04% after basic rate tax.

 

If you wanted a same age spouse then the rate drops to 5.4% gross or 4.3% after basic rate tax.

 

If you want some sort of inflation proofing and here I chose 3% per annum then the 6.3% for a 65 year old Male then drops to 4.4% gross or 3.5%

 

Hence my suggestion that 7% is a little "generous" 8-)

 

But what you say about the benefit of using Stakeholder pensions to obtain guaranteed income with a reasonable boost from the tax man is correct. The problem I have is that their are other, better and more flexible plans that whilst they do not provide the "Tax Boost" up front like a pension does, they do, unlike a pension, allow the investor to take a tax free income.

 

Thus it is swings and roundabouts.

 

But with the one big proviso that once you commit to putting your money into a pension - you have lost any control over it and the income you get may be guaranteed but it is fixed to whatever parameters you chose when you entered the scheme and you change is impossible.

 

Compared to something like a good investment ISA, I see pensions as being of very little real benefit. But some will like the guaranteed nature of the annuity income and as part of an overall strategy they do have their place.

 

[CliveH]

Brock sent me the PM

 

" "you get a civil servant bleating on about the thread being "hi-jacked" or some such nonsense".

 

I found this comment offensive."

 

Well sorry Brock but having Civil Servants dream up a tax on Dividend Income within a pension fund that they sold to Gordon Brown as one of his very first Stealth Taxes is even more offensive to me. In July 1997 Dividend Tax Credits for pension schemes was abolished. From that point on we who have to fund our own pensions have to pay tax on the growth within the fund which means we have to invest more to get the same return. And this is on a pension that is suppossed to be "deferred income" - i.e. you do not take this income now but save it so that it can be paid out as pension income later and taxed accordingly. Now, the pension fund is taxed and so to is the income! Double Taxation.

 

This is a tax that cannot apply to Civil Servants and MP's because their pensions are not funded - they are paid for out of taxes. And yes we all pay taxes - but in the case of pensions - only those of us with private pensions have to pay more into now to get the same return because the growth within the fund is now taxed.

 

I do not mean to offend anyone. But if the truth offends you then there is not much I can do about it. :-S

 

Further stealth taxes on pensions have been applied and again - these stealth taxes only affect those who have to fund their own pension. Those that make the rules and apply them have a pension scheme immune to the taxes they inflict on the rest of us. >:-(

 

http://business.timesonline.co.uk/tol/business/article1776540.ece

 

 

 

[duffers]

at the risk of defending the civil service / public sector *-)

 

when the Post Office split from the civil service pay levels increased by an initial 6% to cover employee contributions to the pension scheme

so - it could perhaps be argued that the payment for civil servants has merely been delayed to the retirement age -

 

actual discussion of merits of civil service is - as Brock already said - a whole different kettle of worms, fish of a different colour, or even can of horse.

 

 

what really upset me was the abolition of the 10p tax band, it cost me - proportionately - a lot of money -

liars, thieves and damned politicians I think

[Big Momma]

CliveH - 2010-03-14 11:06 AM

 

I am "hi-jacking" nothing - the subject is pensions and the value of them. I state again that only being a Civil Servant and getting other people tp contribute to your pension scheme makes any pension sense. For the rest of us, we have OUR pension pots taxed - a civil servant does not. Because we tax payers fund their pensions - as well as trying to fund our own.

 

I am in a civil service pension scheme and have to contribute a great proportion of my monthly salary to it, as does my employer. I am also a tax payer so not sure why you should think that I am not contributing to my own pension ?

[teflon2]

Sorry big momma but your employer is the taxpayer. My father was a civil servant (not to civil to me at times) and using his loaf as he put it took promotion 2years before retirement this gave him a £10,000 lump sum and a weekly pension of £180.00 which on his death passed on to my mother. I on the other hand was foolish enough to believe a socialist government who swore that if I was a good boy and payed my national insurance properly I would recieve a pension that would enable me to live comfortably £128.00 per week withth acouncil tax bill of £133.00 per month and other costs is not comfortable. So I'm reduced to use my savings which will mean I have about 4years left before my motor home goes. No I don't feel sorry for myself there are people much worse off than me but don't kid me that the civil service pension is not a goldmine and my fathers wages were not any less than the private section with the adittional benifit of secure employment. John >:-(

[CliveH]

teflon 2 says it as it truly is.

 

Yes some public sector employees do pay 6% employees contributions. But that simply means the employer - (us the tax payer) then pays 14% to provide the pensions that the public sector see as a right.

 

When exactly ARE the public sector going to realise that not only are their whole departments, their salaries AND their resulting index linked guaranteed final salary based pensions, is paid for out of taxes?

 

And the tax bill we all have to pay, including the stealth tax on our private sector pensions, pays for all of that.

 

And by all of that i really DO mean the Civil Servants Departmental budgets, the salaries AND the final salary based index linked pensions paid to people that are retired and no longer working!

 

Sadly the tax payer therefore continues to subsidise the public sector quite literally "to the grave".

 

And all the time the Civil Servants that benefit from this think up new ways to tax the private sector to pay for it all. We were expecting the reduction or limitation of Tax relief on pension contributions and or possibly the restrictions of the Tax Free Cash lump sums available when Gorden stood up for his first budget in 1997.

 

What we did not expect was a sneaky stealth tax that was limited to only those schemes in the Private Sector that were funded and so absolved any of the Public Sector Schemes from ANY of the new Tax Pain whatsoever!

 

To those Civil Servants who sat down to make those rules and sold them to Gordon and made sure that they themselves were unaffected by such a swingeing stealth tax, I would say that I will gladly run the risk of incurring the wrath and "offence" of Civil Servants because people like me who know what was done are going to make damn sure that the average person knows exactly why their pension pot is far smaller than they thought it would be, but why the Civil Servants guaranteed pension is just that.

 

Guaranteed.

 

But that Gurantee comes at a cost - not to the Civil Servants but to the tune of circa £8 Billion of taxes applied to all the Private Sector Pensions.

 

Private Sector Pension Funds have been robbed of circa £6 Billion to £8 Billion a year since 1997 by Gordon Brown. This has led to the collapse of many company pension schemes and others, including Local Authority Pension schemes have had billions knocked off their value. Hard earned and long saved for pensions have been raided and squandered.

 

To put the size of the issue in perspective, someone starting a new pension scheme in their mid 20's will now have to pay in nearly twice as much each year to achieve the same pension on retirement as before.

 

Gordon Brown hoped that the crisis his very first stealth tax would cause was far enough away in the future, but thanks to the FoI Act, this "chicken" has "roosted" earlier than expected.

 

 

 

[Big Momma]

Well at least you got it off your chest. Why waste your time moaning about things you cannot change, spend your time more effectively doing something about the things you can change *-)

[Guest Tracker]

Spoken like a true Englishman Eric - or maybe, dare I say, one with a vested interest?

 

It's high time the long term affordability of civil service, teachers, police, government and all the other hangers on's pensions, all of whom benefit from the non optional generosity of the tax payer - that is YOU and ME - was brought right out into the open so that those who actually pay for it have the chance to air their views on whether they want to carry on paying for it or not.

 

There is so much talk about allegedly 'green' issues and the 'legacy' we 'wasteful' generation are creating for our children and grandchildren but I reckon that the unfunded pensions paid from current tax revenues scam is as big a poisoned chalice as any other for generations to come!

 

This thread is open to all comers for all points of view!

[Brock]

Clive, send me a PM with your details. I promise not to publish. However, I will look out for a job for you in the Civil Service so you can enjoy the same benefits and misery as other Civil Servants.

 

Personally, I would have preferred my pension contributions to remain with my previous employer rather than pay them over to the Government for an inferior pension. I am not a time served Civil Servant but a relative newcomer to the public sector. 90% of my pension will be paid out of contributions made when I was in the private sector.

 

I shall bear your advice in mind when I draw my reduced pension from the Government.

 

I do sympathise with those clobbered by the stealth tax. I can't change that. I didn't vote for Gordy B.

[Big Momma]

Rich I was formerly in the military for 22 years and spent some time in the s**t holes of the world. Now some may say, you chose the profession and they would be right. When I retired from the military I was too young to actually retire from work and had to get another job. I chose my current profession because it was the type of work that I wanted to do not because it came with a civil service pension. However, it does and that's that *-)

[Guest Tracker]

Brock - 2010-03-15 7:25 PM

Personally, I would have preferred my pension contributions to remain with my previous employer rather than pay them over to the Government for an inferior pension. I am not a time served Civil Servant but a relative newcomer to the public sector. 90% of my pension will be paid out of contributions made when I was in the private sector.

I shall bear your advice in mind when I draw my reduced pension from the Government.

.

 

Three points.

 

1] I was unaware that when you joined the civil service you were forced to transfer your existing pension rights and funds to the state scheme - isn't that illegal - or maybe there is some form of protection for that portion of your fund - I don't know?

 

2] Given the stock market fluctuations you may be better off in the government scheme in the shorter term? Or you might not?

 

3] Unless you were in a pension scheme with a blue chip company and the fund was properly managed and adequately funded - and there are precious few of those these day - you might also be better off in teh state scheme? Or you might not?

[CliveH]

Hi Brock - Thanks for the offer! (lol) (lol) I appreciate it!

 

But like Tracker - I would say that what you infer re transferring of pension into the government public sector is wrong and would have constituted very bad advice indeed if you were recommended to do that by anyone.

 

Put simply the government scheme is still a Final salary scheme, tho there are moves to make it an "average salary scheme".

 

That would help to reduce costs, but one of the biggest issue is the indexation of pensions in payment.

 

For an individual to save up a private sector pension pot sufficient to provide an annuity to match the guaranteed index linked pension of the public sector would require truly staggering contributions to the pot.

 

Even more so since Gordons first stealth tax as the private sector pots now have the growth within them taxed.

 

As for not being able to do anything Eric.

 

Well sorry but I disagree - I am doing something because I am so appalled at the injustice of a group of Civil Servants (not all but an influential group in the tax department) who dreamt up a way of taxing pensions WITHOUT affecting themselves!

 

As I said before - we were all expecting that Tax Free Cash could be limited or Tax relief on contributions to pensions would be limited - YOU KNOW!!!! - SOMETHING THAT WOULD BE FAIR AND EQUITABLE TO ALL - AFFECTING PENSIONS ACCROSS THE BOARD - BOTH PRIVATE AND PUBLIC SECTOR !!!!!

 

(sorry for "shouting" - done for emphasis really - not shouting :-D )

 

But no!!! - what we got was a tax that applied to the private sector only and left the public sector civil servant schemes of THOSE THAT WRITE THE PENSION RULE BOOK UNSCATHED BY THIS PENICIOUS AND DEVISIVE STEALTH TAX >:-(

 

So far from "doing nothing" - I try to make sure people know about this injustice. And I am not alone. Because it will come to a Court case at some time in the future because it is clear that two individual doing the same job, one in the public and one in the private sector are treated very differently by the rules. To the huge advantage of the rule makers.

 

 

 

[GJH]

CliveH - 2010-03-16 7:53 AM

(snip) Because it will come to a Court case at some time in the future because it is clear that two individual doing the same job, one in the public and one in the private sector are treated very differently by the rules. To the huge advantage of the rule makers.

 

This is the whole point isn't it? The rules differ with the employer. In regard to pensions, in many cases the big change has been the move away from final salary schemes - and the rule maker there has been the employer (with or without the agreement of trades unions), not any politician or public servant.

 

But it isn't just pensions which differ, there are also things like level of payment whilst in employment, holiday entitlement etc to consider.

 

Many people choose the private sector because the salary is better than they can get in the public sector. I well recall the frustration, when working in local government IT in the 1970s and 1980s, of training people for months or years only to see them move to the private sector for better money. One reason the private sector was paying that money is that they had made huge savings on training costs - a decision (rule by another name) which worked to their advantage.

 

One thing I did not do was to condemn individual people for taking the decision that they thought was best for them. By the same token I do not expect criticism, from people who took similar decisions, of my opting to stay in local government for a lower salary but a better pension.

 

We all had/have the same opportunities and we all have to live with the consequences of our decisions, be they to our advantage or not.

 

Graham

[CliveH]

No Graham it is not the employment that differs, it is the tax treatment of the respective pension "pot".

 

What has happened before is where co-workers male and female were treated diferently. For example, a male retiring at 60 had his pension actuarily reduced by five years because males retire at 65. Whereas his female co-worker retired at 60 on a full pension.

 

This was unfair and so the law was changed to ensure a common unisex pension age.

 

The same thing will happen with co-workers in Government whereby a contract worker is paid the same as a civil servant but is not elligible to join the civil service scheme and so could argue and win that they are being discriminated against as they do the same work but the civil servant benefits from an "untaxed" pension whereas the contract worker does not.

 

Interestingly, we had a good case on this issue with Locum GP's - GP's whilst being self employed contractors to the NHS are able to be members of the NHS Pension Scheme via the Parliamentary Concesion A9. But Locums were for a long time not able to join the NHS Pension Scheme because they were seen as being employed by the GP, not the NHS.

 

What happened?

 

The powers that be recognised the precidence threat and changed the rules so that Locum GP's CAN now join the NHS Pension Scheme.

 

Typical goalpost moving but nothing can possibly detract from the fact that the Public Sector have pensions paid for by the tax payers and that a section of the Public Sector dreamt up this highly selective tax on Private Sector pensions when it would have been far fairer, acceptable to all and equitable to have applied a tax ruling that applied accross the board.

 

Yes conditions of employment do differ. But we are not talking conditions of employment we are talking about one group of workers who make the rules that apply to ALL workers, setting up rules that disadvantage everyone but themselves.

 

To dismiss this as simply differing Terms and Conditions of employment is to miss the point entirely. Because one type of employment is discriminated against by the rules as laid down by those that make the rules.

[CliveH]

Sorry - took a call - meant to add a comment re what you say here Graham:-

 

"We all had/have the same opportunities and we all have to live with the consequences of our decisions, be they to our advantage or not."

 

Yes we were all treated the same pension wise prior to Gordons first stealth tax on pensions so yes - prior to the rule change you could say:-

 

"We all HAD the same opportunities" - but you cannot now say that "we HAVE the same opportunities" - because they changed the rules.

 

Similarly you can not say:-

 

"we all have to live with the consequences of our decisions, be they to our advantage or not"

 

Because the rule change was NOT our decision it WAS someone else’s!!!

 

So sorry Graham but I for one do not want to live with the disadvantageous consequences of someone else decision whereby the are feathering their retirement nest at other peoples expense!

 

Of which I am one :-S

 

[GypsyTom]

CliveH

You do not appear to like personal pensions and I've no problem with that for some people, but consider this:

If I am a director of a limited company, which I own, and I have a spare £1000 to pay myself, I will receive only £523.04 in my pay packet. I'm referring of course, as you've no doubt already inferred, to the fact that I'm a higher-rate tax-payer.

If however, I put that £1000 into a pension, the entire sum is invested, almost double my net salary.

One other very important factor is that, money invested in other vehicles, instead of a pension, is easily accessed when someone gets short of cash and the temptation to draw down this money you are saving for your retirement is always a threat.

Money locked in a pension is much harder to access and the cost is too great for any sensible person, so they tend to leave it there.

I am ambivalent about the pros and cons of lower-rate-tax-paying employees choosing between a pension and other investments but, would you not agree that, in some cases, they are still a wise choice?

[Guest Tracker]

It does not happen very often but on this occasion I agree with GT!

 

I would have thought that 'best advice' was not to be reliant upon any one source for your pension but instead to have widely spread options builing up over many years.

 

The three obvious candidates are -

 

Property - buy a bigger and better house now that you will need in retirement and then YOU will have the OPTION to trade down if you wish.

 

Pension funds - take advantage of tax relief and long term potential stock market growth. Having funds with more tahn one provider increases the cost element but reduces the risk element and allows for a gradual retirement.

 

ISAs - take advantage of tax free allowances here to buld up a cash lump sum which can either be used as cash or to create income at retirement.

 

DON'T put all your eggs in one basket in case the big bad wolf comes along and nicks the basket or most of it's contents!

[GJH]

CliveH - 2010-03-16 10:10 AM

 

Sorry - took a call - meant to add a comment re what you say here Graham:-

 

"We all had/have the same opportunities and we all have to live with the consequences of our decisions, be they to our advantage or not."

 

Yes we were all treated the same pension wise prior to Gordons first stealth tax on pensions so yes - prior to the rule change you could say:-

 

"We all HAD the same opportunities" - but you cannot now say that "we HAVE the same opportunities" - because they changed the rules.

 

Similarly you can not say:-

 

"we all have to live with the consequences of our decisions, be they to our advantage or not"

 

Because the rule change was NOT our decision it WAS someone else’s!!!

 

So sorry Graham but I for one do not want to live with the disadvantageous consequences of someone else decision whereby the are feathering their retirement nest at other peoples expense!

 

Of which I am one :-S

 

Please don't take my comments out of context. I was talking about choosing between public and private sector and we all had/have the same opportunities to do so. I also pointed out that people were leaving the public sector for higher salaries in the private sector.

 

Pensions and salary are part of a whole package so if you want the same pensions in both public and private sectors lets please also have the same level of salaries in both.

 

Graham

[CliveH]

Hi gipsy tom

 

excuse the upper case - not shouting just making responce easier

 

“You do not appear to like personal pensions and I've no problem with that for some people, but consider this:

 

If I am a director of a limited company, which I own, and I have a spare £1000 to pay myself, I will receive only £523.04 in my pay packet. I'm referring of course, as you've no doubt already inferred, to the fact that I'm a higher-rate tax-payer.”

 

AGREED – IF YOU LOOK BACK AT WHAT I SAID RE THE BENEFITS OF PENSION FOR HIGHER RATE TAX PAYERS.

 

If however, I put that £1000 into a pension, the entire sum is invested, almost double my net salary.

 

TRUE BUT WHY PAY THAT £1000 TO YOURSELF? – IF YOU ARE A DIRECTOR YOU SHOULD CONSIDER SETTING UP A SALARY SACRIFICE SCHEME WHERE BY YOUR COMPANY PAYS YOU £1000 LESS BUT THEN PAYS THIS £1000 INTO A PENSION SCHEME ON YOUR BEHALF AS AN EMPLOYERS CONTRIBUTION. THEN, YOUR COMPANY SAVES THE 13.8% NIC AND YOU AS AN INDIVIDUAL SAVES THE 11.8% NIC. IF YOU CONTROL THE FINANCES THEN THE £1000 CAN BECOME A PENSION CONTRIBUTION OF £1138.

 

One other very important factor is that, money invested in other vehicles, instead of a pension, is easily accessed when someone gets short of cash and the temptation to draw down this money you are saving for your retirement is always a threat.

 

BUT AS A COMPANY DIRECTOR YOU CAN BORROW 50% OF YOUR PENSION POT AND A LOT OF PEOPLE DO TO PURCHASE THE BUSINESS PREMISES. THAT WAY RATHER THAN YOUR COMPANY PAYING RENT TO A LANDLORD YOU PAY RENT TO YOUR OWN PENSION PLAN. WHEN YOU THEN RETIRE, YOU LEASE THE BUILDING TO ANOTHER FIRM AND THEY PAY RENT INTO YOUR PENSION PLAN SO THE “POT” CONTINUES TO GROW EVEN AFTER YOU STOP WORKING.

 

Money locked in a pension is much harder to access and the cost is too great for any sensible person, so they tend to leave it there.

 

NOT REALLY TO THE FIRST POINT AND “WHAT COST” ARE YOU TALKING ABOUT RE THE SECOND POINT?

 

I am ambivalent about the pros and cons of lower-rate-tax-paying employees choosing between a pension and other investments but, would you not agree that, in some cases, they are still a wise choice?

 

ABSOLUTELY – BUT – FOR THE LOW PAID EARNING £18,000 PENSIONS IN MY PROFESSIONAL OPINION SHOULD BE BANNED BECAUSE IF YOU HAVE TWO PEOPLE BOTH EARNING £17000 pa AND ONE IS CONVINCED TO BUY A PENSION AND ONE DOES NOT BOTHER, THEN AT RETIREMENT THEY BOTH WILL RECEIVE EXACTLY THE SAME INCOME. BECAUSE GORDON INTRODUCED THE MINIMUM INCOME GUARANTEE (MIG) FOR THE LOW PAID WHICH MEANS THAT THE GUY WITH THE PENSION SIMPLY SUBSTITUTES A BENEFIT £ FOR EACH PENSION ANNUITY £ HIS PENSION GENERATES.

 

SO THE GUY WHO DOES NOTHING PENSION WISE IS BETTER OFF BECAUSE THEY HAVE THE SAME INCOME BUT DID NOT HAVE TO SAVE FOR IT!

 

BIZARRE OR WHAT!!!!

 

SO MY ADVICE IS TO GET ADVICE AS TO EXACTLY WHAT YOU ARE SIGNING UP TO WHEN YOU SET UP A PENSION. THE “WINDOW OF ADVANTAGE” WITH PENSIONS IS VERY NARROW AND DIFFICULT TO SEE THROUGH.

 

AND GETTING BACK TO TRACKERS TOTALLY CORRECT INITIAL POST – IT DOES OMIT ONE KEY POINT - HOW WOULD THAT BENEFIT SOMEONE SUBJECT TO THE MIG IF ONCE IT IS SET UP ALL THAT HAPPENS IS THEIR STATE PENSION MIG DROPS BY EXACTLY THE SAME SUM THAT THE STAHOLDER PENSION ANNUITY GENERATES?