Reply With QuoteYou put tax-free money into your pension.
Seems fair to me that it is taxed sometime.
So today the new pension rules come into force.
Any thoughts?
I feel it is a bit unfair to tax the money. I have skimped & saved my money in the pension scheme in the hope my retirement will be good.
This feels like a tax on saving. What the government is trying to tell you is put the bare minimum in a pension scheme + NI contributions, spend the rest. According to statistics an average family saves < 2000 GBP a year and with this kind of taxation I don't think anyone will want to save.
You put tax-free money into your pension.
Seems fair to me that it is taxed sometime.
Also worth being clear that you can now get more money out in one hit with less tax than previously. As has been said, contributions and investment return (if any/applicable) has been tax free, so this remains a very tax efficient way of saving.
I'm far from an expert in this but I thought today's changes introduced options but didn't close any off. So everything you could do with your money yesterday you can do tomorrow.
My worry is that some people will take it all as cash, spunk it, end up on state pension only and then complain about their position.
Spending, property, buy-to-let, financial services industry booms? Some will be sensible, some won't. Mis-selling scandal, enquiry, compensation scheme in the making? However, not sure schemes we have been subscribing to are any better alternative.
Last edited by BillyCasper; 6th April 2015 at 22:00.
And then require bailing out by the rest of us.Originally Posted by MakeColdplayHistory
Sorry finance is not my strong point are pension contributions tax free?
I wouldnt worry too much as the average private pension pot is 50k in the UK so buys very little anyway, so whilst someone who spanks the lot will be a little worse off they would have been on skid row anyway.
Yes and so is the investment growth - the idea being that the Treasury makes more by taxing once the pension is converted to an annuity and paying income (thus income tax).
Unless you're in the fortunate position of your pension pot increasing by more than £40k in a year or the pot is worth more than £1.25million when you retire.
The new rules give a lot more flexibility which will be used wisely by some and most likely badly by most!
If you take the example of a £100k fund, previously most would have considered that too small for drawdown so £25k tax free cash and then an annuity of around £4k on the remainder. Nothing exciting but g'teed income for life and if your state pension wasn't great, possibly little or no tax as under personal allowance.
From today the above can still be achieved via annuity or a carefully managed drawdown, what a lot of people will do is 'cash in' and get £25k tax free and then draw the 75k remainder, getting stung for a huge tax bill as its added onto their income and taxed accordingly, giving them a huge tax cost when compared to the old rules, and then they will be bitching once the cash has run out!
Will work for those that know how to, disaster waiting for those that don't. I know for a fact that my reports are going to get longer with all the extra stuff that will be going in to cover my hairy old arse!!
Pensions still good place to invest (especially for 40% tax payers) but the post retirement market just got a whole lot more complicated, although the death benefits are a lot fairer than before.
I think a lot of people will take the 25% tax free early and enjoy it, those with bigger pots will probably invest it. I doubt someone who has saved for 20 years would just "spunk it" but if they want to the 55% tax hit + the fees will put them off I expect.
The fact you don't have to buy an annuity now and can pass on the pension if you die before 75 makes a pension far more attractive and means I will be putting more in so I guess it is going to be swings and roundabouts for the industry itself.
I thought the lifetime allowance was also reduced to £1m at the last budget?
Don't understand all this talk of no longer having to purchase an annuity.
That was never the case, 'drawdown' was always possible.
Correct, but the costs involved against the income that could be taken without adversely affecting the value of the remaining fund meant it wasn't really an option for all but the largest funds (roughly > £100 to £150k)
You could also only draw down until the age of 75 then the remainder had to be converted to an annuity under the old rules IIRC.
£100k isn't a very large pot TBH but didn't realize that 75 age restriction.
£100k + is massive in reality, as per my post above the UK average fund for a current retiree is around £50k ... and at that level it doesn't matter what you do with the capital as it's never going to generate a decent income.
My missus works in the retirement / annuity sector and she was saying they're getting no end of calls from folk wanting to cash their funds in to release monies for a BTL. Most don't seem to understand the tax implications of cashing the pension nor understand that the returns on a BTL are pretty awful anyway and then it requires active management.
In reality for a lot of people a lifetime annuity is still the best option, my feelings at the moment are that I'll be hammering a lot more into my pension and when the time comes to pack in work I'll use some to fund an annuity to give me a guaranteed basic standard of living and then use the rest as investments with draw down to fund the luxuries.
I didn't realise the age restriction. I tried to take all mine out and spunk it on a Lambo but denied.
Party poopers!
IIRC drawdown wasn’t available before 1995, prior to that it was a requirement to take an annuity.
R
Ignorance breeds Fear. Fear breeds Hatred. Hatred breeds Ignorance. Break the chain.
I have to confess that I have little understanding of the new rules, but as someone from the public sector who took redundancy / early retirement a couple of years back, I'm guessing that the new rules aren't for me?
Seems there are some knowledgeable folk on here and I'd appreciate any feedback.
don't affect you whatsoever as the superannuation public sector funds are excluded from the new rules anyway due to the funding method. plus as you are already drawing benefits you are still one of the luckiest buggers with a final salary index linked pension that most could only dream of.
put your feet up and forget all this pension nonsense and get back to looking at shiny stuff; nothing to give you any concerns.
Wow, thanks for the quick and definitive answer. I'll gladly take your advice - cheers!
West Berks, lovely, lovely area and where I lived (and still have a house) before relocating.
Last edited by Caller; 7th April 2015 at 18:29.
you're welcome, i used to specialise in advice to local government staff in a former life so know the super ann pretty well.Wow, thanks for the quick and definitive answer. I'll gladly take your advice - cheers!
some company scheme members for non public sector companies could transfer their benefits pre-retirement into a personal pension now but we are still waiting for the dust to settle and i won't be rushing into that market. as you've already started taking benefits you would be excluded from that option even in the private sector as far as i'm aware.
Effective April 2016 isn't it?
Man, you guys are as bad as we are in the US. I think the average retirement account here is only about $50k. People are screwed as our government pension system, social security, is going bankrupt and will not be able to pay what they owe when the time comes. And that plan was never supposed to be enough to live on, only supplement your own savings and/or pension plan.
My wife and I put away >£50k a year as we are not getting an employee pension. I'm not counting on getting much of anything from social security either.
We pay taxes here as well on most distributions. You can put pre tax money away and pay tax on what you take out (presumably at a lower tax rate when you are retired) or set up a post tax money plan where the investment grows tax free and is not taxed when you withdraw funds.
Last edited by Dr.Brian; 7th April 2015 at 19:03.
The next phase of the pensions sell out is too allow retired folks to sell their annuities to third parties for a lump some (annuities though, not the public sector pensions funded from on-going taxpayers).
Details of how this will work are a little thin on the ground, but I'm guessing that you'll be able sell the rights to your continued annuity payments to a third party in return for a lump sum, the third party factoring the amount of the lump sum based on your age, health, annuity value, T&Cs of the annuity such as guaranteed payment periods etc etc. The tax position could be interesting as the income from the annuity would now be going to a company so I would expect it still to be taxable in some way, so what tax they would then levy on the individual receiving the lump sum is a bit open. Whatever they decide, I can't help but think the lump sums on offer are going to be pretty derisory.
I don't know but either way I won't be retiring in the next 12 months.
It's massive in relative terms but not in reality! As in another post this will give an annuity of something like £3-4000.
For a long time then - of course nothing has been for ever.
I think this changed in 2011.
Agreed, the point I was making was its a relatively large sum compared to the average fund.
It did, but IIRC only if you have other pension income in excess of 20k p/a ... so in reality very few people have funding of 20k and then a further pension large enough to make draw down worthwhile given lifetime funding limits.
My reply was to the comment of 'That was never the case': in fact it has been since pensions began (19th Century) so drawdown is a relatively recent development.
R
Ignorance breeds Fear. Fear breeds Hatred. Hatred breeds Ignorance. Break the chain.
flexible drawdown is for me, the best solution for 'cashing in' the remainder of your funds. At least you have to establish that you have some guaranteed income going forwards.
The initial £20k was possibly a bit toppy but the reduction last year to £12k in anticipation of the new rules coming in now was probably a more comfortable level, although £15k imho would have been low enough.
Drawdown has always been for for knowledgeable clients and some of the questions i'm getting from the rest of the client base are quite worrying. The Sun money page isn't all its cracked up to be!!
Yep, all I know is the wife is telling me they're getting no end of calls from clients wanting to cash the entire pot in to spend - some are looking at BTL but most are saying for holidays and cars ... and nearly all are unaware of the tax liability it creates! For people like that their only guaranteed income is going to end up being the state pension ... that's worrying given that even under the new state pension model of £150ish per week (after 35 years of contribution) as I know I'd struggle to survive on an annual income of £7800 p/a !!!
It's too early to tell what will happen to the next crop of pensioners ... but I reckon the next few years will bring increased new car sales, increased holiday spend, then a lot of people living in poverty having enjoyed a short term gain.
It's still a really tax efficient investment. You are getting tax relief in at either 45%, 40% or 20%. Plus with smart pensions and Smart AVC's you are getting a NI saving in addition. When you draw out you will be getting 25% of the pot tax free and then the rest fair enough will be taxable but you get your annual tax allowance of £10,800 and for a lot of people they will be paying a lower rate of tax on the rest than they got in tax relief on the way in.
There are not many better tax efficient investments available to ordinary people. Let's just hope the next Government whoever they might be don't come and change it for the worse. Make your own minds up who is the more likely to do this !
Yes I doubt many will do well enough out of this to make it worthwhile.
Thats interesting. What are folks then doing when they find they will be expecting huge tax bills if they cash it all in for a BTL?
Are people really cashing in pensions to buy holidays and cars? could people be more short-sighted?
No government is encouraging people to save; interest rates on savings are abysmal, taxes are too high VAT of 20% and don't even get me started on the inheritance tax. No wonder people want spend all their money. The belief that the state will look after them forever and ever is one of the problem.
I could go on forever.
There'll be a good few people enjoying themselves for a couple of years
Most act astonished as all they've heard, or more likely understood, is that you can cash you pot in and spend as you wish ... when hearing that they could be getting a 40 or 45% tax penalty it's ranged from "but that means I won't have enough for a flat ... that's not fair" to "YOU'RE WRONG YOU FECKING IDIOT !!!!".
Are people that short sighted ... yes, but then a surprisingly large percentage of the population are a bit dim. That said, if you're sat with a pot of say the average 50k it's going to get you a flat rate annuity of around 2.5k p/a, less than half that if you want escalating and widow benefits. So to the average person in the street, do they want £100 a month pension or a brand new BMW and a holiday in the Maldives ... a lot of folk are going to get the car and a tan is my guess.
Well, people have only had 2 days to actually do this, haven't they?
I expect most people will be fine but we'll hear endless tales of woe from the minority for whom it goes pear shaped. I'd be more sympathetic about people who fall for scams but that's another story.
The new rules took effect two days ago but the announcement was last April ... the company the wife is at has been getting enquiries coming through since the announcement.
I expect some people will take advice from the new free advice service which will steer most folk to taking an annuity if that is there only means of funding a retirement apart from the state pension, for folk with larger pots they'll probably seek proper advice and look at flexible draw down.
Either way, if it doesn't go according to plan and they then suffer hardship they'll blame everyone but themselves. IIRC the government is backing this up a "Lambo clause" ... basically if you take the fund and spank it on a Lambo then come unstuck later in life then it's tough luck - you'll get the state pension but that's it. I guess they have to stop people from cashing in pots to go off and enjoy and then claiming housing etc.
Dont get the obsession with cashing in a pension for BTL As well as having all your eggs in one basket (assuming one ones their own home too ).You pay 40% tax on the pension cashed in then plenty tax on the profits and then the hassle of managing it (if no using an agent ) (boiler goes whilst you are enjoying the cruise) Dont get me wrong BTL can work as part as a portfolio but for joe average to cash into his whole pension and sink it in to one BTL doesn't make sense.
Also property prices are at an all time high,rents havent kept up so buying a BTL nowadays and when interest rise rise prices will fall. Not the best time to be getting in to it.
The whole point is now with that 50 k pension pot you dont have to buy an annuity instead you can have it invested and take the dividends/interest and draw down the capital as and when you need it to live off.The intention is not to spend it the day you get access to it on that Audi and some holidays then spending retirement on the state pension and working part time in B&Q!
Totally agree with you, but like I said before the vast majority of people are dim and cant get past the shiny baubles ... more a reflection on society where instant pleasure seems more important than self reliance and long term security.
Personally I think the pension reforms are great and Ill make them work to my advantage, but having experienced poverty in my childhood Ill do my damn best to make sure I dont experience it again in my dotage.
I’ve just reviewed the performance of a pension fund that I have and as a result I’m cashing in 25% of it: if I can’t generate a better return on it than they have I’ll be very surprised.
R
Ignorance breeds Fear. Fear breeds Hatred. Hatred breeds Ignorance. Break the chain.
...and this is precisely the aim.
A brilliant manoeuvre by the Tory party just before an election
Frees up loads of capital, probably gets loads of tax revenue as people misunderstand the rules, just hearing 25% tax free. Plus people spend on shiny new things stimulating the economy & growth, with the added benefit of even more tax in the form of VAT. Win, win, win for the politicians.
Added bonus, they will be long gone when the pigeons come home to roost. Defer the problem of pensioner poverty to the next generation of politicians.
Of course for the sensible few - it genuinely is a good thing.
I
Yep definately a good thing for both my Mrs and Myself. As for anyone who gets it wrong I can't feel very sorry for them. There has been loads of information for those with the gumption to read it. For those who haven't they have only themselves to blame.
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