Pension Wonga Day Dawns

[stormymonday_2011]

Honestly don`t think the pots are big enough to make much difference to housing. Also anyone 60+ will have enough anecdotal from friends/ family about bad BTL experience to put them off, even if they had the money to get in in any meaningful way?

Average pension pot in the UK is worth £72,000 according to this article

http://www.thisismoney.co.uk/money/experts/article-2820476/How-big-pension-pot-people-buy-annuity-income-buy-them.html

It would buys an annuity worth about £3,500 which would see you get your money in full over 20 years if you live that long.

In tax terms the annuity looks the better deal rather than cashing in your chips now for those with an average pension pot given that the annuity plus the state pension would still leave the individual below the tax threshold in any given year while the dash for cash would leave a fair chunk of the pension pot exposed to tax, The problem with the annuity is that you are pretty much stuck with it forever once purchased as trade in values are not great and the buyer is exposed to inflationary risks. The question obviously is whether those cashing in their pensions are going to be able to find an investment with a better annual yield than that offered by the annuity. I am not sure that BTL can fulfil that objective particularly in London where yields on rentals are not great. Shares might offer a better punt over the medium to longer term. , I think Osborne is hoping for a sizable tax windfall and a further boost to asset valuations from these changes as some of the money gets blown into the housing ponzi by those stupid enough to trade yield for the possibility of capital gains that may or may not appear. To me the tax implications are the killer because those cashing in the lot look to be gifting most of the tax advantages accrued while building up their pension straight back to the Treasury and I doubt any will find an investment with a sufficient yield to make up for that intitial capital loss

[Fully Detached]

Honestly don`t think the pots are big enough to make much difference to housing. Also anyone 60+ will have enough anecdotal from friends/ family about bad BTL experience to put them off, even if they had the money to get in in any meaningful way?

I think you're right that it won't make any meaningful difference, but it will be because their pension pots are too small, not because the majority of them have suddenly developed a brain cell when it comes to property.

I see the odd bout of temporary cognisance in both my parents and mother-in-law. But when it comes down to it, they are all a bunch of property obsessed ******ing imbeciles who don't even have the brains to understand that they got lucky, and that it worked out for them in spite of - not because of - their abysmal financial acumen.

Think about the 2-3 emails you get a week from an African lawyer or tribal princess offering you vast riches in exchange for your help. The only reason you keep getting those is because some people are stupid enough to believe them. Who are those people? Old ones. The same ones who are sitting there reading the paper today and thinking about "releasing some capital" in their pensions, investing it in property, and becoming Donald Trump some time in the next 6 months.

Most of them will probably end up investing about £5k in one of those shark-run BTL schemes, and lose that instead.

[jiltedjen]

Makes me feel like they are worried about inflationary pressures. and they wanted pension freedoms so they had an 'well it was your choice we didn't make you buy an annuity'

so they have a get out of jail free card. perhaps they know time is running out on spending and the viability of banks, so they are trying to throw the last available equity into the fire to keep the train moving a bit longer before it stutters and dies

[Fully Detached]

Apologies for the rant. My mother-in-law came for dinner last night. It ended predictably.

[billybong]

Average pension pot in the UK is worth £72,000 according to this article

http://www.thisismoney.co.uk/money/experts/article-2820476/How-big-pension-pot-people-buy-annuity-income-buy-them.html

It would buys an annuity worth about £3,500 which would see you get your money in full over 20 years if you live that long.

In tax terms the annuity looks the better deal rather than cashing in your chips now for those with an average pension pot given that the annuity plus the state pension would still leave the individual below the tax threshold in any given year while the dash for cash would leave a fair chunk of the pension pot exposed to tax, The problem with the annuity is that you are pretty much stuck with it forever once purchased as trade in values are not great and the buyer is exposed to inflationary risks. The question obviously is whether those cashing in their pensions are going to be able to find an investment with a better annual yield than that offered by the annuity. I am not sure that BTL can fulfil that objective particularly in London where yields on rentals are not great. Shares might offer a better punt over the medium to longer term. , I think Osborne is hoping for a sizable tax windfall and a further boost to asset valuations from these changes as some of the money gets blown into the housing ponzi by those stupid enough to trade yield for the possibility of capital gains that may or may not appear. To me the tax implications are the killer because those cashing in the lot look to be gifting most of the tax advantages accrued while building up their pension straight back to the Treasury and I doubt any will find an investment with a sufficient yield to make up for that intitial capital loss

My bold and italics.

Just to say it's not so long ago that they (the media) were claiming that the average pension "pot" was round about £15,000 (that sort of ball park and presumably from figures originating from the pension funds) - so either pots have grown amazingly in a very short time (how likely is that with fund managers et al using pensions as their very own free money jar) or one set of figures must be wrong.

They do seem to pluck figures out of thin air just to suit the prevailing message. It is possible that the £72,000 is the correct figure but they should make their minds up.

Maybe the prevailing message today is that it will make a difference to BTL prices whereas yesterday the message was that people should put more money into their pension funds.

Edited April 6, 2015 by billybong

[stormymonday_2011]

My bold and italics.

Just to say it's not so long ago that they (the media) were claiming that the average pension "pot" was round about £15,000 (that sort of ball park and presumably from figures originating from the pension funds) - so either pots have grown amazingly in a very short time (how likely is that with fund managers et al using pensions as their very own free money jar) or one set of figures must be wrong.

They do seems to pluck figures out of thin air just to suit the prevailing message. It is possible that the £72,000 is the correct figure but they should make their minds up.

Maybe the prevailing message today is that it will make a difference to BTL prices whereas yesterday the message was that people should put more money into their pension funds.

Who knows about average fund size. In reality the risks remains the same whatever the sum involved. If you cash in a pension pot you are going to get hit with a host of potential charges from tax to redemption fees that are going to erode the capital sum quite quickly. Also worth noting that the system is pretty inflexible about how and when the tax charge is made so that many pensioners will get hit by a blanket deduction from their cash and then will have to chase HMRC for a refund at the year end which will be by no means a straightforward or painless activity

http://www.telegraph.co.uk/finance/personalfinance/pensions/11516154/Tax-chaos-for-pension-raiders-as-HMRC-makes-inaccurate-charges.html

Edited April 6, 2015 by stormymonday_2011

[wish I could afford one]

My bold and italics.

Just to say it's not so long ago that they (the media) were claiming that the average pension "pot" was round about £15,000 (that sort of ball park and presumably from figures originating from the pension funds) - so either pots have grown amazingly in a very short time (how likely is that with fund managers et al using pensions as their very own free money jar) or one set of figures must be wrong.

They do seem to pluck figures out of thin air just to suit the prevailing message. It is possible that the £72,000 is the correct figure but they should make their minds up.

Maybe the prevailing message today is that it will make a difference to BTL prices whereas yesterday the message was that people should put more money into their pension funds.

The numbers claimed will suit the vested interest at the time. Also punters are probably going to have more than one pension spread around the place which will reduce the quoted amounts.

Why don't we try and calculate it:

- Average salary over work life, say £25k

- Average saving rate, say 5%

- Average post inflation return, say 4%

- Average pension expense, say 1%

- Average work life, say 35 years

gives a pension pot of £75,680

Be a bit more attentive and reduce expenses to say 0.5% through low cost SIPP use gives a pension pot of £83,500.

Taking your future a bit more seriously and ramp pension contribution to 20% gives a pension pot of £333,900.

By taking it a bit seriously and not giving it all away to the financial services sector big numbers are possible.

[Captain Tightwad]

They do seem to pluck figures out of thin air just to suit the prevailing message. It is possible that the £72,000 is the correct figure but they should make their minds up.

Most likely they're mixing mean with median. Median income is typically a lot lower than mean income, and I'd expect pension pots to exaggerate that difference. Or any one of a whole bunch of statistical tricks, like excluding those with no pensions from the calculation instead of including them with a value of zero.

[juvenal]

Just watch the shysters and charlatans move in for the kill. I've already seen them circling before today in various adverts. I really hope those who today have access to their money successfully avoid them as it's going to be like a vampire feeding frenzy.

And a lot more 'predators' are going to be inside the family circle.

"Mum...Darren and I have seen this great flat. All we need is a deposit..."

[200p]

Great timing. The Tony Blair (early years in government) Feel good factor is coming soon!

[Limpet]

I`ve had one of those predatorial mailshots.

Maybe I should have scanned it and posted it up instead of ripping it up and throwing it away while mouthing things like fu%cking scumbags etc.

I turn 55 in the next couple of weeks and about a year and a half ago I contacted the pension handlers to try and get an estimate of what I might get if I took it at that age. ( I no longer work for that particular company )

It`s a defined benefit pension so I don`t think these new rules apply to me.

I can`t remember off the top of my head what I might get but to be sure it`s not worth a lot taking it 10 or 15 years early but I`m desperate to finish work and do something a little more fulfilling with what time I have left.

We`ll see.

[Saving For a Space Ship]

Bubble Wonga Land

BTL Wonga Land

Edited April 6, 2015 by Saving For a Space Ship

[Eddie_George]

I'm not sure if I heard right, but the TV was on in another room and a news item on this pension reform said that 1 in 4 Australians who had access to their pension blew it all.

Can anyone confirm this?

[Saving For a Space Ship]

I'm not sure if I heard right, but the TV was on in another room and a news item on this pension reform said that 1 in 4 Australians who had access to their pension blew it all.

Can anyone confirm this?

The problem is often made worse by what retirees do when they take their super lump sum. At least half use the money to pay off mortgages, debts and on home renovations, but more than a fifth blow it on holidays and cars, according to an Australian Bureau of Statistics survey for the year to June 2013.

http://www.smh.com.au/money/super-and-funds/were-outliving-our-super-funds-20140522-38shg.html

Edited April 6, 2015 by Saving For a Space Ship

[olliegog]

interesting that the pension for a couple is around $33000 - equates to circa £16000 - not bad if tax free with couple's personal allowance

and the fact that the 'super' could be taken between 55 and 65 TAX-FREE - no wonder they blew it. I assume it was taxed going into the pension wrapper then. could not George O look at what happened there and extrapolate to what will happen here.

[Assume The Opposite]

Max Keiser points out that these 'reforms' are merely giving the City access to new capital from economically illiterate sheeple, who think the government is doing something which will benefit them. I wouldn't be surprised if many pensioners lose their savings with BTL, heavy taxes, or financial scams.

Personally I think this benefits the 1% all round with the Tories gaining a 'feel good factor' before the GE and the bankers with new capital.

Time will tell..

[FreeTrader]

The CML has this morning released a new statement of practice on BTL mortgage lending which has already been adopted by 31 lenders (who represent an estimated 90% of the BTL market). All CML members who offer BTL mortgages are expected to adopt it over the course of 2015.

Press release

Statement of Practice (PDF)

[crashmonitor]

And the government getting loads of tax as people don't understand what the implications of decisions are. I think there is an estimate in the OBR projection.

I don't buy this ignorance there are only a few salient points.

(1) The first 25% is tax free.

(2) You can take the rest when and how you want to maximise tax efficiency, but some providers are not yet geared up for a pension pot being used as a bank account, but will have to be eventually to comply with legislation. Holders of these funds may have to wait a few weeks or months.

(3) There will be charges for making withdrawals but this is likely to be far preferable to being hit by tax on the whole pot.

(4) Any non lump sum monies will be taxed at the marginal rate. this may be nothing with tax planning and making aggregate income less than £10,600.

Easy peasy, pensioners are being treated like retards by the media. If they can't understand that then you would have been incapable of holding down a job or indeed saving in the first place.

The BBC have to wheel some stupid double glazing salesman with an IQ 0f 60 to make a stupid point...''I cant understand it, I can't understand it''. On their ridiculously patronising Andy Pandy news.

Edited April 7, 2015 by crashmonitor

[spyguy]

I notice they only say' the rental property may be repossessed'

Woohoo - I can post the keys back!

They omit that charge for any shortfall will be made against the LL and their OO may be repo'd too.

[spyguy]

I don't buy this ignorance there are only a few salient points.

(1) The first 25% is tax free.

(2) You can take the rest when and how you want to maximise tax efficiency, but some providers are not yet geared up for a pension pot being used as a bank account, but will have to be eventually to comply with legislation. Holders of these funds may have to wait a few weeks or months.

(3) There will be charges for making withdrawals but this is likely to be far preferable to being hit by tax on the whole pot.

(4) Any non lump sum monies will be taxed at the marginal rate. this may be nothing with tax planning and making aggregate income less than £10,600.

Easy peasy, pensioners are being treated like retards by the media. If they can't understand that then you would have been incapable of holding down a job or indeed saving in the first place.

The BBC have to wheel some stupid double glazing salesman with an IQ 0f 60 to make a stupid point...''I cant understand it, I can't understand it''. On their ridiculously patronising Andy Pandy news.

My 70 YO mum 'does not understand percentages'.

I'm not sure my 40 YO sister does either.

Never underestimate how dumb Mr + Mrs UK-Average are when coming to anything that involves maths.

Unless its property - they have a 'natural understanding' of property.

[crashmonitor]

My 70 YO mum 'does not understand percentages'.

I'm not sure my 40 YO sister does either.

Never underestimate how dumb Mr + Mrs UK-Average are when coming to anything that involves maths.

Unless its property - they have a 'natural understanding' of property.

Ian Woods, on Sky, who was supposed to be covering this story; said he didn't understand it and would need the help of a financial adviser. How ridiculous is that, and he was covering the story.

Typical journo thinking, we are made to be embarrassed by grammatical errors in our impossibly complicated English (I get it wrong all the time). Yet basic school boy arithmetic and it is ok to be ignorant.

Edited April 7, 2015 by crashmonitor

[Ash4781]

Ian Woods, on Sky, who was supposed to be covering this story; said he didn't understand it and would need the help of a financial adviser. How ridiculous is that, and he was covering the story.

Typical journo thinking, we are made to be embarrassed by grammatical errors in our impossibly complicated English (I get it wrong all the time). Yet basic school boy arithmetic and it is ok to be ignorant.

It is to cover their ass as they cannot provide advice.

[stormymonday_2011]

I don't buy this ignorance there are only a few salient points.

(1) The first 25% is tax free.

(2) You can take the rest when and how you want to maximise tax efficiency, but some providers are not yet geared up for a pension pot being used as a bank account, but will have to be eventually to comply with legislation. Holders of these funds may have to wait a few weeks or months.

(3) There will be charges for making withdrawals but this is likely to be far preferable to being hit by tax on the whole pot.

(4) Any non lump sum monies will be taxed at the marginal rate. this may be nothing with tax planning and making aggregate income less than £10,600.

Easy peasy, pensioners are being treated like retards by the media. If they can't understand that then you would have been incapable of holding down a job or indeed saving in the first place.

The BBC have to wheel some stupid double glazing salesman with an IQ 0f 60 to make a stupid point...''I cant understand it, I can't understand it''. On their ridiculously patronising Andy Pandy news.

My understanding is that while 25% of the whole pot is tax free f you choose to draw down the amounts then that allowance is apportioned over each withdrawal. Thus if you take a sum of £20,000 from a £100,000 pot you will only get a tax free pension allowance on £5000 on that withdrawal. If you then decide to take another £20,000 a few years later you would then get another 25% tax free on that amount. Moreover whatever your personal tax allowance there is currently no mechanism for the pension providers to grant you it in full unless you can supply them with a current year P45, Without that document the pension provider will required to deduct tax at the emergency rate (Week 1 or Month 1) from any payment, This means if you take the sum in one lump in a year then you will get just one months worth of the personal allowance and will be taxed on the rest. You then have to claim the tax back from HMRC at the end of the tax year The best way to avoid that one off charge would be to spread the withdawls over a year but that of course would significantly increase redemption charges. As far as I am aware the only way to avoid that process is to either buy an annuity or to opt into an income drawdown scheme (ie the pot is left invested and only any income from the pot rather than a capital sum is taken). I think it is going to be a lot more tricky and time consuming than many people realise

Edited April 7, 2015 by stormymonday_2011

[crashmonitor]

My understanding is that while 25% of the whole pot is tax free f you choose to draw down the amounts then that allowance is apportioned over each withdrawal. Thus if you take a sum of £20,000 from a £100,000 pot you will only get a tax free pension allowance on £5000 on that withdrawal. If you then decide to take another £20,000 a few years later you would then get another 25% tax free on that amount. Moreover whatever your personal tax allowance there is currently no mechanism for the pension providers to grant you it in full unless you can supply them with a current year P45, Without that document the pension provider will required to deduct tax at the emergency rate (Week 1 or Month 1) from any payment, This means if you take the sum in one lump in a year then you will get just one months worth of the personal allowance and will be taxed on the rest. You then have to claim the tax back from HMRC at the end of the tax year The best way to avoid that one off charge would be to spread the withdawls over a year but that of course would significantly increase redemption charges. As far as I am aware the only way to avoid that process is to either buy an annuity or to opt into an income drawdown scheme (ie the pot is left invested and only any income from the pot rather than a capital sum is taken). I think it is going to be a lot more tricky and time consuming than many people realise

I think most providers are being more flexible than that with up front lump withdrawals tax free (25%). The remainder has flexible access here.............

http://www.scottishwidows.co.uk/retirement-planning/pension-options/flexible-pension/

Where flexible withdrawal arrangements aren't permitted you could of course switch providers....unfortunate though with the charges on the churn.

Edited April 8, 2015 by crashmonitor

[Austin Allegro]

interesting that the pension for a couple is around $33000 - equates to circa £16000 - not bad if tax free with couple's personal allowance

and the fact that the 'super' could be taken between 55 and 65 TAX-FREE - no wonder they blew it. I assume it was taxed going into the pension wrapper then. could not George O look at what happened there and extrapolate to what will happen here.

That was my thinking too. The policy is designed to create 'churn' in the economy; not necessarily in the housing market, but also in goods/services ('now we can go on that cruise we always planned on, Mavis! etc) and in financial services.

The feelgood factor amongst boomers will be short lived; especially if/when those that blow the cash come to the government with a begging bowl, claiming they were misinformed. Still, that'll create work for the lawyers, I suppose.