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Everything posted by arrgee1991

  1. Totally agree. Car insurance is another racket for the insurance companies. Minor incidents lead to writing off perfectly good cars thanks to the cost of repairs when done under the auspices of the insurers.
  2. Aren't taxpayers paying anyway? If people were financially savvy we wouldn't be in the situation where money is being printed , interest rates are less than 1% and stealth taxes are used to make up the shortfall. They haven't abolished annuities, just given people the opportunity to opt out, which by and large they could have done up to the age of 75 prior to this announcement. Many people will only have the state pension, so if those with pension pots squander them they will be in the same boat.
  3. Annuities don't necessarily factor in inflation. If you choose one that does you are likely to get a lot less at the outset. £3.5K/£100K as opposed to £5K/£100K. My calculation was based on zero growth of the fund. By selecting safer investments they would probably grow as fast as inflation.
  4. I'm not a maths graduate, but that is easily worked out with Excel. Feed in annual contribution, get likely life span from http://www.uwic.ac.uk/shss/dom/newweb/lifestyle/age_expectancy2.htm, set a retirement age and see what happens if you withdraw up to the higher tax rate. Factor in the state pension as well. I did this in the wake of the budget and worked out if I retired at 65 with zero growth of the fund, I'd make it to 96. And I doubt I'll I get that old.
  5. Not entirely. According to the Office for Budget Responsibility (OBR), the amount raised from the changes to Child Benefit have not yielded the expected savings thanks to "behavioral changes". A lot of people who may have been impacted by the changes simply reduced their income. With the announcements regarding pensions it's likely that many will simply reduce their salaries to below the 40% band, which is in reality more like a 50% band when NI is factored, as 40% is effectively what people pay as basic rate.
  6. With a pension pot of £25K the best thing to do is to squander it. £7.5K tax free and the rest taxed at 20%. I'm not sure how this average is arrived at. Considering a large number of people have no pensions at all, it could be one person with a £1m for every 39 with zero. Many people employed by large corporations get around 5% thrown in regardless of any contributions they make which means that over 40 years of work they'd have at least twice their annual salary which would be a bit more than £25K.
  7. For all the talk of ramping up house prices, I suspect the opposite may occur. Why spend £250K plus of your post tax income on an asset whose value can easily fall for a yield of around 5% when you can bung £40K/annum of your pre-tax income effectively saving you 50% at the outset with the prospect of similar yields and a modest tax bill on withdrawl. It's possible that those retiring may use the tax free lump sum to buy property, but faced with the potential of a high inheritance tax bill may well gift it to their children/grandchildren. Certainly for those with large interest only mortgages this may be a godsend, but with the lifetime allowance of £1.25m the most that could be taken initially would be £312K.. The rest will be taxed if withdrawn immediately, much of it at the highest prevailing rate. For a lot of people the changes won't make a lot of difference as their pots will be too small. Even for those will large pots in the region of £1.0m will be drawing down the pension to pay basic rate tax rather than splurging it all at the outset. For them, the IHT implication may mean they would be better off with an annuity. The real gainers in the longer term are likely to be the state. Rather than the annuity providers keeping what's left on death, the government can levy 40% of the remainder of the estate.
  8. It was very easy for annuity providers. Pretty much everyone with a pension pot had to buy one eventually, and once you were in, that was a big pile of cash for them to make profit with for many a year. No incentive to increase returns, just keep buying gilts. All of them now face the prospect of dwindling capital as all they will do is pay out and not receive any income. In order to prevent this happening they need to provide drawdown products which will have to compete with the desire for people to look after/squander their fund. I'm for this as it stops large corporations making an easy buck on the back of legislation which compelled people to purchase.
  9. The tax avoidance potential of this shouldn't be underestimated. With a £40K annual limit, there's little to stop someone paying that in via their company which would mean losing £15-£20K net (50%-66% gain). Then borrow the lost income, if needed, at 5% or less. Obviously the closer to retirement age the better, but in effect a way of deferring tax until you stop working and then just pay basic rate tax on the money withdrawn. Well except for the 25% tax free part. Was reading today that plenty of people are making big contributions to avoid child benefit being taken away. Wait until they realise they can make big contributions and just borrow against their property to recoup the loss. http://www.unbiased.co.uk/news/How-to-avoid-the-child-benefit-tax-charge/1966
  10. What I'd do is take the 25% tax free lump sum and then whittle the rest down withdrawing enough not to pay 40% tax on any of it.
  11. if you include employers NI then the real tax rates on employment are... Earnings above £7,717 are briefly taxed at a rate of 12.1%; above £7,769 this jumps to 22.7%; the combined tax rate shoots up to 40.2% from £9,440, briefly reaching 57.8% above £41,450; it then falls back to 49% from £41,558; rockets to 66.6% from £100,000; falls back again 49% from £118,880 and then settles at 53.4% from £150,000. This does not factor in the £50,000-£60,000 threshold where child benefit is progressively removed http://www.telegraph.co.uk/finance/economics/10602490/Imagine-the-explosion-of-growth-if-we-got-serious-about-tax-cutting.html So for those whose employers pay the NI towards pension contributions, the contribution from their net is about half of what goes in. So £40K in the pension equates to a loss of £20K on the net. For couples approaching retirement, they can remortgage for another £60K and quickly stash it away in a cash ISA and ride it out until they can take the money out year on year at lower tax rate with a quarter of it as a tax free lump sum at the outset.
  12. Not necessarily as NI is only raised on employment. There is a lot of income tax levied on income outside of employment.such as annuity receipts. It's feasible raising basic rate to 30% and abolishing all NI would be zero sum, it depends on the proportion of money raised outside employment.
  13. If you earn at higher rate or above, put in up to £40K every year. Actual cost is around 50-66% less. Employer will bung on the 13.8% NI saving and if you have kids you get the child benefit back. And if you are a bit short of cash, borrow £15K at 5%/annum or less. Or just remortgage at 2%. For those in their forties and fifties, it's a long term saving scheme which they can borrow against. Interesting that as the government crack down on tax avoidance schemes they introduce their own.
  14. Rack up as much as you can on your credit cards, have your mortgage in neagtive equity and give everything you have away. Of course you could be unlucky and see your 75th birthday, but if you drink more, eat more and take up smoking now then it becomes less likely. Die and you'll never have to pay any debt back. And you won't pay inheritance tax!
  15. Without a sizeable contribution from your employer or to avoid paying 75% plus tax at the £50K/£100K thresholds, pensions are a pretty crummy investment. By the time all the fees are paid and various stock market collapses are factored in, you'd do well to match inflation over the forty years or so you pay in. It's all well and good telling people they need to save more in pension, but as of April 2014, the Lifetime Allowance will reduce from £1.5 million to £1.25 million. So if you had been prudent and managed through paying a lot into your pension and investing well (or luckily), managed to get your fund worth £1.5 million; the government suddenly change the rules and tax you 55% on a quarter of a million (a cool £137K straight to HM Revenue and Customs). So perversely people end up paying more tax on the money in retirement than if they had took it in salary when they were working. By stealth, this lifetime limit will never increase (and could decrease further) and in 2050 the pension you would get with a fund, effectively capped at just over a million, that wouldn't even pay your bills. Saving is a mugs game.
  16. Amazed at how house prices have been pushed up, never thought it would happen back then, but things change. When Lehman Brothers collapsed it looked like the end, but somehow it wasn't. No one could have predicted 0.5% interest rates and quantitative easing and its effects. Also fiscal drag regarding stamp duty has reduced supply whilst increased immigration has pushed up demand. Buy to Let has also added to demand. 2014 : High demand + restricted supply + low interest rates = No Crash 1992: Low demand + plentiful supply + high interest rates = Crash
  17. When people are forced out the market will crash. The stubborn sellers will remain stubborn until after a crash. They did back in 1992.
  18. It was and is a great idea. Not everyone has a regular job where they know exactly what they will get every month. Anyone with a business or who works on commission will find their income is variable, but know they will make money when the sales go through. This may not even be over a 12 month period. When the profit is realised, then they can make part redemptions and eventually have the mortgage paid off in full. Thanks to IO mortgages and the flexibility they offer I have paid off two mortgages in the last twenty years and not had to worry about any additional borrowing to make the repayments. In its purest form an IO mortgage is little different to selling a long term bond (which all governments do regularly), with the added flexibility of reducing the capital when it suits you.
  19. +1 I'm still amazed that so many people were suckered into PPI. There are thousands of house owners who should never have been given a mortgage. Either they earnt too little, with little prospect of earning more or they never had any intention of repaying the mortgage other than house inflation. Either way they should not have been able to buy at the inflated levels of the last 10-15 years. Of course, all of these house owners will blame the bank/building society for not explaining it to them properly and wriggle out of their obligations. Stupidity reigns supreme. I feel sorry for the next generation. They'll be taxed to the eyeballs to pay for the mess and be unable to own anything of any value as everything will be worthless.
  20. Yes. Though then again so are Greek bonds. They could change the BMR to be the SVR, but given that someone would most likely win a test case, they could end up with higher liabilities than PPI.
  21. It sounds stupid, but it still does happen. From my experience about 2 years ago, people offer asking price plus, but when they are told how much they can borrow and the stamp duty they suddenly withdraw their offer.... Then the EA comes back to you. At which point you reduce your original offer which is accepted Only to then find your buyers suddenly withdraw their offer Too many fairytale buyers out there still distorting the market.
  22. Fortunately I got mine many years ago. Made big capital repayments when I could, and made the interest payments when times weren't so good. Even managed to get back £15K of the overpayments to help fund building of extension last year. Remaining mortgage now just 5% of property value, so just paying interest as I earn more than that with the savings in NS&I certs and a fixed rate ISA.
  23. +1 The lenders have only just woken up to the potential disaster. Anyone with interest only going onto BMR (or any base rate tracking variable rate) will be paying peanuts for the foreseeable future.
  24. Many will go onto BMR and find they pay less. Had you got a Nationwide mortgage on or before 29 April 2009, you will only pay 2.50% and that will be guaranteed not to be more than 2% above Bank of England base rate which is at least 1% better than any deal Nationwide offer right now. And they aren't the only bank/building society with a BMR. I suspect most of those on IO mortgages (self included) will just not bother to move simply because they will be happy to stick with the deal they are on rather than looking to re-mortgage on far less favourable terms.
  25. That doesn't make it any better! Someone ultimately owns the house, so each house is in negative equity.
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