capcloser Posted January 16, 2014 Share Posted January 16, 2014 Had a meeting at work about auto enrolment in new government pension scheme,company has chosen Zurich to handle it all.Guy doing presentation said that if you have a very small pension pot you dont have to have an annuity but can take it all as a lump sum,does anyone know if this is true? Some of the guys at work think he got it wrong Link to comment Share on other sites More sharing options...
Guest pelmetman Posted January 16, 2014 Share Posted January 16, 2014 I'm pretty sure your correct re small pension pots being cashable.............Although CliveH is the one to ask ;-) Link to comment Share on other sites More sharing options...
Tracker Posted January 16, 2014 Share Posted January 16, 2014 He is right as a quick Google confirms! I'm surprised he didn't tell you the current limits and that as with all legislation any rule can change at the whim of any government - and history shows that governments do so just love to meddle with anything potentially taxable! http://www.hmrc.gov.uk/pensionschemes/small-pen.htm Link to comment Share on other sites More sharing options...
CliveH Posted January 16, 2014 Share Posted January 16, 2014 Yes - this is called "Trivial Commutation" - but by a small pot - and that includes everything combined together from all schemes bar your State OAP - they mean just £18,000. Have just £1 over this amount and you will not be allowed to do it. The legislation actually states this figure is 1% of the Lifetime Allowance which was £1.8 Million but is now a lower figure and will drop to £1.25M in 2014/15 - BUT - the legislators decided that the Trivial Commutation (TC) figure will remain at £18,000. How does it work? From the £18,000 or less you take 25% tax free cash and pay tax at your marginal rate on the rest and take the lot as a lump sum rather than a pittance every year. Compare a TC on £18K to an annuity on £18,001 TC £18K, 25% = £4,500 Tax Free Cash then £13,500 to be taxed at (say) 20% = £10,800 net = a total lump sum of £15,300 Annuity £18,001, TFC = 25% + £4500.25 £13,500.75 that now has to be placed in an annuity (Drawdown is a theoretical possibility but most providers have a £50,000 or £100,000 minimum before they will consider it) Even if you can get a 6% annuity then this = £810 a year gross or £648 assuming 20% tax. So it will take you approx 17 years to get your money back - if you live that long! If you don't and die early then you can set it up to pay your spouse if younger than you - this often means a much lower starting point. So either one of you has got to, probably, live longer than your life expectancy in order to break even. If you both die before the 17 years is up, then what is left in the pot goes to sustain the income for those who live to a ripe old age, longer than the average life expectancy. That is how annuities work. Your money goes into a "pool" - you life long, you win - you die early you lose. Just think - all that hard earned money you put into that pension could benefit someone you never met! Dosen't that give you a nice warm glow inside? I have gone into a fair bit of detail because the above annuity situation is EXACTLY why the government has gone for Auto Enrolment - in my view - pensions as they stand at present just do not make much sense - we advisers have been saying this and suggesting alternatives such as ISA's. With ISA's - the overall tax benefits are the same if not better than pensions - but they have the huge advantage that if you die too soon, the "pot" goes to who you want via your will - not some other bugger you have never met!!! - as with a pension annuity. And so - the Government has introduced Auto Enrolment - which whatever way I look at it - just does not make sense. BUT what really hacks me off - is the REALLY bad advice that, if true, (not disputing your word CapCloser - just staggered that the Zurich Guy used Trivial Commutation as a sales gimmick) is very bad advice indeed re not worrying about small pots as TC can be used!!! Do you really want to put money into a savings plan where if you get to £17,500 - you have to hope it DOES NOT do very well in the last few years so you can benefit from TC? Auto Enrolment is a dogs breakfast - for the young - it is a good idea - they should do it and look to getting good advice on what investment strategy to use - if they plump for the default funds in NEST or some of the other providers - then god help them. But for those of a certain age - it is difficult to justify. Your employer HAS to enrol you - and then you have the option to opt out - so you get your contributions back. Then in three years time, your employer has to "Auto-enrol" you again - and so you then have to opt out again. And think of the employer! - when you leave - they have to still administer your plan right up until when you retire - they have no choice. Some Employers are already saying that they will stop employing people on an employed basis and start people on Self Employed Contracts where possible. Hope this helps. Happy to take PM's on this Link to comment Share on other sites More sharing options...
capcloser Posted January 16, 2014 Author Share Posted January 16, 2014 I should have explained better the bit about taking it all came up in the q and a after the presentation,it all seems a bit daft one guy in my department is 61 and really doesnt want to join Link to comment Share on other sites More sharing options...
Dave225 Posted January 16, 2014 Share Posted January 16, 2014 Clive as usual, makes some very valid points. However, look at what he says with some caveats. Firstly, to be absolutely blunt if all you have put away amounts to £18000 or less for a lifetime working, then you are going to have some problems in retirement. It does not matter how you make a 'pot' but have something to use when you wish to call it a day. Ignore for all intents and purposes the current HooHa about pension age and how you will have to wait until you are 70 to get a State Pension. If that is your plan, then forget it. If you feel you can live on the current £110 per week, then you will not have much of a life. Treat that as a bonus, and make your own arrangements. It is easy to calculate. You will get around 5% on your 'pot' so back track from what you wish to have as income to see the 'pot' size you need. Retire when you wish to, and wait for the State as a present. Therefore you will have to do the work. However, you do not need to start in your 20's as they all tell you to. Most 20 year olds neither think about it, or have the money. You will probably have to wait until the kids have flown the nest and then concentrate on your nest egg for retirement. If you have kids late on life then things will be harder, unless you are filthy rich in which case you do not need to read this apostle. It is also a very good idea to split your plans for retirement., Do not put everything into one idea whether that be stocks, savings, pensions, property or even the result of the 2.30 at Kempton. Things will always come about where one or more goes down the toilet, so always have a back up. The last comment I have on Clive's is that yes, keep the 'pot' in your name and not buy an annuity BUT>>>> only if you will not put your sticky fingers in it and fritter it away. A few years later and nothing left is not the answer, and it is very easy to snick a few hundreds here and there and....?, then what? If it is in an annuity then at least it is beyond your sticky fingers and the income is there as long as are alive. When you are dead you do not care. Do the sums and decide whether a single or joint annuity is best. I prefer to have single but each of us to have one. Clive mentions 17 years to get your money back which I feel is a bit pessimistic if you take into account what you actually put in, not tax relief. I would suggest 11 years is nearer the mark. If you are a healthy 60 year old, that is not too bad a bet. Now I am not a supporter of Pension Companies, as far as I am concerned they are all a bunch of thieving Shylocks but........as an option with a degree of certainty, it has merit. Again, I feel spread the deal with some in annuities, some in investments, some in savings. And the 1st priority of all retirement planning is..........Clear your debts. Do not have a mortgage in your 70's and do NOT take out equity to give to the kids. Borrow on an unsecured loan if you must but never touch the house, or you will regret it. Right, now back to my glass of champagne. Link to comment Share on other sites More sharing options...
CliveH Posted January 16, 2014 Share Posted January 16, 2014 Dave - how can you say 11 years "pay back" when you previously state that the return is 5%? To get a pay back in circa 11 years you would have to have an annuity rate of circa 9% and we have not seen that since the 1990's If you were only to get 5% then the pay back period is 20 years 100% divided by 5% = 20 years. And don't forget that if you want circa 5% to 6% then the annuity will be a level one or have a minuscule inflation proofing factor built in. If you want to build in RPI (or CPI to use the current) or 3% fixed increase each year then you can be looking at a starting point of as little as 2.5%. - An believe me - walking under a bus before 20 years is up will mean you make a loss! And do not forget as well that the income from a pension is taxable - which for most people effectively offsets the tax relief obtained when the contributions go in. Drawdown used to be a real option - but now that on death the remaining "pot" is taxed at 55% - Yes that is correct - the taxman will take 55% of whatever is left in your Drawdown pension on death of last surviving spouse - even Drawdown is not what it was. The only way pensions make sense is if you are a HRTP and/or your employer makes substantial contributions to the plan on your behalf. In contrast put £11K a year each into an ISA and whilst you do not get tax relief on the contributions, the income you take is tax free and the entire pot can go to your spouse or your kids. There is a reason why the government wants auto enrolment - it is something to do with the debt we as a country are dealing with and pension funds are now taxed on the growth they achieve (thanks to Gordon Brown) the income you take from them is taxed, and on death, if you choose Drawdown, the taxman now takes 55% of your pot. In contrast - buy an annuity and die early and you give your remaining pot to others who you have never met and do not know. The death knell of pensions was the destruction of Final Salary schemes by Government and the taxation of investment growth and the Drawdown pot on death. People are not daft - they have the reality explained to them and they are shocked. As a result the Government comes up with Auto enrolment because their tax take needs a boost over the next few decades - no other reason. Link to comment Share on other sites More sharing options...
Dave225 Posted January 17, 2014 Share Posted January 17, 2014 CliveH - 2014-01-16 7:48 PM Dave - how can you say 11 years "pay back" when you previously state that the return is 5%? To get a pay back in circa 11 years you would have to have an annuity rate of circa 9% and we have not seen that since the 1990's If you were only to get 5% then the pay back period is 20 years 100% divided by 5% = 20 years. And don't forget that if you want circa 5% to 6% then the annuity will be a level one or have a minuscule inflation proofing factor built in. If you want to build in RPI (or CPI to use the current) or 3% fixed increase each year then you can be looking at a starting point of as little as 2.5%. - An believe me - walking under a bus before 20 years is up will mean you make a loss! And do not forget as well that the income from a pension is taxable - which for most people effectively offsets the tax relief obtained when the contributions go in. Drawdown used to be a real option - but now that on death the remaining "pot" is taxed at 55% - Yes that is correct - the taxman will take 55% of whatever is left in your Drawdown pension on death of last surviving spouse - even Drawdown is not what it was. The only way pensions make sense is if you are a HRTP and/or your employer makes substantial contributions to the plan on your behalf. In contrast put £11K a year each into an ISA and whilst you do not get tax relief on the contributions, the income you take is tax free and the entire pot can go to your spouse or your kids. There is a reason why the government wants auto enrolment - it is something to do with the debt we as a country are dealing with and pension funds are now taxed on the growth they achieve (thanks to Gordon Brown) the income you take from them is taxed, and on death, if you choose Drawdown, the taxman now takes 55% of your pot. In contrast - buy an annuity and die early and you give your remaining pot to others who you have never met and do not know. The death knell of pensions was the destruction of Final Salary schemes by Government and the taxation of investment growth and the Drawdown pot on death. People are not daft - they have the reality explained to them and they are shocked. As a result the Government comes up with Auto enrolment because their tax take needs a boost over the next few decades - no other reason. Dead easy. Make up a spreadsheet and do the numbers. Do not include tax relief as that is money you did not put in. Have just done it with my wife's very small annuity and if she manages to croak along for the next 11 years she has received everything SHE put in. Of course she could have put it in an ISA and received a few percents interest, but the amount is very small. After 11 years she is in profit. Remember you financial guys work on different parameters to us normal humans. The other thing you are totally ignoring is that if you give people £1000 within a year it will be reduced probably to zero. People are human and they cannot help themselves. After all if you get a big bill that you did not expect and had £1000 lying in an ISA, what would you do?? If you had £18000 in an ISA getting maybe 0.5% interest then if you want to go on holiday you will use maybe a few hundred. After all it still leaves £17500, and then,,,,,,,,,....etcetc. I do not blame people for it, merely point out that sometimes you have to put the cash beyond reach. Your kids get into debt, so you will not touch the money to help them?????????? If it is not available then other arrangements have to be made. Now I do not disagree that having the money under your own control is the best way forward, after all we now know that all financial people are only interested in creaming of a share, but it is a choice between the devil and the deep blue sea and if you wish to have an income, albeit small for the rest of your life without worrying, then what are you going to do? Again, if you read my Post i specifically stated spread the investments around, I did not state put it all in an annuity. Merely use it as part of the strategy. Again, in our personal case we did not use any Fund or system where we paid fees, we merely put the money in a cash pension that gained some interest over the years. Not maybe the best return but the cheapest cost., so basically everything she put in, remained in. No 'manager' dipping his sticky fingers to get fees. Again, with all due respect you cannot see the wood for the small print, probably due to your considerable experience. Annuities are paying about 5% at the moment, not brilliant but compare it to an ISA paying between 1 and 1.6% and it will not take too many years before you have built up the difference. The tax advantage at 1.6% is zilch in the greater scheme of things. If you feel an income of 1.6% will make the difference between life and death on £18000 then you have a different calculator to me. To get a better return you have to lock it away for 5 years, not much good at all, and even then you will get merely 3% if you are lucky. If interest rates rise back over 5% then there is an advantage but when it that going to happen? In our lifetimes?? Maybe yes, maybe no. Of course as you get older then Care Home Fees may raise their ugly head and of course all savings are included. We all know that the best way nowadays is to be penniless as you get everything free, but of course many of us do not wish to live that way, so we try to balance as much as possible. Bluntly Clive if you are rich enough to look at all the Schemes you mention, then you do not need to worry about a pot of £18000. If I had a pension pot of £1 million then I would happily settle for a lifetime income of 5% or £50000 per annum, or of course whack off 25% tax free lump sum and Bob's your Uncle, as they say. You mention if you die early then the annuity 'pot' disappears. All true but again I would doubt that £18000 will make the difference between life and death for my kids, plus I doubt they would be happy knowing i was scrimping to ensure they got the money after death. Again, I come back to the point that financial people look at things completely different from ordinary folks. Link to comment Share on other sites More sharing options...
CliveH Posted January 17, 2014 Share Posted January 17, 2014 Dave - how can you say that annuities of 5% give you back your money in circa 11 years? If you have built up a fund of £100,000 then a 5% annuity will give you £5000 pa. £100,000 divided by 5% = 20 so it will take 20 years to return your capital. Contrast that to the 1990's when i was writing annuities at 11% for level annuities and about 7% if you wanted reasonable inflation proofing and you can see the reality. With a 10% annuity you have regained your capital back in ten years - anything after that you are in profit. And your ISA analysis is only correct if you limit your self to cash ISA's - If you utilise the same funds as you would in a pension then ISA's always come out on top! And this is easily achieved. Compare and contrast:- Pension :- Tax relief on the contributions - so 80p becomes £1 for a basic rate tax payer Dividend growth within the fund is taxed 25% of the fund can be taken as Tax Free cash The income taken is taxable The return on death of last surviving spouse is zero for an annuity and 45% of the fund via Drawdown ISA No tax relief on contributions - so if you invest 80p - then 80p gets invested. Dividend growth within the Fund is taxed The entire pot can be taken as tax free cash The income you take is both free of Income tax and CGT The return on death is 100% of whatever is invested. ..................................... Whatever spread sheet you use - 5% annuities will take 20 years to return the capital. However you look at it - ISA's are the mirror image of Pensions - thus the overall tax advantage is about the same. Namely - with a pension you get 1) tax relief on the contributions, 2) the fund growth is taxed but 3) you pay tax on the income you get in retirement Whereas with an ISA you get 1) No tax relief on the contributions 2) the fund growth is taxed but 3) you pay no tax on the income you take in retirement So with a pension you can end up with a bigger fund that simply puts more money in the tax mans pockets when you die Whereas you end up with a smaller pot with an ISA because there is no tax relief on the contributions - BUT - there is no tax on the income that you take so the net gain to the individual is virtually the same. But when you die and ESPECIALLY if you die early - a pension annuity gives all your money to other people who are lucky enough to live longer than you, - whereas with an ISA portfolio - the entire sum gets distributed to your loved ones. You can gain some advantage if you have a pension pot by using drawdown - but the tax man changed the rules such that he takes 55% now on death of last surviving spouse. (it used to be 35%) Even if your 5% annuity rate is the net rate (after tax) for a basic rate tax payer (as most are in retirement) this would mean the gross annuity rate would be 6% And a 6% gross annuity - even if you were a non tax payer in retirement would still take 16.66 years to return your capital to you - which is where the 17 years i quoted previously comes from. If you could let me know what annuity provider you wife is using such that her capital sum is returned in just 11 years - would you please let me know - I have clients that would VERY much like to take advantage of such an offer! Not trying to be clever of flippant Dave - but seriously - pensions - unless you fit a certain set of parameters are really not the best option. Like I say - most people when we sit them down and go through all the parameters of pensions vs the other options and people chose pensions ONLY when they are HRTP or the employer makes substantial contributions. Link to comment Share on other sites More sharing options...
Guest Had Enough Posted January 18, 2014 Share Posted January 18, 2014 Here's a clue Clive, read it carefully again. I can understand why it's 11 years (approximately) and I know nothing about pensions and investments, leaving that to my advisor, a very good one who recommended that I buy RM shares! Dave 225 wrote this, note the capital letters: 'Dead easy. Make up a spreadsheet and do the numbers. Do not include tax relief as that is money you did not put in. Have just done it with my wife's very small annuity and if she manages to croak along for the next 11 years she has received everything SHE put in.' Easy really! ;-) Link to comment Share on other sites More sharing options...
Guest pelmetman Posted January 18, 2014 Share Posted January 18, 2014 More to the point is that those on the bottom of the income scale are being stitched up by the government, with the the collusion of the pension companies *-)................the pension companies have seen the self employed leave their rip off schemes in droves..............and are now looking for other mugs to replace them >:-) Link to comment Share on other sites More sharing options...
CliveH Posted January 18, 2014 Share Posted January 18, 2014 Yes and we all know what side of any debate you would take Frank Your childish reference - again - to RM shares - when I have rubbed you nose several times in your lie that I somehow did not recommend them, indicates that you are still smarting from the experience - and yet you want to have it done to you again? - silly man - but perhaps your short term memory is slipping again? You cannot decide to ignore the tax relief because that is "money you did not put in" because pension contributions are paid gross. The system is that the tax is simply deferred - the Revenue says that because you decide NOT to take the income now, but defer taking it by way of a pension, they will not tax you on it at that point. However, when you take the benefits the income is taxable then - so the tax is simply deferred. It is a nonsense to suggest otherwise. And do not forget that the pension fund dividend income within the pension fund is now taxed, and as previously stated - you lose the lot with an annuity when you die and 55% goes to the taxman if you chose Drawdown. Frank - sadly - your previous posts indicate that when it comes to me - you would argue black is white because you are what you are. You have a problem - I cannot cure you of it - I really wish I could. As I said before - if Dave could let me have the provider for his wifes annuity - I will be able to put many clients there way! And by all means PM me ANY spreadsheet you like Frank - I will have great pleasure in correcting it for you. (lol) (lol) (lol) Link to comment Share on other sites More sharing options...
Guest Had Enough Posted January 18, 2014 Share Posted January 18, 2014 CliveH - 2014-01-18 9:24 AM Yes and we all know what side of any debate you would take Frank You cannot decide to ignore the tax relief because that is "money you did not put in" because pension contributions are paid gross. The system is that the tax is simply deferred - the Revenue says that because you decide NOT to take the income now, but defer taking it by way of a pension, they will not tax you on it at that point. However, when you take the benefits the income is taxable then - so the tax is simply deferred. It is a nonsense to suggest otherwise. And do not forget that the pension fund dividend income within the pension fund is now taxed, and as previously stated - you lose the lot with an annuity when you die and 55% goes to the taxman if you chose Drawdown. Frank - sadly - your previous posts indicate that when it comes to me - you would argue black is white because you what you are. As I said before - if Dave could let me have the provider for his wifes annuity - I will be able to put many clients there way! And by all means PM me ANY spreadsheet you like Frank - I will have great pleasure in correcting it for you. (lol) (lol) (lol) I think that what you meant to say Clive was: "Ooops, yes, I hadn't noticed Dave225's point about the contributions SHE has made, how silly of me!" If someone has a pension pot of £100K it doesn't mean that they've put in let's say, 20 years at £5K per year. They've probably actually paid about £4k per year and the government has topped it up to £100K by refunding their income tax. Figures are approximate by the way for a rough explanation only and for simplicity I've not included the growth in the fund. If she hadn't paid that £4k a year into a pension she wouldn't have got back the tax on it! I now look forward to reams and reams of stuff (such as above) as you try to do anything but admit that you hadn't grasped the main point of Dave's argument. (lol) (lol) Do carry on, I love watching you do anything but admit that you may have made an error! ;-) PS If contributions are made gross it's just the same. A £5K contribution would only get her £4K if she drew it as salary. Again, figures approximate for illustrative purposes only. ;-) Link to comment Share on other sites More sharing options...
CliveH Posted January 18, 2014 Share Posted January 18, 2014 "PS If contributions are made gross it's just the same. A £5K contribution would only get her £4K if she drew it as salary. Again, figures approximate for illustrative purposes only" Oh dear! - not very good at this are you Frank! And a £5K pension income would be taxed such that she only received £4K as pension income! ................................................ OK – lets looks at the math Pension – Tax relief on contributions so You earn £1000, pay tax on it, (assume 20% rate) = £800 take home pay. You pay that £800 into a pension and the revenue says that as you are not taking income now but deferring it for later then they will give you the tax back So you’re the £200 is given back to you and with the £800, a total of £1000 gets invested. If for the sake of simplicity we then assume these £1000 contributions create a fund of £100,000 then, when £1000 is taken as income the tax man charges 20% income tax on it – so you get £800. So you access 1% of your £100,000 pot and the income you get is £800 after tax. Sadly – as I have said before – if you access the pot with an Annuity when you die your pot is distributed NOT to your loved ones but to other annuitants who are lucky to live longer than you. If you do not like this fact – you can chose Drawdown which for many is a better option than an annuity, but here on death, the tax man takes 55%. In contrast With an ISA, You earn £1000, pay tax on it so you get £800. You pay that into an ISA and the tax treatment of the fund is the same as for a pension so the fund accrued would not be £100,000, it would be £80,000. So here, you access 1% of your £80,000 pot and you get £800 with no tax laibility If you die early, the entire pot can be distributed to your loved ones according to your wishes. I recommend everyone sits down, looks at the figures, take advice and make an informed decision on what is right for you. ,………………….. So the Inconvenient Truth Frank seeks to ignore is that whilst pensions do have the advantage of gross contributions in that a net contribution is grossed up, you still have to pay income tax when you take the income from the pension. if you make net contributions into an ISA for example, the resulting pot may be smaller, but it belongs entirely to YOU, it is not distributed to others on your death as with an annuity, and the tax man does not take 55% of your “pot” *on death of last survivor! * as with a drawdown arrangement. Link to comment Share on other sites More sharing options...
CliveH Posted January 18, 2014 Share Posted January 18, 2014 Here we are - this could be just for you Frank! (lol) (lol) (lol) An article from one of .................................................."the pinks" B-) Annuity market under the spotlight By Natanje Holt | Published Jan 17, 2014 | Recommend 0 Print this article Email this article Tweet Facebook Linkedin The first Sunday Telegraph of 2014 carried an extensive piece based on an interview with the Pensions Minister Mr Steve Webb’s highlighting his proposals for reform of the annuities market Mr Webb made a number of suggestions for reform as follows: 1. Annuitants must be able to ‘shop around’ for a better annuity deal every few years much like consumers do for a mortgage 2. The market need to provide more transparency around charges 3. Pensioners with health conditions or those who have worked in risky industries need to be given help to get better annuity deals 4. We need a new system of ‘collective pensions’ in which millions of private pensioners would keep their savings invested in the same mega fund while they were working so that their money grows with their investments 5. More people will have ‘mixed pension arrangements’, with some annual income through an annuity and the rest through their savings invested. ...................... Taking each point in turn 1 - we have been saying this for years - it is crazy to expect someone with a substantial pot to lock it into an annuity that they cannot alter! We must have more flexibility - it can EASILY be done - but we need the legislation changed! 2 - Charges on Annuities are horrendous - but they are hidden from view - charges simply get deducted from the "rate" of return - so you never know what they are! 3 - yes they must - there is a system whereby a generic impaired life annuity application form can be completed and this is then emailed by IFA's to all providers - but this is only offered to those who seek advice - many more people could benefit if this was a REQUIREMENT rather than an option few people are aware of. 4 - The industry, as i see it, is moving this way with the advent of Wraps, Platforms and Fund Supermarkets - all bring down costs and provide greater fund choice. So I am not altogether sure what Steve Webb, the pensions minister is on about here? 5 - INDEED! - this is exactly what I am suggesting when I say ISA's and other investments should be looked at AS WELL as pensions! - Pensions work if you are a HRTP, and/or can benefit from employer contributions - but for most - pensions are an expensive option that restricts access to the "pot" such that other investments such as ISA's or a Property Portfolio are far better and more flexible options. Especially if you love your family more than the Taxman! :-| Link to comment Share on other sites More sharing options...
Guest Had Enough Posted January 18, 2014 Share Posted January 18, 2014 Oh dear, you do go on! Just as I expected, a load of irrelevant bull! You've continually missed the point. I couldn't care less about the advantage of pensions or ISAs or whatever. This is the point Clive, try to focus your mind on just this if you can: Dave225 claims that the money his wife has paid in from her salary will take 11-13 years to get back. This is because her, let's say, £20K pension pot, hasn't cost her £20K. For every £1 she put in the government added 25p. With me so far? So your nonsense about a five percent return taking 20 years to pay back what SHE has paid in is that, nonsense! Now if it had been me I'd have thought: "This Dave225 seems a very intelligent chap, perhaps I'd better think a bit more deeply about his theory?" But not you, oh no, of you go on your usual 'I'm the expert, I must be right rant' when this is nothing to do with expertise, it's about having a brain and realising just what he was actually suggesting! Simple question - If you put £100 into a pension fund will the government give you back the tax you have paid on it? The tax on your pension when you retire is irrelevant and you're just blowing smoke to divert from the fact that you didn't grasp Dave's argument. Pension payments are income just like everything else so of course you'll pay tax. For once Clive, stop the bull and admit that you hadn't really understood Dave's point. Link to comment Share on other sites More sharing options...
CliveH Posted January 18, 2014 Share Posted January 18, 2014 You just don't get it do you Frank. If someone earns £1.25 either from employment or from a pension - the net amount received will be £1. What you call irrelevant bull is you normal bluff and bluster when you get caught out. I am not surprised you say you could not care less about the differences and relevant advantages of pensions and ISA's ! (lol) Because when you take those facts into account you, Frank - end up looking your normal rather silly self. But you asked me a question that i have answered several times before:- "Simple question - If you put £100 into a pension fund will the government give you back the tax you have paid on it? " So let me answer if for you again No - what happens here is that the government does not "give you back" the tax paid, it simply defers the income tax liability until the income is taken. This is the point that you fail to understand. So you put £1 net into a pension and the gross contribution is £1.25 because you have not taken it as income. When that £1.25 is taken as pension income then if you are a basic rate taxpayer then 20% tax is applied and so you receive £1 as the net income. The point I make that you would like to ignore is that with an ISA, you put £1 in and then you take £1 out! Income tax does not apply. Top that with that fact that if you die, the pension £1.25 is either given to other people or taxed at 55% whereas the ISA £1 is yours to distribute as you wish according to your Will. Answer me one simple question Frank Assuming you are a basic rate taxpayer - given the choice of an investment that provided the same effective income but had A) a death benefit of either Zero or 45% or B) an effective 80% (no tax relief on ISA contributions) return on death Which one would you prefer? Link to comment Share on other sites More sharing options...
CliveH Posted January 18, 2014 Share Posted January 18, 2014 Had Enough - 2014-01-18 12:03 PM For once Clive, stop the bull and admit that you hadn't really understood Dave's point. Well I think I do understand Dave's point and I still say he is making a mistake - As do you. If Dave could provide me with details of the Annuity Provider that is giving such rates I would be delighted - we have quite a few clients that could benefit from such rates. The basic fact is that if you deal with the gross figures Then a pension fund of £100K could provide a level annuity of say, 6% - so £100K divided by the annual return gives the length of time it will take to recover the fund and that is 16.666 (recurring) years If you want to look at the net figure then simplistically whilst the net contributions to the fund would be £80,000 then the net income would reduce to 5% assuming the individual is a BRTP. So here the return period is 16 years. You cannot compare gross and net figures in the way that you do. If we could then I could say that with a pension pot of £100,000 and an annuity of 6% that nets down to 5% after BRT is applied then the calculation would be £100,000 divided by the net income of £5000 which gives a return period of 20 years! *-) That calculation mixes net and gross payments reciprocally to the way you are Dave make the calculations - both are wrong. Link to comment Share on other sites More sharing options...
Guest Had Enough Posted January 18, 2014 Share Posted January 18, 2014 CliveH - 2014-01-18 1:03 PM Had Enough - 2014-01-18 12:03 PM For once Clive, stop the bull and admit that you hadn't really understood Dave's point. Well I think I do understand Dave's point and I still say he is making a mistake - As do you. If Dave could provide me with details of the Annuity Provider that is giving such rates I would be delighted - we have quite a few clients that could benefit from such rates. The basic fact is that if you deal with the gross figures Then a pension fund of £100K could provide a level annuity of say, 6% - so £100K divided by the annual return gives the length of time it will take to recover the fund and that is 16.666 (recurring) years If you want to look at the net figure then simplistically whilst the net contributions to the fund would be £80,000 then the net income would reduce to 5% assuming the individual is a BRTP. So here the return period is 16 years. You cannot compare gross and net figures in the way that you do. If we could then I could say that with a pension pot of £100,000 and an annuity of 6% that nets down to 5% after BRT is applied then the calculation would be £100,000 divided by the net income of £5000 which gives a return period of 20 years! *-) That calculation mixes net and gross payments reciprocally to the way you are Dave make the calculations - both are wrong. Oh dear, you still don't get it do you? Dave has never said that he has an annuity provider who will give him huge returns. He stated a return of 5% - go back and read it all again. And once more you seek to divert from your mistake by banging on about pensions being taxed when you draw them - yes, we all know that, give it a rest. Here is the nub of this debate. You said that if someone has a pension pot of, let's say, £100K that to get their money back would take twenty years at 5% - no it won't! And the reason is that if someone has a pension pot of £100K they haven't paid in £100K - they've paid in a lot less because the government gives them back tax that it would normally have kept. How hard is this for you to understand? No one is saying that the pension when paid won't be taxed, we know that! To sum up - Dave stated that his wife would get back what SHE had paid in less than 20 years at a 5% annuity - but he clearly stated the return would not be on the total pension pot but on what SHE had paid in. You missed that and the fact that you're continually banging on about Dave having an annuity provider who pays out larger pensions that anyone else proves it! He has never said that! Read it all again slowly and this time try to take it in. But we all know what will come now - more and more waffle, anything rather than admit that you missed Dave's main point! What I find hilarious about this is that when people like you were flogging pension they continually banged on about how the government would top up your pension pot by giving you back the tax you've paid on your contributions! And that's why what SHE has paid in is a lot less than the total pot! Link to comment Share on other sites More sharing options...
CliveH Posted January 18, 2014 Share Posted January 18, 2014 Sadly Frank - you have just effectively admitted to YOUR mistake - why keep bringing Dave into it? Dave said his good lady would get the return in 11 years. But also said that the annuity was at 5% What you do not seem to like Frank is the fact that the math is very simple - to get a full return in 11 years requires a rate of circa 9%. Even if you work out the calculation incorrectly and compare the individuals net contributions against the gross pension income you do not get a rate return period of 11 years. It works out at about 13.33 years which requires an rate of 7,5% And the thing about Dave - that he accepts that. He says we financial guys look at things "differently" I think Dave and I can agree to differ and move on - whereas you jump on the bandwagon and once again accuse others of doing EXACTLY what you do. You are a bit of an obsessive here Frank As someone who was writing annuities in the 1990's of 11% and 12 % and have seen how people struggle with todays low rates - I am afraid your stance is bizarre and substantially incorrect. Which is sadly typical. And I notice you conveniently ignore my question - good at "correcting" other people - or trying to in your case - but not very good at dealing with the facts and the figures are you. And you also ignore the fact that tax relief is simply deferred tax - the tax man is not known for his generosity! - Your inability to understand that is surprising. The taxman now taxes Drawdown pots of death to the tune of 55% exactly because - in the eyes of the taxman the pot is the sum of the accrued gross contributions. Therefore on death the tax man wants the deferred tax back. 35% was a fairly penal regime - 55% is frankly - taking the p!ss. So Frank - get a life mate - the one you try to have by baiting me is no life at all for a man. It just shows you up for what you are...................................... :-S Link to comment Share on other sites More sharing options...
CliveH Posted January 18, 2014 Share Posted January 18, 2014 Had Enough - 2014-01-18 2:09 PM CliveH - 2014-01-18 1:03 PM Had Enough - 2014-01-18 12:03 PM For once Clive, stop the bull and admit that you hadn't really understood Dave's point. Well I think I do understand Dave's point and I still say he is making a mistake - As do you. If Dave could provide me with details of the Annuity Provider that is giving such rates I would be delighted - we have quite a few clients that could benefit from such rates. The basic fact is that if you deal with the gross figures Then a pension fund of £100K could provide a level annuity of say, 6% - so £100K divided by the annual return gives the length of time it will take to recover the fund and that is 16.666 (recurring) years If you want to look at the net figure then simplistically whilst the net contributions to the fund would be £80,000 then the net income would reduce to 5% assuming the individual is a BRTP. So here the return period is 16 years. You cannot compare gross and net figures in the way that you do. If we could then I could say that with a pension pot of £100,000 and an annuity of 6% that nets down to 5% after BRT is applied then the calculation would be £100,000 divided by the net income of £5000 which gives a return period of 20 years! *-) That calculation mixes net and gross payments reciprocally to the way you are Dave make the calculations - both are wrong. What I find hilarious about this is that when people like you were flogging pension they continually banged on about how the government would top up your pension pot by giving you back the tax you've paid on your contributions! And that's why what SHE has paid in is a lot less than the total pot! I still do recommend Pensions Frank - how typical that you use the term "flog" - Do you "flog" your cameras Frank? Do you "Flog" your second hand cameras Frank now that the bottom is falling out of the camera market? But I also find the situation hilarious - because there are those that would "Flog" pensions - and yes they would use every trick in the book EXACTLY as Dave and now Frank have done above to make the return look better than it was................... But here am I - an adviser who has always charged fees - who is actually trying to point out that some people should be VERY wary of pensions .................. And Frank thinks I have got it wrong in so doing. Amazing! Frank - when it comes to me - you would take the contrarian view simply out of spite. You do this - I think - because you have a problem. Sadly you do not seem to be any better Link to comment Share on other sites More sharing options...
CliveH Posted January 18, 2014 Share Posted January 18, 2014 If anyone is interested - these articles also looks at the relative merits of the two - plus some others as well:- http://citywire.co.uk/money/are-pensions-finished-yes-because-isas-are-better/a660834 http://www.thisismoney.co.uk/money/pensions/article-1699680/Pension-vs-Isa-The-big-debate.html Link to comment Share on other sites More sharing options...
Guest Had Enough Posted January 18, 2014 Share Posted January 18, 2014 CliveH - 2014-01-18 3:59 PM Had Enough - 2014-01-18 2:09 PM CliveH - 2014-01-18 1:03 PM Had Enough - 2014-01-18 12:03 PM For once Clive, stop the bull and admit that you hadn't really understood Dave's point. Well I think I do understand Dave's point and I still say he is making a mistake - As do you. If Dave could provide me with details of the Annuity Provider that is giving such rates I would be delighted - we have quite a few clients that could benefit from such rates. The basic fact is that if you deal with the gross figures Then a pension fund of £100K could provide a level annuity of say, 6% - so £100K divided by the annual return gives the length of time it will take to recover the fund and that is 16.666 (recurring) years If you want to look at the net figure then simplistically whilst the net contributions to the fund would be £80,000 then the net income would reduce to 5% assuming the individual is a BRTP. So here the return period is 16 years. You cannot compare gross and net figures in the way that you do. If we could then I could say that with a pension pot of £100,000 and an annuity of 6% that nets down to 5% after BRT is applied then the calculation would be £100,000 divided by the net income of £5000 which gives a return period of 20 years! *-) That calculation mixes net and gross payments reciprocally to the way you are Dave make the calculations - both are wrong. What I find hilarious about this is that when people like you were flogging pension they continually banged on about how the government would top up your pension pot by giving you back the tax you've paid on your contributions! And that's why what SHE has paid in is a lot less than the total pot! I still do recommend Pensions Frank - how typical that you use the term "flog" - Do you "flog" your cameras Frank? Do you "Flog" your second hand cameras Frank now that the bottom is falling out of the camera market? But I also find the situation hilarious - because there are those that would "Flog" pensions - and yes they would use every trick in the book EXACTLY as Dave and now Frank have done above to make the return look better than it was................... But here am I - an adviser who has always charged fees - who is actually trying to point out that some people should be VERY wary of pensions .................. And Frank thinks I have got it wrong in so doing. Amazing! Frank - when it comes to me - you would take the contrarian view simply out of spite. You do this - I think - because you have a problem. Sadly you do not seem to be any better Once again you show your ignorance about retailing! The bottom hasn't dropped out of anything! Compact camera sales are in decline owing to smartphones but the market we specialise in, the enthusiast and semi-pro DSLR business is expanding, as we are! But you still haven't worked it out have you? Dave's statement, which you clearly failed to understand, has nothing to do with 9% annuity rates but you rushed in saying that a £100K pot paying 5% would repay in 20 years but you totally ignored his main point, which is that his wife hasn't paid all of that £100K! Truth is you never thought about that as your posts from then on clearly prove. And as for the government giving it you when you invest in a pension but taking it in tax when you draw it has it occurred to you that people with small pots won't actually pay income tax and of course they'll also have had their tax-free lump sum. You got it wrong, you know you did and now you're taking the usual personal attack angle to distract from your silliness. I shall leave you to your blustering - don't ever admit that you may have got it wrong whatever you do! I await with interest Dave's return and I'm sure that he will also put you right! I've given up trying to get a very simple point into your head! Link to comment Share on other sites More sharing options...
CliveH Posted January 18, 2014 Share Posted January 18, 2014 Sigh! yet again Frank - you accuse others of doing exactly what you do yourself. I have already posted on Trivial Commutation I have posted on the benefits of pensions if you are a HRTP when working but can make yourself a BRTP in retirement I have posted that pensions can be beneficial to those who have the benefit of employer contributions. But - please please please please PLEASE! - wind your neck in - read the articles I links to and ponder your actions You are an obsessive when it comes to me - and whilst i am happy to play postal ping pong with you for as long as you like - you are being Dull again. I play with you frank because you amuse me. You try to keep up because of your problem. New balls please. Link to comment Share on other sites More sharing options...
Guest Had Enough Posted January 18, 2014 Share Posted January 18, 2014 CliveH - 2014-01-18 4:25 PM Sigh! yet again Frank - you accuse others of doing exactly what you do yourself. I have already posted on Trivial Commutation I have posted on the benefits of pensions if you are a HRTP when working but can make yourself a BRTP in retirement I have posted that pensions can be beneficial to those who have the benefit of employer contributions. But - please please please please PLEASE! - wind your neck in - read the articles I links to and ponder your actions You are an obsessive when it comes to me - and whilst i am happy to play postal ping pong with you for as long as you like - you are being Dull again. I play with you frank because you amuse me. You try to keep up because of your problem. New balls please. Ah, a typical post from someone who knows he's lost the argument! Resort to insults and paranoia! Ps I've no problem keeping up with you Clive, I'm in a much higher league! ;-) Link to comment Share on other sites More sharing options...
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