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Will!

Pension-Backed Securities

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Just as high-risk mortgages sold and being packaged into 'low-risk' mortgage-backed securities was an integral part of the last boom and bust, look to low-yielding (for the provider) pensions to be sold and packaged into 'low-risk' pension-backed securities to be part of the next one.

http://www.bbc.co.uk/news/uk-politics-30670639

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So from the article it sounds like if you're already receiving a pension then you can convert it back into a lump sum. Presumably to fund a BTL, to pay off some debt, have a holiday, buy a car, pay for care home fees and whatever etc etc. Then there'll be the fees and extra taxes etc with the fresh churn.

Then go on benefits?

If interest rates go up then a poor pension received during the low interest rate era will likely deliver a far smaller cash sum than the pension was originally based on. You could even trade back and forth in and out of pensions until it was all churned away.

There's no end to the crazy ideas that the UK taxpayer will be required to fund in the name of "growth" but for sure it'll be a good idea for some and that's likely to be the very rich etc.

Edited by billybong

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As I said in the pension thread, pensions are backed by debt, particularly government debt.

They already started to withdraw forced demand, by abolishing the requirement to take out an annuity. Now they're potentially adding to supply. That's interesting: more supply, less demand will tend to push the price down. Or, in other words, push interest rates up.

It'll happen slowly (if at all) as most pensioners stick with the status quo. But in the long term, it's a Good Thing to stop forcing anyone to buy government debt.

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So from the article it sounds like if you're already receiving a pension then you can convert it back into a lump sum. Presumably to fund a BTL, to pay off some debt, have a holiday, buy a car, pay for care home fees and whatever etc etc. Then there'll be the fees and extra taxes etc with the fresh churn.

Then go on benefits?

If interest rates go up then a poor pension received during the low interest rate era will likely deliver a far smaller cash sum than the pension was originally based on. You could even trade back and forth in and out of pensions until it was all churned away.

There's no end to the crazy ideas that the UK taxpayer will be required to fund in the name of "growth" but for sure it'll be a good idea for some and that's likely to be the very rich etc.

It's the care home fees.. That's what the govt is sh*****g itself about. Nearly all personal tax changes recently have been aimed at this problem, the transferable IHT ensures pensioners hang on to their cash until it is needed. The removable of the need to buy an annuity was aimed at keeping the cash accesible. Now the govt has decided it needs more, now it can force the sale of annuities to pay these bills. Modern medicine has made the govts exposure to future care home costs completely unaffordable..

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Yes, sounds like an attempt to cover care home fees. Although it seems a bit odd as an enduring solution since the lump sums on offer will presumably be based on the expected remaining lifetime and might not give a greater sum than the pension itself over the same period, on average.

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The lump sums on offer will likely reflect the raw deals the pension annuities were in the first place - certainly in recent times.

Edited by billybong

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It's the care home fees.. That's what the govt is sh*****g itself about. Nearly all personal tax changes recently have been aimed at this problem, the transferable IHT ensures pensioners hang on to their cash until it is needed. The removable of the need to buy an annuity was aimed at keeping the cash accesible. Now the govt has decided it needs more, now it can force the sale of annuities to pay these bills. Modern medicine has made the govts exposure to future care home costs completely unaffordable..

Aha! And there you have it. The Government's real reason for the change in the rules.

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I suppose they could package together hundreds/thousands of them and slice and dice them like mortgage derivatives and average them all out to reduce risk but if their value depends on life expectancy they'll be hoping that something like bird flu or ebola etc doesn't catch hold of the population anytime soon and there's no major wars.

Edited by billybong

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I suppose they could package together hundreds/thousands of them and slice and dice them like mortgage derivatives and average them all out to reduce risk but if their value depends on life expectancy they'll be hoping that something like bird flu or ebola etc doesn't catch hold of the population anytime soon and there's no major wars.

That could make them a good hedge for HPC folks.

Buy pension-backed bonds at a price that leaves you the expectation of a decent income stream. If any disaster happens big enough for the bonds to lose out, it will at the same time depress housing demand, so you get that house cheaper.

I don't think there's any way to make this attractive for pensioners: there simply won't be buyers for annuities at a price they'll find worth cashing in. If there are any exceptions to that it'll be amongst pensioners who have more income than they expect ever to want, looking towards Bank-of-Granny and inheritance planning.

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It's the care home fees.. That's what the govt is sh*****g itself about. Nearly all personal tax changes recently have been aimed at this problem, the transferable IHT ensures pensioners hang on to their cash until it is needed. The removable of the need to buy an annuity was aimed at keeping the cash accesible. Now the govt has decided it needs more, now it can force the sale of annuities to pay these bills. Modern medicine has made the govts exposure to future care home costs completely unaffordable..

Sounds about right.

Reminded me of the sale of with profit endowment policies ...... Cashing in the means to pay the mortgage.....sweets today. Money must be in it for both the buyers and the commission takers, doubt unless very unhealthy the seller would benefit over the long-term.

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