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Big Changes To Pensions

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I was very surprised by this budget - the changes to pensions and ISAs are radical.

A large proportion of BTL landlords got into the game as a form of pension provision. Might the changes attract some would-be landlords back to traditional pension vehicles?

Let's hope.

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I was very surprised by this budget - the changes to pensions and ISAs are radical.

A large proportion of BTL landlords got into the game as a form of pension provision. Might the changes attract some would-be landlords back to traditional pension vehicles?

Let's hope.

Certainly cannot hurt.....

Existing BTL turning property into pensions? What if they all rush for the exit at once? :ph34r:

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Certainly cannot hurt.....

Existing BTL turning property into pensions? What if they all rush for the exit at once? :ph34r:

Not sure that there will be much incentive for existing landlords to sell up, but the improved flexibility and tax-rebated nature of contributions-based pensions may affect the number of new entrants to the BTL market.

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The small amounts involved (compared to pension savings over a lifetime) albeit increased from incredibly small amounts won't have a major effect on the direction of savings for retirement.

The main issue is the dishonesty, fraud, manipulation and lack of credibility etc in banking and financial services etc and their outstanding ability to outreach, grab and make savings "gone" and the budget didn't announce anything to remedy that.

Any little increase in savings limits etc helps of course but it doesn't solve the fundamental issues.

One of the after budget speakers made the point that the ISA change is like a reversion to the old PEP of a few years ago. It's a sort of progress forward, back, forward.....a sort of economic crab walk.

Edited by billybong

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Could this mean new retirees will buy BTLs rather than an annuity?

The small amounts involved (compared to pension savings over a lifetime) albeit increased from incredibly small amounts won't have a major effect on the direction of savings for retirement.

The main issue is the dishonesty, fraud, manipulation and lack of credibility etc in banking and financial services etc and their outstanding ability to outreach, grab and make savings "gone" and the budget didn't announce anything to remedy that.

Any little increase in savings limits etc helps of course but it doesn't solve the fundamental issues.

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No. They're giving people much greater access to their cash. I expect a flood of money to go into BTL and property in general.

BOMAD v2

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Could this mean new retirees will buy BTLs rather than an annuity?

At retirement if you don't have to buy an annuity it sounds as though it might be bit like one of the well advertised NuLabour pension proposals (allowing BTLs to be put in a pension fund - from recollection) which again from recollection they did away with after election once they'd garnered the votes.

Edited by billybong

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No. They're giving people much greater access to their cash. I expect a flood of money to go into BTL and property in general.

I'm not sure.

Wierd people seem to be more loose with borrowed money than their own hard cash.

Witness those half-witted singing pigsters with the heavy gearing.

I'd guess this change will shake up the annuity market by removing the ticking clock.

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I'd guess people are more likely to seek some sane advise (you live in hope).

A quick appraisal of the numbers on BTL returns will send most people running.

Remember, BTL only worked (on paper) with a lot of leverage.

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BOMAD v2

This.

By definition savings are deferred consumption.

Pensions lock away this consumption until retirement and then limit the annual drawdown.

These changes are de facto going to bring forward consumption. The noughties it was increased debt/leverage, the next period it'll be spending pension savings. Guaranteed.

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Did they say that pensioners could get 4% from an ISA?

If so that would make BTL a bit iffy...

Unintended consequences springs to mind.

Edited by council dweller

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I'd guess - and I don't know the exact link/ratio - selling less annuities will also raise the yield of GILTS, making UKGOV finances harder

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Did they say that pensioners could get 4% from an ISA?

If so that would make BTL a bit iffy...

Unintended consequences springs to mind.

Yep. Me too.

Any sane i.e pause and use a spreadsheet and some sense, shows UK rental yields as terrible.

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Could this mean new retirees will buy BTLs rather than an annuity?

....up to them......doesn't mean a BTL will be the best bet........I am pleased that people now have a choice as to how they spend their savings, in a the way they feel fit......that does not mean anyone should bail them out or compensate them if they happen to choose the wrong plan of action....consequences. ;)

Edited by winkie

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I'd guess - and I don't know the exact link/ratio - selling less annuities will also raise the yield of GILTS, making UKGOV finances harder

Treasury will of course benefit from tax on pensions cashed in earlier though.

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This.

By definition savings are deferred consumption.

Pensions lock away this consumption until retirement and then limit the annual drawdown.

These changes are de facto going to bring forward consumption. The noughties it was increased debt/leverage, the next period it'll be spending pension savings. Guaranteed.

Being able to access it at the age of 55 doesn't help, either. With up to 30k tax free plus 10k a year (also tax free) you could burn through most of a £200k pot before even getting to the state pension age.

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(assuming you are 55+ and in the 40% bracket)

1. Dump all earnings in 40% band into pension via salary sacrifice scheme

2. No employee NI to pay (save 2%)

3. Employer donates their NI (save 12%). This costs them nothing.

4. Take money out again.

5. 25% is tax-free, the rest is at your marginal rate.

5. Pay your 40% on the taxable bit but there is no NI to pay.

You have just reduced your marginal rate from 54% to 30%. I wonder when the government will notice this is just too good.

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(assuming you are 55+ and in the 40% bracket)

1. Dump all earnings in 40% band into pension via salary sacrifice scheme

2. No employee NI to pay (save 2%)

3. Employer donates their NI (save 12%). This costs them nothing.

4. Take money out again.

5. 25% is tax-free, the rest is at your marginal rate.

5. Pay your 40% on the taxable bit but there is no NI to pay.

You have just reduced your marginal rate from 54% to 30%. I wonder when the government will notice this is just too good.

Just realised that you don't even need to be in the 40% bracket for this to work, just 55. So pay into pension and take it back out again, dodging NI and getting 25% back tax-free. It's almost like we get to keep the money we earned, a crazy idea :)

Edited by VeryMeanReversion

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Just realised that you don't even need to be in the 40% bracket for this to work, just 55. So pay into pension and take it back out again, dodging NI and getting 25% back tax-free. It's almost like we get to keep the money we earned, a crazy idea :)

Can you delete those posts in case someone in treasury spots them. :ph34r:

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Did they say that pensioners could get 4% from an ISA?

If so that would make BTL a bit iffy...

Unintended consequences springs to mind.

I think that was 4% from a pensioner bond not an ISA, so will probably be taxed.

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No. They're giving people much greater access to their cash. I expect a flood of money to go into BTL and property in general.

Might it find its way to the younger generation as a hand-me-down so they can buy?

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Just realised that you don't even need to be in the 40% bracket for this to work, just 55. So pay into pension and take it back out again, dodging NI and getting 25% back tax-free. It's almost like we get to keep the money we earned, a crazy idea :)

Not so sure

Unless I am reading this wrong.

Lets assume basic rate taxpayer earns £25,000.

Dumps all net earnings into the scheme. For a figure lets say this is £22500. (Tax is paid at basic rate on anything above personal allowance).

On withdrawal tax will be paid again on 75% of the whole sum, I think?

Whereas chuck it in an ISA and no tax to pay nor on the earnings it makes.

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Not so sure

Unless I am reading this wrong.

Lets assume basic rate taxpayer earns £25,000.

Dumps all net earnings into the scheme. For a figure lets say this is £22500. (Tax is paid at basic rate on anything above personal allowance).

On withdrawal tax will be paid again on 75% of the whole sum, I think?

Whereas chuck it in an ISA and no tax to pay nor on the earnings it makes.

Yeah I see it like that too - sort of. However, with planning you could dump all your earning in above the personal allowance one year, and then extract just the personal allowance for the next few years if you can live on it.

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