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New Pension Rules Created To Allow People To Pay Off Their Big Mortgages

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It just struck me that Osborne's changes to pension rules (allowing you to draw the entire sum out in one go at retirement) could be to allow boomers with overextended mortgages and btl commitments to pay them down at retirement

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It just struck me that Osborne's changes to pension rules (allowing you to draw the entire sum out in one go at retirement) could be to allow boomers with overextended mortgages and btl commitments to pay them down at retirement

Yes.

So they save the banks, keep property prices high and leave the under 35s to pay for their health and life care from our earnings as well as paying OTT for houses.

Result.

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Yes.

So they save the banks, keep property prices high and leave the under 35s to pay for their health and life care from our earnings as well as paying OTT for houses.

Result.

We (the young) are so fcked.

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Yes.

So they save the banks, keep property prices high and leave the under 35s to pay for their health and life care from our earnings as well as paying OTT for houses.

Result.

To force oldies to cash in pensions to pay for their own care..

http://www.telegraph.co.uk/news/politics/david-cameron/10720348/David-Cameron-cash-in-your-pension-pot-and-you-may-be-liable-for-care.html

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I don't think it will keep property prices high, the overall pool of money is still diminishing

It'll just promote price discovery in my opinion

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It just struck me that Osborne's changes to pension rules (allowing you to draw the entire sum out in one go at retirement) could be to allow boomers with overextended mortgages and btl commitments to pay them down at retirement

It may solve the interest-only problem for many people. Rather than sell up to repay the mortgage, they can use the pension and stay in the house a bit longer.

It's difficult to know the real reason for the pension changes but my view is :

1. It's a vote winner

2. The money can be spent (and taxed) now

3. It keeps house prices up (the basis of the whole economy)

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Similarities to the council house sell off. Some people had them, those few able to take advantage of a cash windfall. Short-term boost. Screwed things up for everyone else in the future. Good politics, not such a good way to run a fair and equitable economy.

The game will be for the fewer to remove the money from the few.

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An interest giveaway on National Savings which will have to be paid for by taxes from younger people... and why raise the cash ISA limit so better-off people can hoard even more?... remember, this money doesn’t go into productive investment... and it isn’t taxed...

It's a bribe for the grey vote... ;)

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I don't think it will keep property prices high, the overall pool of money is still diminishing

It'll just promote price discovery in my opinion

This is the gist of it. You can only spend a pension once. If the boomers choose to blow the lot on housing then we'll get an HPI boost short-term with a lot of unpleasant consequences to follow when interest rates start to rise. Osborne might have got the Tories returned to No 10 on the back of it though. Mission acomplished as far as he's concerned.

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I'd also wager that the rule change will allow pensioner folk to pay off their children's £30,000 university fees removing the risk of default away from the state (wasn't the latest projecting 45% doing just that, namely defaulting).

I have a small pot ~£15k (my lifetimes achievement at aged 36) that together with a loan for the same amount) is too small to fund a btl empire or pay down the mortgage but just right to send one of my two smalls to university.

I'll default on the loan!!

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It just struck me that Osborne's changes to pension rules (allowing you to draw the entire sum out in one go at retirement) could be to allow boomers with overextended mortgages and btl commitments to pay them down at retirement

Pretty unlikely that hose who have IO mortgages and significant BTL will have big pension pots as well. The general mantra of those who buy property is the "safety of bricks and mortar" and they put all their spare cash into property. Their belief is that one day they will sell and realise a profit. They are more likely to retain the tenants until they die, and then give the government the 40% IHT. Also paying 40% or even 45% on a large proportion of the lump sum will see many just leave the fund intact.

I don't know what the true reasoning behind the decision was, but the cynic in me says it is more to do with increasing the tax grab from IHT and VAT. That written, I see Cameron is talking about increasing the threshold. Until that happens, those that are capable of maximising their fund to the £1.25m limit will have to spend half their fund when they get it.

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I don't think it will keep property prices high, the overall pool of money is still diminishing

It'll just promote price discovery in my opinion

I'd have thought the opposite.

For those on IO who would previously be hitting 55 with no repayment plan, and would therefore be forced to sell up, now they suddenly get a lump of money. Indeed, I suspect that the banks may well do a 'cash out your pension OR switch to a 10-year repayment mortgage' offer to people in that position. Expect sob stories to start appearing in the Mail.. 'The Nasty Bank Took Our Life Savings Just Because We Owed Them Loads Of Money' kind of thing.

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Pretty unlikely that hose who have IO mortgages and significant BTL will have big pension pots as well. The general mantra of those who buy property is the "safety of bricks and mortar" and they put all their spare cash into property.

To some extent. But in a lot of private-sector 'professional' jobs you will end up in a defined-contribution scheme pretty much by default, and after 30 years or so you are going to have a 6 figure pot almost by default, unless you are catastrophically stupid.

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This is probably the most likely reason. Once people consider their IHT liabilities and the potential for paying for care, they may think annuities aren't such a bad deal.

I expect there will be better annuity products in forthcoming years which when not restricted to gilts will pay closer to 10%/annum. At those rates, an annuity starts to become attractive. The problem prior to the announcement was that compulsion on the pensioner to eventually buy and annuity and the insurance company to invest in gilts was that this guaranteed low returns.

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Yes.

So they save the banks, keep property prices high and leave the under 35s to pay for their health and life care from our earnings as well as paying OTT for houses.

Result.

Dont really see that, its perfectly sensible that the savings should be applied to debt which is a much better deal for the taxpayer it also benefits the taxpayer over the medium term because in the case of future iceland or greek style default (whichever happens) the assets are subject to the 50K/85K guarantees as opposed to the 90% guarantee that annuities have. The alternative is the mortgage debt is simply written down whilst leaving the pension annuity intact, just need a way to bring public sector pensions into the fold over the coming years (inflation capping at some point in the future etc) and everything is set for default pain to be spread widely across everyone which is by far the most socially acceptable spread

Edited by Georgia O'Keeffe

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Perhaps the crinklies will en masse lend their lump sums to their grandchildren so they can buy houses at ever more inflated prices.. :lol:

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Dont really see that, its perfectly sensible that the savings should be applied to debt which is a much better deal for the taxpayer it also benefits the taxpayer over the medium term because in the case of future iceland or greek style default (whichever happens) the assets are subject to the 50K/85K guarantees as opposed to the 90% guarantee that annuities have. The alternative is the mortgage debt is simply written down whilst leaving the pension annuity intact, just need a way to bring public sector pensions into the fold over the coming years (inflation capping at some point in the future etc) and everything is set for default pain to be spread widely across everyone which is by far the most socially acceptable spread

Its not the change that's the problem, just the timing.

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Perhaps the crinklies will en masse lend their lump sums to their grandchildren so they can buy houses at ever more inflated prices.. :lol:

Lend? I suspect many will just give it away, certainly if they end up with assets over £650K. With a fund of £1.25m, giving the tax free lump sum of £312K to the grandchildren would be a way of avoiding IHT.

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This is the gist of it. You can only spend a pension once. If the boomers choose to blow the lot on housing then we'll get an HPI boost short-term with a lot of unpleasant consequences to follow when interest rates start to rise. Osborne might have got the Tories returned to No 10 on the back of it though. Mission acomplished as far as he's concerned.

That looks like a transfer of wealth from the old to the young to me

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Lend? I suspect many will just give it away, certainly if they end up with assets over £650K. With a fund of £1.25m, giving the tax free lump sum of £312K to the grandchildren would be a way of avoiding IHT.

Mind you theres sh*tloads of people with that kind of capital

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Dont really see that, its perfectly sensible that the savings should be applied to debt which is a much better deal for the taxpayer it also benefits the taxpayer over the medium term because in the case of future iceland or greek style default (whichever happens) the assets are subject to the 50K/85K guarantees as opposed to the 90% guarantee that annuities have. The alternative is the mortgage debt is simply written down whilst leaving the pension annuity intact, just need a way to bring public sector pensions into the fold over the coming years (inflation capping at some point in the future etc) and everything is set for default pain to be spread widely across everyone which is by far the most socially acceptable spread

Or they'll just default on public sector pensions via the magic wand of the cpi inflation measure

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I wonder if a lot of people were pulling out of auto enrolment because they realised what a sht deal pensions were.

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It just struck me that Osborne's changes to pension rules (allowing you to draw the entire sum out in one go at retirement) could be to allow boomers with overextended mortgages and btl commitments to pay them down at retirement

I don't think so.

Changes apply to defined contribution private pensions.

There are not that many of those around, or due to mature in the next 10-15 years.

Maybe if the government offers to cash out public sector worker's pensions - but it hasn't and neither could it afford to.

Most of the BTLers claim to have got into it as 'they dont have a pension'.

The majority of IO borrowers - 2001-2007 - are probably not financially savvy enough to have saved enoguh into a pension. Tehy'll be the people who beleived the 'pay £50/month into a pension and retire at 55 guff spun by the life companies - 1988-2000-ish'.

Nope, the annuities thing is basically a bone thrown to pensioners to partially make up for QE.

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