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Budget 2014: Tax changes to boost pensioners and savers
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Author:  pcernie [ Wed Mar 19, 2014 3:18 pm ]
Post subject:  Budget 2014: Tax changes to boost pensioners and savers
http://www.bbc.co.uk/news/uk-politics-26632862

http://www.bbc.co.uk/news/business-26645108

Bloody typical - I'm in two minds about whether to walk out of my retarded workplace altogether and he suddenly has a bright idea about ISAs. You'd think there was an election coming up...
Author:  jonbwfc [ Wed Mar 19, 2014 3:39 pm ]
Post subject:  Re: Budget 2014: Tax changes to boost pensioners and savers
The changes related to annuities are interesting, because they've been a massive rip off for years. Plenty of time for things to change before I get there though :(.
Author:  l3v1ck [ Sun Mar 23, 2014 9:57 pm ]
Post subject:  Re: Budget 2014: Tax changes to boost pensioners and savers
+1
Sooooo glad I'm not going to be forced into an annuity.
Author:  pcernie [ Mon Mar 24, 2014 2:54 pm ]
Post subject:  Re: Budget 2014: Tax changes to boost pensioners and savers
Cameron signals Tories may raise inheritance tax threshold

http://www.theguardian.com/politics/201 ... -threshold

I hate to say I'm with him on being able to pass it down, but I suspect he's operating on a much sleazier basis...
Author:  jonbwfc [ Mon Mar 24, 2014 3:48 pm ]
Post subject:  Re: Budget 2014: Tax changes to boost pensioners and savers
To be fair, he's got more to pass down than most of us have..
Author:  TheFrenchun [ Mon Mar 24, 2014 3:56 pm ]
Post subject:  Re: Budget 2014: Tax changes to boost pensioners and savers
jonbwfc wrote:
To be fair, he's got more to pass down than most of us have..


Do you mean he is full of [LIFTED]? :lol:
Author:  koli [ Tue Mar 25, 2014 2:54 pm ]
Post subject:  Re: Budget 2014: Tax changes to boost pensioners and savers
jonbwfc wrote:
The changes related to annuities are interesting, because they've been a massive rip off for years.

I am curious, how did you come to this conclution?
Secondly, what is an alternative to an annuity that you would choose if you were to retire today?
Author:  koli [ Tue Mar 25, 2014 2:56 pm ]
Post subject:  Re: Budget 2014: Tax changes to boost pensioners and savers
l3v1ck wrote:
Sooooo glad I'm not going to be forced into an annuity.

Same question to you, what is an alternative for you?
Author:  l3v1ck [ Tue Mar 25, 2014 6:50 pm ]
Post subject:  Re: Budget 2014: Tax changes to boost pensioners and savers
You could put it into a high income fund (as opposed to a growth fund) and live off the income. The difference being that when you die you can still leave the capital in your will. With an annuity the provider takes the lot when you die.

Annuities have been a rip off since 2008 as the rates they give wouldn't even give you close to the full pot back over your expected life time. (let alone the interest that that pot could earn.) Rates were driven down by QE measures from the BoE.
Author:  koli [ Wed Mar 26, 2014 9:24 pm ]
Post subject:  Re: Budget 2014: Tax changes to boost pensioners and savers
l3v1ck wrote:
You could put it into a high income fund (as opposed to a growth fund) and live off the income. The difference being that when you die you can still leave the capital in your will. With an annuity the provider takes the lot when you die.

That sounds good in theory but it is not really an option for the majority of people. The reason is that it only works if you have a considerably big pension pot available on the day you retire. These days if you have £35,000 pot you are in the top bracket. That only gets you £1,400 in annual income if you put it in "high income fund" (at 4% dividend yield).

Can you really afford to live off the state pension + £1,400 AND leave 35k to your kids at the same time? I really doubt that.

You would probably need at least 300k pot to live off the income on its own getting 12k dividend income annually. And 300k pot is unrealistic for 95% of the people.

The point I am trying to make here is that not many people are able to leave cash to their kids these day unless you are they are prepared to considerably lower their standards of living OR they are rich already. And that's today, in 30 years time you'll be lucky to get anyting from the state. So even today you will have to use your 35k pot (the principle) to subsidize your income. That will of course decrease you future dividend income. Essentially you will have to estimate how long you are going to live AND you will have to get that right.
l3v1ck wrote:
Annuities have been a rip off since 2008 as the rates they give wouldn't even give you close to the full pot back over your expected life time. (let alone the interest that that pot could earn.)

Annuity is essentially an insurance that you will not run out of income before you die. Essentially you transferring two risks to annuity underwriter:
1. Market risk - risk that your assets (investment in high income fund in your case) will lose their value and that you will get bellow expectation income
2. Longevity risk - risk that you will much longer than you expect

Every insurance that you buy costs money (premium you pay). In general you should only insure assets that you cannot afford to lose (e.g. you are not able to replace them easily once they are gone or damaged). That's why you don't insure your mobile phone because if you lose it you can easily buy a new one. However you probably have you house insured because if it burns down you won't be able to replace it.

I can't imagine any asset in a life of person that is more precious and more irreplaceable than their pension pot. You have worked all your life to accumulate it and when you get old you won't be able to replace it if you lose it or it loses its value.

We all have different preference to risk and we are willing to pay different amounts to take on or offload the risk, I understand that. But what worries me is that most people underestimate the market risk.

FTSE100 fell by 50% from its peak during the last crisis. Can an average person (with their 30k pension pot) afford to lose 50% of their investment value when they are retired (even if that is temporarily, e.g for 5 years)? Can you afford to lose 50% of your income from your "High Income fund" for that period of time?
I really doubt you can. Not to mention the stress that it would bring you...
Author:  hifidelity2 [ Thu Mar 27, 2014 10:53 am ]
Post subject:  Re: Budget 2014: Tax changes to boost pensioners and savers
koli wrote:
l3v1ck wrote:
You could put it into a high income fund (as opposed to a growth fund) and live off the income. The difference being that when you die you can still leave the capital in your will. With an annuity the provider takes the lot when you die.

That sounds good in theory but it is not really an option for the majority of people. The reason is that it only works if you have a considerably big pension pot available on the day you retire. These days if you have £35,000 pot you are in the top bracket. That only gets you £1,400 in annual income if you put it in "high income fund" (at 4% dividend yield).

Can you really afford to live off the state pension + £1,400 AND leave 35k to your kids at the same time? I really doubt that.

l3v1ck wrote:
Annuities have been a rip off since 2008 as the rates they give wouldn't even give you close to the full pot back over your expected life time. (let alone the interest that that pot could earn.)

Annuity is essentially an insurance that you will not run out of income before you die. Essentially you transferring two risks to annuity underwriter:
1. Market risk - risk that your assets (investment in high income fund in your case) will lose their value and that you will get bellow expectation income
2. Longevity risk - risk that you will much longer than you expect


FTSE100 fell by 50% from its peak during the last crisis. Can an average person (with their 30k pension pot) afford to lose 50% of their investment value when they are retired (even if that is temporarily, e.g for 5 years)? Can you afford to lose 50% of your income from your "High Income fund" for that period of time?
I really doubt you can. Not to mention the stress that it would bring you...


The problem is that Annuity rates are very low

http://www.ft.com/personal-finance/annuity-table

so your £35K will only buy an Annuity of £1893.00 (Single life, level,no guarantee at 60) so only £489 more than the Income fund (and of course with the income fund you still have your £35K) so maybe one should compare joint life (after all your other half can still get an income off the Income fund) so then an Annuity will only pay £1782 (so only £382 more)

Also with the Income Fund I could Take my pension pot at 55 – pay off the Mtg (with the tax free 25%) and then keep adding to the Income fund for the next 5 – 10 years (assuming I retire between 60 and 65). This then gives me a lot more flexibility
Author:  TheFrenchun [ Thu Mar 27, 2014 11:00 am ]
Post subject:  Re: Budget 2014: Tax changes to boost pensioners and savers
my pension plan is to work part time reviewing work in my industry until I physically can't get up anymore.
Author:  hifidelity2 [ Thu Mar 27, 2014 2:47 pm ]
Post subject:  Re: Budget 2014: Tax changes to boost pensioners and savers
TheFrenchun wrote:
my pension plan is to work part time reviewing work in my industry until I physically can't get up anymore.

Mine is to find a rich widow :shock:
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