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InlikeFlynn

Big Changes To Pensions

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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.

Some years ago, when I was seriously hacked off with work, put together a spreadsheet in attempt to work out how much lump sum cash I would need to jack it all in and survive to state pension age. Notes as follows:

  • My maths was a bit rusty so I had to research the internet to find a suitable formula.

  • Formula works like a reverse mortgage.

  • Different colour periods represent two parts of my life, i.e. sprog/sans-sprog.

  • Spreadsheet ends in 2029 when old age pension kicks in.

At the time, living fairly conservatively, reckoned £250k ought to do it.

ScreenShot2014-03-22at093313_zps1bdecfaf.png

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Some of the posts on this thread are wrong.

I am going to do some maths so pay attention.

I am 50 and I am receiving a small pension of £6500 a year. The tax threshold will soon be £10,500 so I am

£4,000 under the tax threshold (this is an important number so remember it)

What I am planning to do is put £48,000 into a sipp the government will add the tax making my pot £60,000.

when I retire at 55 I can take a lump sum of £15,000 and put it in an ISA leaving a pot of £45,000. seeing as I have 11 years till my state pension. I can take £4,000 a year from my pension and stay under the tax threshold.

Would I be better off putting more money into my pension?

No because If I put in another £800 the government would make it up to £1000 but when I came to draw it back out they would tax it back to £800. I would be better putting the extra £800 into an ISA.

So my point is for low rate tax payers there is no point having a pension so high you have to pay tax.

and for high rate tax payers there is no point having a pension so high you have to pay 40% tax

Money above those levels is better off in an ISA.

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....so if you had a small index linked pension and already had a few savings in an isa saved over a working life, was 55 it might not be advantagous taking the tax free lump sum to help make the income up to £10k, and hope to live many years to come? ;)

Edited by winkie

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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.u...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.

That calculator is nothing like an actuarial tool though, it merely tells you an expected lifespan based on some risk factors and doesn't take into account your current age.

If you put in some criteria you'll get the same lifespan if you say you're currently 20 or 65. A proper actuarial table would take this into account as there's a finite chance of a 20 year old dying before 65, so once you reach that age your expected lifespan is higher.

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Who pays you a pension?

Long story but I retired from BT before they gave me the sack. Short story you do. :D

Edited by gf3

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....so if you had a small index linked pension and already had a few savings in an isa saved over a working life, was 55 it might not be advantagous taking the tax free lump sum to help make the income up to £10k, and hope to live many years to come? ;)

The only way a pension can help you is if you pay in at one tax level and receive it back at a lower tax level. If Some one who was a lower tax payer took out all the money in one go and ended up paying 40% tax they would lose out massively. So someone doing that to buy a house would lose out big time.

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The only way a pension can help you is if you pay in at one tax level and receive it back at a lower tax level. If Some one who was a lower tax payer took out all the money in one go and ended up paying 40% tax they would lose out massively. So someone doing that to buy a house would lose out big time.

That is why one tax free owner occupied home with other tax free savings and investments along with a tax free IL pension using full personal allowance and no debt, can be a good forward plan.....'not for everyone, some feel the need for more property and all the hassel and costs that go with it.....maybe they look upon it as their own small business which of course it is. ;)

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If the majority of Boomers want to bet every last penny they ever earned on houses, that's fine by me. Every pound they spend on some dilapidated pile of bricks is a pound they are not spending buying some other asset. The prices of non-housing assets will drop as the demand for them falls, and people not infected with property mania will be able to find improved investment opportunities elsewhere.

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The only way a pension can help you is if you pay in at one tax level and receive it back at a lower tax level. If Some one who was a lower tax payer took out all the money in one go and ended up paying 40% tax they would lose out massively. So someone doing that to buy a house would lose out big time.

There`s a benefit to deffering the tax. If - as a basic rate tax payer - I put £10k into a pension 10 years before I retire They`ll gross it up to 12.5, if my circumstances mean that I pay basic rate tax on it when I take it out as a lump sum then they get the 2.5k back. The benefit to me is that I`ve had 10 years compounded interest on the 2.5k

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Withdraw your tax subsidised pot

Blow it all on holidays, cars, hookers or whatever takes your fancy in your 50s, 60s, 70s.

Get your assets down to zero.

Demand a council tenancy with all the benefit trimmings in your demented twilight years when you couldn't give a stuff and spend all your days down the Bingo.

Where's the downside?

There aren't any spare council houses, so the council will shove you in a private rental and you will see out your last days in a poorly maintained magnolia slavebox with the insecurity of an AST hanging over your head.

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...the good thing about the changes is this new flexible way that people can choose to use their own pension savings is now highly competitive with property purchased in cash to rent out........you now have the choice to leave what you don't use to your family or whatever, your money left does not have to die with you......where as before you were forced to invest in an annuity, could live a year and lose the lot..... ;)

Edited by winkie

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...the good thing about the changes is this new flexible way that people can choose to use their own pension savings is now highly competitive with property purchased in cash to rent out........you now have the choice to leave what you don't use to your family or whatever, your money left does not have to die with you......where as before you were forced to invest in an annuity, could live a year and lose the lot..... ;)

Or you could live for thirty years with no annuity and spend the lot. You pays your money.......

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Or you could live for thirty years with no annuity and spend the lot. You pays your money.......

Exactly you still have that choice.....why were you thinking of taking up smoking again? ;)

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Well, the 'BTL is my pension' mantra would seem to be on the cusp of being tested thoroughly, if indeed it is precisely that.

I wonder how many actually retiring new BTLers will be tolerant of slim yields or losses when they are actually retired and want a predictable income stream as opposed to a younger person rationalizing their lossmaking investment in BTL by some nebulous idea that it'll come good in the few decades. I guess many of the people who use their pensions to get involved will be making cash purchases, so no snazzy leverage trickery to shield wafer-thin yields.

Is a person going to tolerate putting their pension into a BTL and then realizing that their income is less than they might have had from an annuity or indeed a bank account?

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Long story but I retired from BT before they gave me the sack. Short story you do. :D

Chap I know gets a £20k pension and has done since he was 50.

Ex Miner and fortunate to be part of Maggies revolution. 65 now.. Probably drinks more than he should (given the access to more money) so I expect it will affect his lifespan in due course.

If his spouse outlives him then she is entitled to 75% until death.....

Some government pensions were to die for..

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...in the wail, apparently HPs will go up 30% because of these changes...

http://www.dailymail...t-property.html

I do think there is a trap forming here - a trap designed to ensure boomers live in poverty in middle age.

I reckon that a house price crash will only be allowed once it is real people losing their own money, rather than banks taking losses on loan defaults

At the end of the day - a house can either be somewhere you live or if not it is an investment/financial asset. If you have BTL you are definitely in the last category and if you were genuinely doing it for investment purposes you'd at least expect a sensible yield. As yields are currently so low, I can't see housing could be considered a true investment.

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Well, the 'BTL is my pension' mantra would seem to be on the cusp of being tested thoroughly, if indeed it is precisely that.

I wonder how many actually retiring new BTLers will be tolerant of slim yields or losses when they are actually retired and want a predictable income stream as opposed to a younger person rationalizing their lossmaking investment in BTL by some nebulous idea that it'll come good in the few decades. I guess many of the people who use their pensions to get involved will be making cash purchases, so no snazzy leverage trickery to shield wafer-thin yields.

Is a person going to tolerate putting their pension into a BTL and then realizing that their income is less than they might have had from an annuity or indeed a bank account?

Also, in a strange way it puts power back with tenants. If the said boomer is reliant on someone paying the rent to feed themselves and heat their home, what happens when the rent isn't paid and then the expense of a drawn out legal process occurs.

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Also, in a strange way it puts power back with tenants. If the said boomer is reliant on someone paying the rent to feed themselves and heat their home, what happens when the rent isn't paid and then the expense of a drawn out legal process occurs.

I think this situation occurs if the BTLer doesn't smooth out the lumps in the income that inevitably happen with voids/maintenance/arrears etc.

Of course, a person who buys a low yielding BTL in the belief it is a good investment might not be smart enough to hold back some rental income when things are going well to cover business expenses/risks etc.

I think as a proposition for a steady retirement income, a single amateur BTLer is walking into a minefield. Even if yields were more attractive it is not without significant risks as you point out.

They'd be better investing in some sort of property derivative which funds, builds and runs many residential properties, like ZOPA's approach where your loaned funds are spread between many borrowers. Whether such things exist is another matter.

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Chap I know gets a £20k pension and has done since he was 50.

Ex Miner and fortunate to be part of Maggies revolution. 65 now.. Probably drinks more than he should (given the access to more money) so I expect it will affect his lifespan in due course.

If his spouse outlives him then she is entitled to 75% until death.....

Some government pensions were to die for..

....but today you can have both partners/husband and wife age 55 to 60 with a £10k pension each having both worked the new possible 35 qualifying years to then each receive another £140 a week each for their fixed state pension in due course.......there is something to be said for leaving school at 16/18 and going straight out to paid work/paid training in certain professions? ;)

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I find it all very depressing and frustrating. This is what the UK has come to - house prices, house prices, house prices.

But it not all house prices, house prices......there are far better things to do, think about, people to meet where house prices are never talked or thought about.....this site is about house prices so you would expect an overkill. ;)

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But it not all house prices, house prices......there are far better things to do, think about, people to meet where house prices are never talked or thought about.....this site is about house prices so you would expect an overkill. ;)

No you silly so and so. I was not referring to this site. I was referring how this country has become one of spivs, housep rice ramping and chav culture.

It seems that the only economic policy any political party has is ramping house prices. At this rate no one in the UK will be able to afford a house as the inflation rate is now shocking. Don't any of these politicians or journos stop and think with commonsense? Don't answer that - they mostly appear to be idiots IMPO.

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....so if you had a small index linked pension and already had a few savings in an isa saved over a working life, was 55 it might not be advantagous taking the tax free lump sum to help make the income up to £10k, and hope to live many years to come? ;)

Sorry to quote this one twice.

I think you would be better borrowing some money just before your retirement paying it into your pension then paying off the loan with the tax free lump sum.

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