The Great Private Pension Scam

[Guest pelmetman]

Our lords and masters continually bleat about about how the great unwashed (self employed), should invest in pensions for their old age *-)...................

 

Fortunately I stopped paying into our private pensions years ago as even then it was becoming apparent they were a complete waste of money..........unless you have so much money you have got nothing better to do with it........

 

We still have a couple of small pots that are due for cashing in soon, and looking around it appears that I was right 8-)...............a complete waste of money ;-)

 

 

 

David Craig, a management consultant who has penned several books on pensions, has analysed the fees paid by private sector scheme members. Writing in the Guardian, he claimed that schemes have annual charges of 2 to 3 per cent. However, Craig says most pension funds have only managed growth of around 4 per cent a year over the past 30 years. ‘Most people who save in private sector pensions will see between 50 and 75 per cent of all the growth in their pension savings disappear to pay those who have sold them their pension schemes and those managing their money,’ he argues.

 

To illustrate his point, Craig gives this startling example: ‘If you had invested £100 in Warren Buffett’s company from the start, you would now have stocks worth £300,000. But if you had invested [in Berkshire Hathaway] through a

British pension fund, you would have just £30,000 because of fees.’

 

MY advice to anyone becoming self employed is to invest in property, wine, classic cars, loose women...........anything but a private pension

 

Looking on the bright side we've got a endowment paying out this year *-) *-) *-)...........B****y Spiv's >:-(

[HWO]

 

 

Looking on the bright side we've got a endowment paying out this year *-) *-) *-)...........B****y Spiv's >:-(

 

Hi Dave

Got to agree with you about personel pensions, I have advised my son not to bother the way annuity rates have gone etc, they are just a salesman commision earner.

 

This year I had my last endowment policy pay out , one that I took out when I was 17 how's that for a sad teenager.

 

Anyhow I sat down on a wet-afternoon with pencil,paper and a calculator to work out the return over those 40 odd years. Later I found a web-site to confirm the figures and the compound interest over those years worked out at 8.5% per year. That return was tax paid , and for a number of years thro that period I was a 40% tax payer.

 

That did'nt seem too bad a return when you look how the stock-market has performed over the last decade or so.

Probably investing with Warren Buffet or even Tony Bolton's special Situation fund would have given a better return, but I was ignorant of such people in 1968

 

My point is why are endowment policies not used anymore ??

HWO

 

[Dave225]

I agree with many of the points raised however, they do not necessarily show the whole picture.

 

Firstly, yes annuity rates are low and yes, the managers of various Funds have made themselves rich at the expense of others. But one has to consider that if you do not make arrangements for your old age, then you either rely on the State or possibly spend your final days in poverty. Neither is really what we would hope for as eager youths. Of course when you are young things like pensions seem a lifetime away and there are other more pressing things to spend your money on. That can be the evil that does not speak and you wake up one morning to realise you are past 50, and have done nothing.So, from my understanding many people rely on one or more of the following to provide for their old age. These are not necessarily in order of importance

 

1. Inherit parents house/money and use the funds

2. Build up a successful business and sell out when the time comes

3. Get a good job in the public sector and retire on 2/3 rds salary

4. Invest in the stockmarket

5. Put money away in various savings schemes such as ISA’s

6. Buy properties and become a multi landlord

7. Buy a Lottery ticket , and hope

8. Marry a rich person

9. Invest in cars, wine and/or antiques etc

10. Trade drugs, or become a pimp

11. Rob a bank and hope you get away with it.

12. Believe that you will not live that long, so it does not matter

 

There are probably others you can think of to add to the list.

 

Now one thing about pensions is that the Government gives you part of your contribution in tax relief, minimum of 20% and maybe 40% if you are a higher rate tax payer, not too uncommon nowadays. Therefore before you start you have made some money. Yes, there are charges but if you check you can get a Scheme that will not strip away all your gains. Even at a steady 4% as mentioned by one above, over 25 years that will grow the Pot. At the end you can take 25% tax free and do a number of things with the rest depending on the size. And that pays you money for the rest of your life. The other thing is that it is a locked investment so you cannot fritter it away as you might be tempted to do with savings.

 

So, I would suggest that it is still one part of retirement planning and even at the current return rates should be at least a part of your planning. At the very least after I believe age 55 you can invest £2880 every year, the Government tops it up to £3600 and then you can take 25%, or £900, back tax free and the remainder will give you an income of £108 per annum at 4%, maybe more. You can repeat that as many years as you like and top it up your income. So you have only actually had to cough up £1980 for your deal. In a bank at the moment your £1980 will give you £59.40 per annum if you are lucky.

 

[Basil]

Difficult one this, how in all seriousness can anybody be advised to take out a private pension? If you do nothing for yourself as you go through life, when you retire because you are only on basic state pension you are entitled to any number of additional state hand outs including housing benefit, community charge benefit, pension credit i.e. having your basic state pension made up to a higher amount, all tax free. However if you have a small pension that you have had to pay into to get coming in, not only are you taxed on it but you are unable to claim any benefits because it puts you over the threshold.

Once again it is a 'thing with this country that those who are prepared to help themselves get a kicking in the end whereas those who choose (or not) to accept handouts all their lives get support. What a ridiculous and crap system we have!!

 

Bas

[Guest Tracker]

My, what a cheerful bunch you all are!

 

I agree that both occupational and personal pensions do need a lot of reforming and tighter regulation with less taxation if they are to achieve more in the future, but speaking personally I have done rather well with very nice tax relief on contributions and above average and/or inflation returns on several personal pensions over the years - not spectacular but very acceptable thank you very much!

 

That said, past performance and taxation seems to have been a lot better than current performance and taxation and rules and I guess that my generation has had the best of pensions with such good returns becoming ever harder to secure. Lucky us!

 

It pays to seek expert advice and you have to devote time and effort of your own to work at it as nobody will do it for you without charging you a fortune and it does helps if you make available disposable income or capital and if you don't - your choice as it depends on your priorities - but don't whinge if working longer and getting less happens!

 

I began making pension provisions for myself in 1978 and it did mean less disposable income for many years but the payback came in 2000 when I was able to retire at the grand old age of 56!

 

Nobody has a given right to good investment returns but I still believe that they are out there for those who make the effort and commitment.

[francisgraham]

I agree entirely with Tracker. I have various investment vehicles such as property and equities, but I have never neglected paying into my private pension and if everything else goes belly up I can rest assured that the combination of my private and state pensions will ensure that I am comfortable for the rest of my life.

The reason of course is simple. Despite any charges by the fund managers there is the equally important tax relief obtained when investing in a pension. Let's take the case of 40% tax payers, which isn't the super rich, but someone earning a reasonable salary.

If an employer has £1000 to spare to give his employee as a bonus, the employee would take home just over £500 after tax and the various National Insurance contributions have been paid.

If however, the £1000 is paid into a pension the entire sum is invested, almost double what he would have taken home had he drawn the money.

For higher-rate tax payers pensions should still be considered as a worthwhile strategy.

This isn't my area of expertise by any means, but I'm sure that if I'm wrong that our resident financial expert will put me right (and that's not a dig I can assure you).

[Guest Tracker]

francisgraham - 2012-04-10 10:56 AMIf an employer has £1000 to spare to give his employee as a bonus, the employee would take home just over £500 after tax and the various National Insurance contributions have been paid.

If however, the £1000 is paid into a pension the entire sum is invested, almost double what he would have taken home had he drawn the money.

For higher-rate tax payers pensions should still be considered as a worthwhile strategy.

This isn't my area of expertise by any means, but I'm sure that if I'm wrong that our resident financial expert will put me right (and that's not a dig I can assure you).

Not only but also if the £1000 bonus is paid into a pension as a net contribution it is grossed up to take account of tax relief and is worth £1250 as a 20% tax payer (or even as a non tax payer) and (unless the rules have changed - I have not checked) £1666 as a 40% tax payer.It strikes me that an investment of up to £1666 in a decent pension fund beats a cash in hand of £500!Make the system work for you - that's what all the clever folk do!

[francisgraham]

Tracker - 2012-04-10 12:34 PM

francisgraham - 2012-04-10 10:56 AMIf an employer has £1000 to spare to give his employee as a bonus, the employee would take home just over £500 after tax and the various National Insurance contributions have been paid.

If however, the £1000 is paid into a pension the entire sum is invested, almost double what he would have taken home had he drawn the money.

For higher-rate tax payers pensions should still be considered as a worthwhile strategy.

This isn't my area of expertise by any means, but I'm sure that if I'm wrong that our resident financial expert will put me right (and that's not a dig I can assure you).

Not only but also if the £1000 bonus is paid into a pension as a net contribution it is grossed up to take account of tax relief and is worth £1250 as a 20% tax payer (or even as a non tax payer) and (unless the rules have changed - I have not checked) £1666 as a 40% tax payer.It strikes me that an investment of up to £1666 in a decent pension fund beats a cash in hand of £500!Make the system work for you - that's what all the clever folk do!

Yes and no. You're confusing £1000 paid by an employee who has already paid tax on his salary. If he invested £1000 in a pension he would, as you you say, have the value of the income tax added to it.

However, I was talking about £1000 paid by an employer into a pension, instead of paying him the money as salary. In that case just the £1000 goes into the pension fund but, as we both agree, if he drew it as wages he'd get just over £500.

[Guest pelmetman]

Tracker - 2012-04-10 12:34 PM

francisgraham - 2012-04-10 10:56 AMIf an employer has £1000 to spare to give his employee as a bonus, the employee would take home just over £500 after tax and the various National Insurance contributions have been paid.

If however, the £1000 is paid into a pension the entire sum is invested, almost double what he would have taken home had he drawn the money.

For higher-rate tax payers pensions should still be considered as a worthwhile strategy.

This isn't my area of expertise by any means, but I'm sure that if I'm wrong that our resident financial expert will put me right (and that's not a dig I can assure you).

Not only but also if the £1000 bonus is paid into a pension as a net contribution it is grossed up to take account of tax relief and is worth £1250 as a 20% tax payer (or even as a non tax payer) and (unless the rules have changed - I have not checked) £1666 as a 40% tax payer.It strikes me that an investment of up to £1666 in a decent pension fund beats a cash in hand of £500!Make the system work for you - that's what all the clever folk do!Seems to me luck and timing has more to do with getting a decent private pension, judging by today's annuity rates Rich ;-)...................So if you add that to the mix it makes saving for a pension even more of a gamble *-).....................Where as if you plough it into property at least you can live in it or rent it out, and know that if you happen to snuff it too early, then at least all your "ard erned" doesn't go straight into the coffers of the spiv's ;-)Looks like the older baby boomers have had all the jam :D..................As Dave pointed out if I worked another 3 weeks a year for the next 10 years I could get another £1080 of income a year :-SNaaah..................... not worth the effort............. (lol) (lol)

[CliveH]

Sorry guys – but a fair bit of confusion here.

 

If the £1000 is paid to the employee as a bonus and it is paid to s/he after tax and NI then FG is correct in saying that after 40% income tax and 12% NIC then the net pay would indeed be about £500.

 

Income tax would be £400 for a HRTP and yes you would get that back if you paid the net amount of £600 into a pension BUT! do not forget that you would have paid 12% NIC on the £1000, so whilst there is an advantage of income tax relief by making an EMPLOYEES contribution into a pension, you still pay £120 in NIC – not only that but the EMPLOYER also has to pay employers NIC of 13.8%!

 

If we look at the tax bill on that £1000 bonus:-

 

£1000 bonus

 

40% Income Tax = £400

12% E’ees NIC = £120

13.8% E’ers NIC = £138

 

So you earn a £1000 bonus and the total tax hit is 65.8%

 

http://www.hmrc.gov.uk/rates/nic.htm

 

So the £1000 is not “grossed up” to £1250 – I think those that suggest this are getting confused –with Salary/Bonus Sacrifice.

 

Here, you write to your employer stating that you wish to sacrifice salary in return for the employer paying that same amount into a pension.

 

If you do this the employer makes a £1000 employer’s contribution into your pension which means that Income tax is not paid and neither is Employees or Employers NIC.

 

So many employers pay the employee the NIC they as employers would have normally paid. Some do not pay the whole 13.8% because there is a fair bit of admin to set up such a scheme but even if they do this and take, say 3.8% as a cost charge – it still means that the individual, rather than getting less than £500 of his/her bonus/salary of £1000 actually gets £1100 invested in a pension.

 

If the employer takes no charge at all then the £1000 becomes £1138.

 

That is some of the advantages of Salary Sacrifice – so what are the disadvantages?

 

1) Lower NIC contributions can mean lower benefits if you subsequently fall on hard times

2) You are lowering your salary, so benefits based upon a multiple of your salary can be reduced – if you die for example and your DISB is 4xsalary then reducing your salary by £1000 would mean that on your death the DISB paid to your spouse would be £4000 less.

3) Mortgage multiples – often based upon salary – so do be aware that reducing your salary can confuse the numpties in the main high street lenders. Other specialist lenders/professional mortgage brokers can deal with this however.

 

We are doing more Salary sacrifice work now than we have for some time – the main reason is the 1% hike in E’ees NIC as well as a corresponding 1% increase in E’ers NIC.

 

As Tracker says – Professional advice is essential in this complex area – if anyone wants more info then PM me.

 

On the general subject of pensions – I think I have make my professional opinion as an IFA known before but I will repeat it again.

 

• HRTP’s – pensions are worthwhile because 40% tax relief is hard to better – if you can do salary sacrifice as well then so much the better.

 

• BRTP’s – If you are funding yourself (no employers contribution) then Private Pensions are NOT worth it. Best to use ISA’s and Offshore Investments and/or build up wealth outside of pensions – property is always a good bet.

 

• BRTP’s – where the employer contributes as well – do the maths – it can be worth it – e.g. where you contribute 5% and the employer matches this with another 5% then that would mean for every £10 you pay into your pension as an employees contribution, it only costs you £8 (Some NIC costs of course) but the total payment into your pension is £20 (your £10 plus £10 from the employer.

 

CHARGES

 

On the subject of charges – My advice would be to get these checked – we regularly carry out due diligence research on peoples “old style” plans and find people paying old style charges!!

 

New style plans are far cheaper and considerable savings can be made by switching to a new style plan. It is a bit like sticking with an old savings account that no longer gives you the best rate. BUT!!!! – do be careful because some of these older plans have GAR’s (Guaranteed Annuity Rates) and other obscure features that can be very valuable indeed – so careful proper research is ESSENTIAL!

 

It is your choice however.

 

[francisgraham]

Sorry, I haven't time to read and digest all the above as I'm going to work but one thing did leap out at me. Higher rate tax payers don't pay the normal rate of N.I. After a certain salary level doesn't your N.I contribution drop to 2%?

My calculations regarding the £1000 that an employer has available included the employer's N.I. so, if he has £1000 he first has to calculate how much N.I he will pay, which is £121.27. He pays the balance to his employee who pays 40% tax and 2% N.I. leaving a net salary of just over £500.

Employee's salary would be £878.73 Employer pays £121.27 N.I.

Employee pays 40% tax £351.49 and 2% N.I. or £17.58

Net salary is therefore £509.66. 

If he then spends his increase on anything but the most basic items whatever he buys will have VAT at about 17% of its retail price, another £86.64 so from the original £1000 the state has taken £567!

[CliveH]

HWO - 2012-04-09 4:31 PM

 

 

 

Looking on the bright side we've got a endowment paying out this year *-) *-) *-)...........B****y Spiv's >:-(

 

Hi Dave

Got to agree with you about personel pensions, I have advised my son not to bother the way annuity rates have gone etc, they are just a salesman commision earner.

 

This year I had my last endowment policy pay out , one that I took out when I was 17 how's that for a sad teenager.

 

Anyhow I sat down on a wet-afternoon with pencil,paper and a calculator to work out the return over those 40 odd years. Later I found a web-site to confirm the figures and the compound interest over those years worked out at 8.5% per year. That return was tax paid , and for a number of years thro that period I was a 40% tax payer.

 

That did'nt seem too bad a return when you look how the stock-market has performed over the last decade or so.

Probably investing with Warren Buffet or even Tony Bolton's special Situation fund would have given a better return, but I was ignorant of such people in 1968

 

My point is why are endowment policies not used anymore ??

HWO

 

 

--------------------------------------------------------------------------------------------

 

Five reason why Endowments are NOW - not such a good idea ;-

 

a) The growth within the endowment fund is internally taxed at a rate of 18% as are all onshore Life Funds. Plans like ISA’s are not subject to this tax.

b) An endowment has to have run for 75% of its term before you can surrender it without a tax charge on any gain made – this is the so called “Qualifying period” – these plans were an improvement on went before in that Non-Qualifying policies had a tax hit on maturity.

c) The cost of the Life Cover within an endowment can be far higher than the equivalent live cover if bought separately – however often within an Endowment you are not told what you are being charged for the Life Cover element of the policy.

d) With an endowment you lock into just one provider for the full term. Investment fund choice is very limited – often the fund you choose at the start is what you are stuck with for the duration of the policy.

e) The salesman’s commission on a 25 year endowment is huge! - In contrast buying the investment each year – as in an ISA – is far far cheaper, as well as giving you the opportunity to switch/choose providers.

 

Endowments are only sold now via TV adverts aimed at the over 50’s using C-class celebrities on day time television. Best to avoid them in my professional opinion.

 

Best advice now if you want Live Cover and an investment is NOT to buy this via a “package” as things have moved on considerably.

 

If you have one – do be aware that if it is With Profits in particular, that the bonus’s given are now so low that the premiums you are still paying are NOT always adding to the value of the plan. When assessing some of these plans for clients we have found that the projected increase in value from now to maturity is LESS than the sum of the premiums to be paid.

 

PLUS! Many plans, if in their Qualifying Period, will add the Terminal Bonus which means you are better off surrendering the plan early rather than carrying on to maturity because the surrender value is greater than the projected maturity value AND the ongoing premiums. This is usually because the cost of the Life Cover is very high on these plans and eats into the amount of premium paid thereby reducing the amount of premium available for the investment amount.

 

Again – this is an area where if you have an old plan such as this – it is a good idea to get it professionally checked out.

 

[CliveH]

francisgraham - 2012-04-11 8:19 AM

Sorry, I haven't time to read and digest all the above as I'm going to work but one thing did leap out at me. Higher rate tax payers don't pay the normal rate of N.I. After a certain salary level doesn't your N.I contribution drop to 2%?

My calculations regarding the £1000 that an employer has available included the employer's N.I. so, if he has £1000 he first has to calculate how much N.I he will pay, which is £121.27. He pays the balance to his employee who pays 40% tax and 2% N.I. leaving a net salary of just over £500.

Employee's salary would be £878.73 Employer pays £121.27 N.I.

Employee pays 40% tax £351.49 and 2% N.I. or £17.58

Net salary is therefore £509.66. 

If he then spends his increase on anything but the most basic items whatever he buys will have VAT at about 17% of its retail price, another £86.64 so from the original £1000 the state has taken £567!

The details are available here – It just gets too complicated to cover all the points in a simple post such as this:-http://www.hmrc.gov.uk/helpsheets/e12.pdfAnd yes above the £40,040 UEL the E'ees NIC does drop to 2% but this does not apply to the Employers NIC at 13.8% on all earnings.As an aside we are setting up a fair number of SS schemes on the basis that a) they have to be set up in advance and b) those families that will lose Child Benefit due to one or both salaries being too high can lower salary easily with no real detriment AND maintain their Child Benefit.

[CliveH]

francisgraham - 2012-04-11 8:19 AM

Sorry, I haven't time to read and digest all the above as I'm going to work but one thing did leap out at me. Higher rate tax payers don't pay the normal rate of N.I. After a certain salary level doesn't your N.I contribution drop to 2%?

My calculations regarding the £1000 that an employer has available included the employer's N.I. so, if he has £1000 he first has to calculate how much N.I he will pay, which is £121.27. He pays the balance to his employee who pays 40% tax and 2% N.I. leaving a net salary of just over £500.

Employee's salary would be £878.73 Employer pays £121.27 N.I.

Employee pays 40% tax £351.49 and 2% N.I. or £17.58

Net salary is therefore £509.66. 

If he then spends his increase on anything but the most basic items whatever he buys will have VAT at about 17% of its retail price, another £86.64 so from the original £1000 the state has taken £567!

"My calculations regarding the £1000 that an employer has available included the employer's N.I. so, if he has £1000 he first has to calculate how much N.I he will pay, which is £121.27. He pays the balance to his employee who pays 40% tax and 2% N.I. leaving a net salary of just over £500.Employee's salary would be £878.73 Employer pays £121.27 N.I.Employee pays 40% tax £351.49 and 2% N.I. or £17.58Net salary is therefore £509.66." Think you are barking up the wrong tree here FG (sorry - could not resist it!) – your calculations are incorrect I think – the employers NIC is paid as well as the employees – not before the employees and does not reduce the salary/bonus of the individual. As put in my earlier post – the tax hit on a £1000 salary/bonus is as follows:-£1000 Bonus/salaryTax at 40% = £400E’ee’s NIC at 12% = £120 (where salary is less than £40,040pa - UEL)E’er’s NIC at 13.8% = £138So total tax hit is £658. Therefore for the employee on say a salary of £39,000 who earns a £1000 bonus, the net take home would be £480 and the employer would pay £138 as the Employers NIC.

[francisgraham]

CliveH - 2012-04-11 10:46 AM

francisgraham - 2012-04-11 8:19 AM

Sorry, I haven't time to read and digest all the above as I'm going to work but one thing did leap out at me. Higher rate tax payers don't pay the normal rate of N.I. After a certain salary level doesn't your N.I contribution drop to 2%?

My calculations regarding the £1000 that an employer has available included the employer's N.I. so, if he has £1000 he first has to calculate how much N.I he will pay, which is £121.27. He pays the balance to his employee who pays 40% tax and 2% N.I. leaving a net salary of just over £500.

Employee's salary would be £878.73 Employer pays £121.27 N.I.

Employee pays 40% tax £351.49 and 2% N.I. or £17.58

Net salary is therefore £509.66. 

If he then spends his increase on anything but the most basic items whatever he buys will have VAT at about 17% of its retail price, another £86.64 so from the original £1000 the state has taken £567!

"My calculations regarding the £1000 that an employer has available included the employer's N.I. so, if he has £1000 he first has to calculate how much N.I he will pay, which is £121.27. He pays the balance to his employee who pays 40% tax and 2% N.I. leaving a net salary of just over £500.Employee's salary would be £878.73 Employer pays £121.27 N.I.Employee pays 40% tax £351.49 and 2% N.I. or £17.58Net salary is therefore £509.66." Think you are barking up the wrong tree here FG (sorry - could not resist it!) – your calculations are incorrect I think – the employers NIC is paid as well as the employees – not before the employees and does not reduce the salary/bonus of the individual. As put in my earlier post – the tax hit on a £1000 salary/bonus is as follows:-£1000 Bonus/salaryTax at 40% = £400E’ee’s NIC at 12% = £120 (where salary is less than £40,040pa - UEL)E’er’s NIC at 13.8% = £138So total tax hit is £658. Therefore for the employee on say a salary of £39,000 who earns a £1000 bonus, the net take home would be £480 and the employer would pay £138 as the Employers NIC.

You are completely missing the point. I made it quite clear when I said:

 

 

If an employer has £1000 'to spare' to give his employee as a bonus, the employee would take home just over £500 after tax and the various National Insurance contributions have been paid.

If an employer decides that he has £1000, or even £10,000, that he can afford to give someone, either as a pay rise or a bonus he has to take into account the N.I. that he, as an employer, will have to pay.

 

 

Therefore, if he has £1000 'to spare', he knows that he will have to fork out £121.27 in NI. This leaves him £878.73 that he can pass on to his employee.

Employer's N.I. doesn't come from thin air and has to be calculated whenever he decides to pay extra salary or bonus. Any employer who doesn't calculate his N.I. commitment when determining his next salary round, is on the way to Carey Street!

I was also very surprised that, in your initial calculations you had higher rate taxpayers paying the full 12% N.I.

It isn't really complicated at all and I haven't even bothered following your link. If you earn below the higher rate, you pay 12% N.I. If you earn above the higher rate, you pay 2%.

My calculations, for an employer who decides that he has £1000 spare to pay as a bonus or salary are absolutely correct. Unless of course you know of some way in which the employer can pay his employer's N.I. without it costing him any extra money?

 

 

Edited to say: In the final part of your calculation you still have the employee paying 40% tax and 12% N.I. !If h pays 40% tax then surely he will only pay 2% N.I.

If we forget the employer's N.I and assume that he doesn't have to pay it, someone getting an extra £1000 would pay 40% tax and £20 N.I. leaving him £580, not the £480 that you quote!

 

 

 

 

[CliveH]

You are wrong on so many levels FG - you post is akin to farting in lift.

 

For a start – a minor point but you quote VAT at 17%

 

" You are completely missing the point. I made it quite clear when I said:

If an employer has £1000 'to spare' to give his employee as a bonus, the employee would take home just over £500 after tax and the various National Insurance contributions have been paid."

 

And I said you are about right

 

"If an employer decides that he has £1000, or even £10,000, that he can afford to give someone, either as a pay rise or a bonus he has to take into account the N.I. that he, as an employer, will have to pay."

 

No – if he pays someone a bonus of £1000 or £10,000 or even £100,000 – the Employers NIC is 13.8%

 

"Therefore, if he has £1000 'to spare', he knows that he will have to fork out £121.27 in NI. This leaves him £878.73 that he can pass on to his employee."

 

No – As I say – if he pays the employee £1000 then the employer has to find £1138 out of profit to pay the employee £1000.

The employee then pays 12% NIC and 40% tax (see later - re P11D benefits and earlier post on UEL)

 

"Employer's N.I. doesn't come from thin air and has to be calculated whenever he decides to pay extra salary or bonus. Any employer who doesn't calculate his N.I. commitment when determining his next salary round, is on the way to Carey Street!"

 

Of course he does – but getting the figs correct is a good start - I am glad we do not have someone of you dubious expertise managing our bottom line!

 

"I was also very surprised that, in your initial calculations you had higher rate taxpayers paying the full 12% N.I."

 

Why? – don’t you get a company car or car allowance or other P11D benefits – how sad for you. I cannot think of one HRTP we advise that does not utilise this.

 

"It isn't really complicated at all and I haven't even bothered following your link (WELL SURPRISE SURPRISE!). If you earn below the higher rate, you pay 12% N.I. If you earn above the higher rate, you pay 2%."

 

You should try to educate yourself more FG – you would make less mistakes that way – I am minded of the classic rock song:-

 

“Before you judge me take a look at you

Can't you find something better to do

Point the finger, slow to understand

Arrogance and ignorance go hand in hand”

 

Metalica

“Holier Than Thou”

 

 

"My calculations, for an employer who decides that he has £1000 spare to pay as a bonus or salary are absolutely correct. Unless of course you know of some way in which the employer can pay his employer's N.I. without it costing him any extra money?"

 

No – you are wrong – go to the tax website or a Sage accountancy online demonstration and you will see.

 

And yes it is not especially difficult – but you ARE having difficulty.

 

"Edited to say: In the final part of your calculation you still have the employee paying 40% tax and 12% N.I. !If h pays 40% tax then surely he will only pay 2% N.I."

 

P11D benefits and use of personal allowance levels – you really ought to look at those links FG.

 

"If we forget the employer's N.I and assume that he doesn't have to pay it, someone getting an extra £1000 would pay 40% tax and £20 N.I. leaving him £580, not the £480 that you quote!"

 

As I say - P11D – you are wrong on so many levels – like a fart in a moving lift.

 

 

[francisgraham]

Are you sure you're a financial advisor? I said the 17% of the retail price of a product is VAT!"

I do worry about you. I'll deal with the rest later but for now here's a maths lesson.

You have a product to sell at £100. You add VAT of £20. Therefore the VAT as part of the retail price of £120 is 16.67%

Can you work that out?

A financial advisor who doesn't even know how VAT works! The mind boggles!

[francisgraham]

Now the next point. Are you sure you're a financial adviser? From your understanding of how VAT works I'm not so sure.

Let me try to explain again is simple terms, and remember, it was my example and I know what I meant but I now realise that for you, it has to be put in the simplest of terms.

I am an employer. At the end of the year I decide that I have £1000 to spare to award in a pay rise or bonus. I haven't got £1138 to spare, I have £1000.

So if I calculate what that will cost me in my employers N.I. I then know that I can give him £878.73.

On that, if he's a well paid higher-rate taxpayer he'll pay 40% tax and 2% N.I. not 12% N.I as you have twice suggested.

Are you sure you're a financial advisor?

[francisgraham]

Next, what have company cars and P11ds got to do with this?

Let's start again.

A moderately high earner who earns, let's say, £50-60k pays tax at 40%. Do we agree on that?

He pays N.I. at 2% on any further increments or bonus that he receives. Do we agree on that?

So let's forget the employers N.I that you think somehow doesn't count and somehow be found when an employer has to calculate his wage round.

So he gets a bonus of £1000. He will pay tax of £400 and N.I. of £20, leaving him a total of £580.

Is that so hard to work out? I know that the VAT thing is a bit more complicated but this is really easy!

[CliveH]

 

Oh Please ! FG

 

Spare yourself further embarrassment.

 

Do some research - learn some proper facts

 

Anyone can play that game -

 

"Listen guys - if you put a £1 into a personal pension then the government gives you 25% tax relief!"

 

Which is "true" in that if you put in a £1 that is the net contribution or 80% so grossing it up to 100% gives the impression of a 25% gain. But the reality is that the gain is always 20%.

 

Just like an item that costs £1 ex VAT will cost £1.20 with VAT. So yes you can play with the figs and say that VAT represents 16.66 recurring % of retail cost - but why would you want to when it is applied as 20% of the purchase price? I think you are having a laugh.

 

You really are a Dumbo if you think that proves some sort of "point"

 

An arrogant fool of a Dumbo as well.

 

If you stopped trying to be clever ( and my little stalker) you would have a happier life I am sure.

 

Now please - either get to grips with the basics or run along. PLEASE!

 

 

[CliveH]

I do not really know why I have taken it upon myself to educate dear little FG - but i suppose sonme has to This is a quote from the HMRC handbook

 

"Cuts in earnings between the earnings threshold and the upper earnings limit normally produce a NI saving for the employee of 12%. If the employee is contracted out of the State Second Pension under a defined benefit occupational pension scheme, the saving reduces to 10.4% on earnings between the earnings threshold and the upper accrual point."

 

Now - be a good boy FG - and bugger off.

[Guest Tracker]

It was an interesting topic but PLEASE Clive and FG PLEASE stop insulting each other and trying to see who can pee higher up the wall as it kinda defeats the object of the dissemination of information and turns it into a farcical quiz.

 

Thanks.

[CliveH]

I do not know why I engage with him Tracker - he is such an ignorant (it's not nice to insult people).

 

I think I will leave it that the info is there - the nonsense of FG's posts are pretty clear - the links I have given provide the reality.

 

:-S

 

But thanks for putting in a bit of REALLY good advice mate!

[francisgraham]

CliveH - 2012-04-11 2:07 PMI do not know why I engage with him Tracker - he is such an ignorant (it's not nice to insult people).I think I will leave it that the info is there - the nonsense of FG's posts are pretty clear - the links I have given provide the reality. :-S But thanks for putting in a bit of REALLY good advice mate!

I notice that you actually ignore many of my very simple points and do not try to contradict them. Instead and as usual you just insult and bluster. The VAT point is typical where you mangle argument to defend something indefensible, which is that you clearly did not understand how VAT works.

Just to refresh everyone's memory, I said that if an employee spends what's left of his £500 bonus that 17% of the retail price of the item that he buys will be VAT, which also goes to the government.

CliveH then accused me of not knowing what the VAT rate is! Now this man is supposed to be a financial advisor but he doesn't know the difference between VAT imposed on the net price (20%) and what that then constitutes as a percentage of the retail price (approx 17%).

I point this out to him and does he say: "Oops, see what you mean, I didn't read your post properly" or God forbid: "Oops, I was wrong!"

No, he blusters and twists and actually says that it's my fault because he can't do simple maths!

How can this man have any credibility as a financial advisor?

I then pointed out to him in simple terms that a high-earning employee receiving a bonus of £1000 (forget employer's NI in this case) would be left with £580. Once again, he doesn't try to give me any figures to prove me wrong!

Come on Clive H. A man earning £50/60K a year gets a bonus of £1000. How much will he be left with? I say £580. Prove me wrong!

The problem with CliveH is that he fancies himself as some great financial genius amongst the peasants who normally inhabit this section of the forum. He takes every opportunity to show how clever he is with his rambling posts that are of interest to a tiny number of people.

But occasionally, someone comes along who's smarter than him and points out that he's really not that clever, such as in this VAT fiasco. Needless to say he doesn't like that so we get all the squirming, insults and bluster!

[CliveH]

What ever credibility I have as an IFA I suspect it is far far greater than FG has as a credible human being.

 

I could play tat for tit (guess who I think the tit is :-D ) and point out that FG was wrong on the Employers NIC and that VAT is a sales tax applied at 20% on the purchase price but what is the point?

 

He just regurgitates and slips and slides to make out everyone else but him is wrong.

 

As for Salary sacrifice I refer anyone that is interested to the HMRC links (you know – the ones FG sees no reason to check his “facts” with! (lol) )and quote above. Check it out - you will see that I am correct and FG is talking nonsense.

 

I suspect FG thinks he knows better than the HMRC tho. I also suspect that FG will take great pains to post that he didn't REALLY get it wrong - we all just got the wrong end of the stick on his dodgy calculations or that "we did not understand what he said" - blah blah blah. - oh deary deary me!

 

And I notice that I think he has "twigged" the point I am making re the P11D benefits - hence the specific mention of someone earning over the UEL at £50K to £60K - you would have to go some to get P11D benefits to get you down to between the UAP (Upper accrual point) and the UEL. And of course the point he keeps telling us to ignore? - the Employers NIC is 13.8%.

 

It is much easier to bend the truth and spin the facts if you ignore the reality of how NIC works.

 

As I say FG - do yourself a favour get up to speed or go forth and multiply.

 

I care not a jot for your snide insinuations as to my prowess as a financial adviser - If I were you I really would consider and try to understand these lyrics :-

 

" Before you judge me take a look at you

Can't you find something better to do

Point the finger, slow to understand

Arrogance and ignorance go hand in hand"

 

You can get them as a ring tone you know - Ooooooo - suit you sir!

 

If you took the time to understand them and do the proper research you would not make such an idiot of yourself.

 

 

(lol) (lol) (lol)

 

Have to go - I have a couple of dogs waiting to pepple dash the street. (lol)