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About scottbeard

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  1. Absolutely, a lot of people think "I'll probably only live 20 years, and I'm being offered 40:1? Bargain!" forgetting things like: - Their pension may be index-linked, so it's 40:1 of today's amount but their pension would keep going up with RPI in the future. 10 years from a pension increasing in line with RPI could easily be 30% higher or more. - Their pension will pay out until they die - which could be 20 years, but could be 25 or 30 or more. Most people think "well I might drop dead tomorrow" but overlook "I might live to be 100" - Their pension may have an attaching spouse's pension after their death - Their former employer is taking all the investment risk. If the investments underperform the employer has to top it up. Transfer out, and if your funds fall you lose. Of course cashing out may be right for some people, especially those with no spouse, or big debts, or in poor heath etc etc but as you say it needs very careful thought and advice.
  2. The number of repossessions in 2008 was not a great deal higher than the surrounding years, but prices still fell 15%. As soon as people either - Aren't lent any money, or - Start to believe that prices will be lower next year They just stop buying, and demand dries up. That alone causes prices to collapse. Obviously higher supply would have the same effect - but it isn't a pre-requisite.
  3. Yes - RIP. Always an amusing and thought provoking blog to see the housing market from the "other side"
  4. scottbeard

    Help to Buy an TOTAL SCANDAL

    Quite! I have a nice big TV in my lounge, space for 6 on the sofas and - if you pull the dining room chairs into the lounge - seating for 12, i.e. 33% more than this "cinema"
  5. I think a lot of people in Britain do indeed under-rate just how good it is - despite the faults. Often I see the UK compared unfavourably to "cherry-picked" examples from the rest of world - eg look how great the healthcare is in Cuba compared to here! look how tidy the streets are in Singapore compared to here! look how timely the trains are in Switzerland compared to here! look how great the weather is in Australia compared to here! But the truth is when you take the BALANCE of everything added up, Britain is really quite a good place (as long as you're living in the 98% of it that isn't in the middle of an inner city).
  6. In my opinion, most people in most funded DB schemes will get most of the money they're expecting (which clearly is not the same as everyone getting everything!) in nominal terms. The biggest risks on final salary schemes not paying out in real terms would be (again totally in my opinion): 1. High inflation, above the 5% cap on pension increases that most schemes have (or some sort of meddling with the RPI such that actual true inflation runs way ahead of inflation as modeled by RPI) 2. Political interference, such as the government nationalizing all pension funds, or repealing legislation that compels schemes to pay out and employers to fund them (eg new law says employers can cut back pension benefits just because they feel like it). So far the only DB scheme that's been nationalized is I think Royal Mail, but it may not be the last. 3. Default on UK government bonds In my view, risks 2 and 3 are quite remote, whereas risk 1 is not only much more likely but actually has already happened once in recent memory (mid 1970s). None of the above applies to unfunded public sector schemes of course - there is no money to back them, and the government has already cut back the inflation protection on them from RPI to CPI, so could easily make further changes to them. The protections that apply to private sector work pensions don't apply to public sector or state pensions.
  7. That would have been a generous one - most common was 1/60ths, leading to a pension of 40/60ths = 2/3 of final salary after your whole working life. It was doable to fund that when people retired at 65, lived to 80, and interest rates were 8%pa (so returns were high). One people started retiring at 60 and living to 90, and interest rates for 0.5%pa, it just isn't affordable.
  8. 1. Not back in the 1980s/90s - that's why all the schemes got into deficit in the 2000s. But since then contributions to these schemes have been massive. Some of the very largest companies I've seen put in £1 billion into their DB scheme in a single year. These days contributions of 50% of salary for current employees, plus further contributions to pay off the deficit, is not abnormal. 2. It varies of course - a small number still have 100% equities. Many of them now are invested something like 0-25% equities, 25%-50% corporate bonds and 50%+ government bonds and other liability matching investments, maybe with a bit of cash as a float. 3. No. They have tended if anything to invest ever more safely over the last 10-15, and just demanded more and more money from the sponsoring employers. When I started work 20 years ago it was very common to have 80% of the fund in UK Equities, but after they got caned by stock market crashes in 2000-2002 the schemes all closed to new employees and have been de-risking ever since. 4. Simply holding bonds is a pretty good hedge to start with, and then derivatives to manage the interest rate and inflation risks. If your hedging is good enough you don't really care about the market value of the bonds - as long as they keep paying out. You just get £X million a year of income and use it to pay your £X million a year of pensions. You don't need to buy or sell them, so who cares what the value is. Of course you EXPECT a few corporate bonds to default - companies go bust from time to time - so you factor that in and make sure that you hold a bit extra to cover the defaults. UK government bonds will not default unless the entire UK collapses - most UK final salary pension schemes are NOT insulated against that eventuality.
  9. The money came from the sponsoring employers, generally big businesses in industries that were successful in the 1960s-1980s. However, that's the wrong question to ask. Most final salary schemes already have the majority of the money they will ever need, and even if the employer goes bust have enough money in them already to buy decent annuities for the people in them, invested in very well-hedged investments. The biggest risk to holders of most final salary pensions is persistent high inflation.
  10. Since my job for the last 20 years involves final salary pension schemes I could write you a book on this subject. But in this case you clearly have views which I'm not going to change, and others can read my own views above, so I will leave it there.
  11. 1. Final salary pension schemes are separate trusts - there is no pension provider 2. Most (but not all) final salary schemes now have very little invested in the stock market 3. If the £ is replaced by another currency that makes no odds, it would just be converted. However, there is a genuine risk that the £ is hyperinflated - most final salary schemes pay pension increases of RPI up to a maximum of 5%pa. If inflation is over 5%pa value will be lost.
  12. You need to look into the pension rules carefully. Once you start drawing pensions, the limit can fall to £10k pa.
  13. Be careful - the rules around DB pensions changed in 2005. This is not true any more. Before that pensions in payment were 100% saved, and those not yet in payment could be reduced substantially, even to zero. However, from 2005 schemes that go bust typically end up in the pension protection fund, where everyone gets less than they were promised - future pension increases links to inflation are cut back, and those under normal retirement age (where drawing their pension or not) get a further 10% haircut. This 2005 change was done precisely to avoid the "cliff edge" of people retiring early being saved at the expense of those not retired.
  14. I was about to despair if this was the next PPI....but it isn't. Good. If anything this thread has me relieved that there is some common sense amongst mumsnet users, and therefore the general public at large. There is a fundamental difference between being sold a PPI policy that you literally can NEVER claim on (which is clear mis-selling) and being sold an IO mortgage instead of a repayment one (which is a swings-and-roundabouts decision). Even if it was upheld in some cases that the IO was mis-sold (for example, if paperwork shows false or misleading facts about IO were provided at the time) the actual level of compensation would not necessarily be that much: because surely it isn't your loss on the property that's the claim, but your loss compared to some "alternative universe" where you had a repayment mortgage, which feels like that must be fairly close to all square. Even if you lost value in the 2007-8 crash (or some future HPC) that's not necessarily meriting compensation, as you'd have been hit by that whatever mortgage product you took out. And could you really run a legal argument "I'd never have bought this house at all if I'd have been correctly informed about the IO mortgage"? I doubt it . And if the house has gone up in value the judge would surely just say "well, yes the IO mortgage was mis-sold but - oh look, you've actually BENEFITTED from it! Sell it, take your profit, and move on." You can't sue for things that made you a profit, as you need to prove both negligence AND loss!
  15. Yes absolutely it's not best for society for people to build up debt and then die without paying it back. What I taking issue with was peter_2008's comment that you've "beaten the system" if your net worth is zero. My point was simply that you've "beaten the system" if you net worth is positive (if you have kids) and negative (if you don't). For society as a whole yes we don't want people to build up debt and then die without paying it back - but that's why "the system" doesn't want you to do that (eg lenders are incentivized not to lend to you if you unlikely to live long enough to pay it back, as it's not in their financial interest to do that, never mind society).

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