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      12-25-2012, 01:55 PM   #23
gangzoom
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Reduced to 40K pa and a pension value of 1.25M at the last budget and an excess taxed at 55% - maybe I should be a financial advisor

Merry Christmas all
I have no idea about pensions, but how do people manage to put 40K pa into a pension scheme, isn't that over 3K a month. Or does it work on the basis your empoyer has to match your contribution? Even than I'm barely managing 1/4 of that, better work hard than....at least I got over 30 years of work to look fowards to before retiring
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      12-25-2012, 02:37 PM   #24
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2400 isn't a bad sum of money for a pension couple who have paid off their mortgage and off-loaded their kids - fuck the BMW, I doubt I'll need it by then, a Vauxhall Astra will do me and the other arf.
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      12-25-2012, 03:37 PM   #25
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I have no idea about pensions, but how do people manage to put 40K pa into a pension scheme, isn't that over 3K a month. Or does it work on the basis your empoyer has to match your contribution? Even than I'm barely managing 1/4 of that, better work hard than....at least I got over 30 years of work to look fowards to before retiring
If you are a higher rate tax payer, you need to put 2k/month into a pension to achieve 36k/year, higher rate tax relief tax makes up the rest.
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      12-25-2012, 03:56 PM   #26
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gah i put in 800 pcm and i thought that was bloody plenty!
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      12-26-2012, 05:23 AM   #27
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A few myths surfacing here

Myth #1. "Retired couples need less money than working couples". Agreed there's usually no mortgage to pay, but generally speaking, inflation will have reduced the payments on a 30 year old mortgage to a smallish percentage of income. With more time for hobbies and travel I would propose that an active and happy retirement costs at least the same and most likely substantially more to finance than a 9-5 lifestyle.

Myth #2. "I won't need a BMW by the time I retire". Presumably this is generated by mental pictures of the grey haired set running around in Fiestas, Polos and Micras. If you like to drive a BMW today, there's absolutely no reason you won't want to after retirement, other than you can't afford one.....which is the point of this thread. Most people recognise that retirement calls for some downsizing......what I'm saying is that most people are sleepwalking into the level of downsizing that's going to be required based on recent developments and their impact on pensions

Myth #3. "The 50,000 annual limit doesn't affect me". In reality, any higher rate tax payer on a defined benefit pension who's reasonably close to retirement and who gets a reasonable pay rise of a few hundred pounds a month will find themselves with a massive and typically unexpected tax bill.

Myth #4. "I get tax relief on pension payments". Actually no you don't. What you get is tax deferrment by postponing receipt of a benefit. The government's reason for doing this was claimed to be to encourage saving for pension but in reality had to do with the difficulty in taxing defined benefit contributions. The tax on pensions is simply deferred to the time the benefit is taken, when theroretically, the recipient may be on a lower tax bracket.

Myth #5. "I get both state and a company pension, so I'm OK" These days, converting a pension pot into a annuity realizes about half to one third of the income it did a few years ago. With the abolishment of the 10% tax bracket, taxes have also risen. Private sector defined payment schemes are a LOT less generous than the old final benefit models and recent pension legislation has had a major (and quite possibly unintended) impact on final benefit schemes. Bottom line, what was more than adequate a few years ago is probably woefully inadequate today

Myth #6. "Only rich people need a financial advisor". Figuratively speaking, today's tax and pension code is like a financial mine field swept by machine gun fire. Large amounts of tax are collected from people who fail to use their long term tax shelters. Its difficult to generalize, but these days a high percentage of those paying higher rate tax would benefit from professional advice. The tax code was established by wealthy people who know how to use these shelters. These days, a properly set up pension can generate tens of thousands of tax free income as long as allowable tax blankets are used properly over many years. Crap interest rates and poorly managed funds made to look pretty by dressing them up as ISAs is not the answer.

Myth #7. "I used a pension calculator and the result looks fine".....most pension calculators give you an option to click boxes for i. Index linking, ii. Widow's benefit and iii. 25% tax free payout. Clicking boxes i. and ii. will almost halve the benefit but unless you've other protection against inflation and don't mind leaving your partner destitute, you should make sure these boxes are clicked in order to get a realistic estimate.
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      12-26-2012, 06:33 AM   #28
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Great post SteveC, Myth #3 was the point I was trying to make in my earlier post. Pension legislation, particularly the latest changes, is an absolute minefield now and it will catch people out, more than the tiny % quoted by Osborne. We ( the mugs who work hard for a decent salary and pay tax via PAYE) are being shafted again. Can't see any of this bothering the very high earners who we know have ways of minimising the tax they pay (by dubious means) - and this is coming from a long time Tory voter!

I personally will be in real danger of breaching the new LIfetime Allowance Limit of 1.25m at 55. Sounds very grandiose, but I am not particularly wealthy, just fortunate to have a decent Final Salary scheme. My pension planning, along with my SIPP, which sits alongside my DC pension, is now being called into question. I think my next move is to stop paying into my SIPP and to plough as much as possible into my wife and my S&S ISAs. What's the betting that the next move is to tax the 25% pension tax free lump sum?
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      12-26-2012, 09:42 AM   #29
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Or....


Live fast, drive faster die In a fireball on the nurburgring = no pension needed.

Only trying to lighten a complex subject.

I don't know much about pensions but..

At the company I work for every person than was 'secure' in the final salary pensions all received a letter about 2 weeks ago forcing them onto an average salary pension. How this is possible I don't know?

Pensions on the face of it seem overly complex and full of danger. I don't like the thought of entrusting someone else to look after my money for 35 years. I know a bank is 'someone' else looking after your money but its different as you have immediate non contractual access to it.

For me pensions and long term investments are not something I will be paying much mind to until I'm 30. It will probably be investment into property anyway.
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      12-26-2012, 12:11 PM   #30
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Myth #2. "I won't need a BMW by the time I retire". Presumably this is generated by mental pictures of the grey haired set running around in Fiestas, Polos and Micras. If you like to drive a BMW today, there's absolutely no reason you won't want to after retirement, other than you can't afford one.....which is the point of this thread. Most people recognise that retirement calls for some downsizing......what I'm saying is that most people are sleepwalking into the level of downsizing that's going to be required based on recent developments and their impact on pensions


Be glad to see the back of my BMW if only for the fact that I will not have to deal with all the F***** Arse Wipes at the Dealerships, from the Dealer Principle to the Guys that think it is part of their job to cover your car in swirls !!

Pensioner
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      12-26-2012, 07:19 PM   #31
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so, im still not entirely sure what this thread is about.. basically we are saying that even people capable of saving, over the course of their working life, up to the maximum limit of 1.25m are still not going to have a 'liveable' income.. i'm also still not really sure what happens if you go over that limit tbh, but meh

if that's the case, then sweet baby jesus... vast majority of the population are just completely and utterly fucked. i calculated a few years back that i would probably need somewhere in the region of 450k pot for something half way decent.... so i set about ensuring i would save that even before compound interest was taken into account.

perhaps i should read this thread again, more carefully...

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      12-27-2012, 04:22 AM   #32
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What this thread is about

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Originally Posted by BGM View Post
so, im still not entirely sure what this thread is about.. basically we are saying that even people capable of saving, over the course of their working life, up to the maximum limit of 1.25m are still not going to have a 'liveable' income.. i'm also still not really sure what happens if you go over that limit tbh, but meh

if that's the case, then sweet baby jesus... vast majority of the population are just completely and utterly fucked. i calculated a few years back that i would probably need somewhere in the region of 450k pot for something half way decent.... so i set about ensuring i would save that even before compound interest was taken into account.

perhaps i should read this thread again, more carefully...

Essentially what is being said is that instead of being the safe way into old age, the standard state and company defined payments pension will no ensure a comfortable old age, even if you can afford to save up to the Government's recently imposed limit.

What few realise is how bad the pension situation has become, with the maximum size pension pot now only able to produce slightly under 3000 per month....not a lot given the relatively huge amount that needs to be saved to achieve this.

Any pension pot that exceeds 1.25M will carry a 50% tax on the excess. With all the limitations placed on pension contributions, it has now become a minefield of limits and both foreseen and unforseen tax liabilities.

A pension pot of the 1990s would have produced a pension of 2 - 3x what the same pot will produce today, thanks to Gordon Brown and greedy bankers

Saving for a pension requires a 30 - 40 year committment, but concientious savers have been utterly betrayed by subsequent Chancellors deperate to get their hands on your cash.....any cash...even cash you haven't yet earned but may earn from your pension in the next 20 years. The fact there's no outcry is a sure sign that people are only going to wake up when its far too late and they find their 'Golden Years' have turned into 'tin plate' without them noticing.

What most people probably don't realize is the degree to which excess Government spending, quantitative easing and the Euro crisis has impacted saving's ability to generate income. Combine this with new legislation that limits pension pots and contributions and you've got a perfect recipe for old age poverty for millions who to this day may be looking forward to retirement with eager anticipation.
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      12-27-2012, 04:23 AM   #33
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Most people don't even earn 2,400 a month let alone wanting to be able to retire with that as a pension.
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      12-27-2012, 06:03 AM   #34
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Most people don't even earn 2,400 a month let alone wanting to be able to retire with that as a pension.
Exactly, as has already been stated 2400 a month is plenty, that's 600 a week disposable income. For those drinking Crystal champagne on their yacht it might not seem like a lot but for normal folk, trust me it's plenty. My parents pension is less than that a month and they are FAR from destitute. Add in some private health insurance and they are sorted and IF they ever need a financial boost or need a carer then that is what I am there for as they looked after me for over 20 years.

A pension should only be part of your future financial plans, if you are pinning all your hopes on some stranger\the government sorting out your financial future then more fool you. A pension will be a small part of my income when I retire, I'll sort out my own financial future thanks.

As for the pensions limits\taxation problem, again easy. Simply move yourself or your wealth somewhere where the greedy government can't get their hands on it. I'll be damned if I am going to work my a*se of my whole life only for someone to take a massive chunk of it.

So it really isn't as bleak as some are trying to make out, IF you are smart.
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      12-27-2012, 06:17 AM   #35
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Exactly, as has already been stated 2400 a month is plenty, that's 600 a week disposable income. For those drinking Crystal champagne on their yacht it might not seem like a lot but for normal folk, trust me it's plenty. My parents pension is less than that a month and they are FAR from destitute. Add in some private health insurance and they are sorted and IF they ever need a financial boost or need a carer then that is what I am there for as they looked after me for over 20 years.

A pension should only be part of your future financial plans, if you are pinning all your hopes on some stranger\the government sorting out your financial future then more fool you. A pension will be a small part of my income when I retire, I'll sort out my own financial future thanks.

As for the pensions limits\taxation problem, again easy. Simply move yourself or your wealth somewhere where the greedy government can't get their hands on it. I'll be damned if I am going to work my a*se of my whole life only for someone to take a massive chunk of it.

So it really isn't as bleak as some are trying to make out, IF you are smart.
I actually have a meeting with my financial advisor in the new year just on this topic anyway.. didn't realise this new 'situation' though. To plays devils advocate what are people's options with regards to saving elsewhere.. Perhaps offshore? Or what?

Thankfully I do plan to have other income sources when I retire... Although none of them are very mature yet!
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      12-27-2012, 07:21 AM   #36
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What most people probably don't realize is the degree to which excess Government spending, quantitative easing and the Euro crisis has impacted saving's ability to generate income. Combine this with new legislation that limits pension pots and contributions and you've got a perfect recipe for old age poverty for millions who to this day may be looking forward to retirement with eager anticipation.
It's a fair point SteveC, and I agree with most of your analysis. Several friends of mine (i.e. mid-40's to early 50's) have long since lost faith in equity based schemes that only work if the stock market grows forever. In addition, no-one trusts politicians of any party to get pensions legislation right.
What do the people I know do? The following:
Try and stay healthy - no-one can promise this of course, but IMHO we're going to be working well into our late 60's and we need to be healthy to do that. Good diet, exercise within reason....and strictly no smoking. No-one I know is a regular smoker.......
Pay off debts where possible, especially the mortgage
Invest in property, e.g. for offspring in university towns
Keep the six year old 335i rather than buy an X5 40d!!!

I realise this may sound smug, it's not meant that way. Just my observations about, well, this corner of the world. I completely accept that the above isn't possible for most.
But maybe more people than you think (?) share your pessimism and have already made alternative plans.
Good thread by the way.
Mike.
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      12-27-2012, 07:50 AM   #37
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yes, very good thread. not the usual you see on car forums... wonder how well this would go down on PH
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      12-28-2012, 05:39 AM   #38
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Telegraph 22 December - Under the new tax free limits which were announced in the Autumn Statement, workers with a gold plated final salary pension scheme can get an inflation-linked income of up to 62.500 a year before they have to pay tax, while a saver on a defined contribution pension scheme could get a pension of just 35k before tax.

Phew.
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      12-28-2012, 05:52 AM   #39
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Telegraph 22 December - Under the new tax free limits which were announced in the Autumn Statement, workers with a gold plated final salary pension scheme can get an inflation-linked income of up to 62.500 a year before they have to pay tax, while a saver on a defined contribution pension scheme could get a pension of just 35k before tax.

Phew.
Just slightly disingenuous. 'Before they have to pay tax' actually means that they pay standard income tax up to an including 40% HRT on pension income, but if they exceed 62,500 pension income there is an additional 20% on income and 55% on the tax free pension lump sum. So the Telegraph is very misleading.

The comparison with a DC 35K pension is probably for an annuity for a 55 year old male and these can come in all sorts of varieties - so again probably misleading. I do agree though that the Final Salary schemes are the gold standard which is why they are being completely phased out as they are unaffordable in the private and public sectors.
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      12-28-2012, 07:53 AM   #40
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To plays devils advocate what are people's options with regards to saving elsewhere.. Perhaps offshore? Or what?

Thankfully I do plan to have other income sources when I retire... Although none of them are very mature yet!
My plan which I have already made headway into is to diversify, don't want to go into too much detail but the ultimate goal is to move my wealth abroad to a country where they have a much more positive attitude to wealth and taxation thereof and also where your money goes a lot further. Properties abroad is the direction I'm heading, want to sort out a nice place for me and my family to live and a few more to bring in some rental income and I'll be set.

I'll pop back to the UK from time to time for shopping trips and visits but I don't plan on living out my old age in a country which has one of the highest costs of living in the world and who insist on taxing you to the hilt throughout your working life and then taxing you again when you retire and then even after you die through inheritance tax, they can f*ck right off.

As stated before, I am taking positive action to plan my OWN financial future on my own terms, not relying on some pension pot which may or may not even deliver what I want dependent on the whims of a government who don't know how to plan for the financial stability\future of this country.
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      12-28-2012, 11:31 AM   #41
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Public vs Private Sector

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Just slightly disingenuous. 'Before they have to pay tax' actually means that they pay standard income tax up to an including 40% HRT on pension income, but if they exceed 62,500 pension income there is an additional 20% on income and 55% on the tax free pension lump sum. So the Telegraph is very misleading.

The comparison with a DC 35K pension is probably for an annuity for a 55 year old male and these can come in all sorts of varieties - so again probably misleading. I do agree though that the Final Salary schemes are the gold standard which is why they are being completely phased out as they are unaffordable in the private and public sectors.
I would agree wholeheartedly that the Private Sector is phasing out Final Salary Schemes as being completely unaffordable.

I have not seen the same trend in the Public Sector where Final Salary Schemes are considered affordable by virtue of the fact they're paid by the tax payer. The government is trying very hard to increase pensionable age and ask Public Sector workers to contribute more, as the gap between Public Sector Gold Plated, RPI linked pensions and private sector Defined Payment schemes is huge...
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      12-28-2012, 12:03 PM   #42
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My plan which I have already made headway into is to diversify, don't want to go into too much detail but the ultimate goal is to move my wealth abroad to a country where they have a much more positive attitude to wealth and taxation thereof and also where your money goes a lot further. Properties abroad is the direction I'm heading, want to sort out a nice place for me and my family to live and a few more to bring in some rental income and I'll be set.

I'll pop back to the UK from time to time for shopping trips and visits but I don't plan on living out my old age in a country which has one of the highest costs of living in the world and who insist on taxing you to the hilt throughout your working life and then taxing you again when you retire and then even after you die through inheritance tax, they can f*ck right off.

As stated before, I am taking positive action to plan my OWN financial future on my own terms, not relying on some pension pot which may or may not even deliver what I want dependent on the whims of a government who don't know how to plan for the financial stability\future of this country.
With the utmost respect, I would point out that a lot of UK residents have already tried something similar to what you're suggesting and many came unstuck. Anyone investing in Cypress, Greece, Spain, Portugal, Ireland, the new EU Member States or US property and real estate has seen massive hits to their portfolios, some of which may take up to a decade or more to recover. There's no doubt that there are now some very interesting properties available for relatively small money, but that doesn't guarantee a return necessarily.

Points to watch with such a strategy include;

1. Currency fluctuation risk....can really hurt when currency shifts 20 or more percent the wrong way
2. Property taxes for non-Doms...often targeted by Governments because doing so is very popular with voters
3. Forex laws....related to the repatriation of capital....often easy to move capital in but not back out of many countries
4. UK tax liability....UK residents are typically liable for tax on foreign earnings. And if there's no tax treaty then double taxation is a real possibility
5. Social laws regulating property rental....it can be a real problem in some countries if a tennant loses their job or becomes infirm. and can't pay the rent.
6. Contractual obligations; for example remediation of environmental issues
7. Ownership issues.....ownership in many former East European Countries for example is still a contentious subject.
7. Loss of tax shelters at source....very often its not how much you earn but how much you've managed to shelter from tax that makes the difference.

While far from being an expert, I've lived and owned several houses abroad, so know something about that which I speak.
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      12-28-2012, 01:20 PM   #43
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Gold. Buy it.

If the previous posts seem bad, read this http://www.moneyweek.com/endofbritain

All of it. Find 30 minutes, seriously, read the figures, look at the graphs, they're in easy terms.

I'm no expert, but moneyweek has saved me from many disasters and has only improved my situation. Well worth the subscription.
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      12-28-2012, 02:15 PM   #44
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pretty morbid reading indeed.
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