Pensions

[johntel]

I'm trying to work out if it's worth converting my wife's 56K pot to an annuity while the rates are high and I understand annuities make more sense for women than men. I don't think we'll have any particular need for a big lump sum in the coming years - and I certainly don't want to be paying higher rate tax if we withdraw it in cash. Any thoughts anyone?

[leftieliberal]

Oct 28, 2022 14:25:34 GMT johntel said:

I'm trying to work out if it's worth converting my wife's 56K pot to an annuity while the rates are high and I understand annuities make more sense for women than men. I don't think we'll have any particular need for a big lump sum in the coming years - and I certainly don't want to be paying higher rate tax if we withdraw it in cash. Any thoughts anyone?

I strongly recommend getting advice from an independent financial adviser, if you don't already have one. I'm facing the same issue with my smaller pension pots as I'm 75 next Spring and am talking to my IFA next month.

[Mr Poppy]

Mark It appears that great minds think alike. Could you delete my issue specific thread and I'll repost the my comments on the one I created here. johntel beat me to it!

[Mr Poppy]

Some useful links:

Info on Lifetime Allowance (DB, DC or SIPP)
www.gov.uk/tax-on-your-private-pension/lifetime-allowance

Info on minimum age:
www.gov.uk/government/publications/increasing-normal-minimum-pension-age/increasing-normal-minimum-pension-age

A link for current+historic annuity rates (and some other info):
www.sharingpensions.co.uk/annuity-rates-chart-latest.htm

Free advice (paid by taxpayer and they won't try to sell you anything):
www.moneyhelper.org.uk/en?

[Mr Poppy]

4 hours ago jimjam said:
NB) I like the 25% (could be 22% initially) across the board as encourages lower earners to save a bit more and/or allows the same contribution for a lower deduction from pay.

Moved to Issue Specific thread. Anyone and everyone can get tax relief at basic rate of tax on pension contributions, even if you're below the lower rate tax threshold, don't work at all (incl. if you retired early or are a homemaker, carer, etc) or were even just born yesterday:

The attached link also shows how, if you start young enough, you can build a very large pension pot even by using up the minimum amount before you need to be into income tax brackets to benefit from more tax relief. The 4% used is a pretty low compounding rate but it will do for 'illustrative purposes':

Junior pensions: what is a junior SIPP and how does it work?
www.unbiased.co.uk/life/pensions-retirement/junior-pensions

NB Yes, I'm aware you need to have disposable income to make contributions to your own, your spouse, your kids/grandkids, etc pension and not everyone will have that - especially not over the coming months with the CoL crisis and mortgage rates going up.

[johntel]

Oct 28, 2022 16:47:31 GMT leftieliberal said:

Oct 28, 2022 14:25:34 GMT johntel said:

I'm trying to work out if it's worth converting my wife's 56K pot to an annuity while the rates are high and I understand annuities make more sense for women than men. I don't think we'll have any particular need for a big lump sum in the coming years - and I certainly don't want to be paying higher rate tax if we withdraw it in cash. Any thoughts anyone?

I strongly recommend getting advice from an independent financial adviser, if you don't already have one. I'm facing the same issue with my smaller pension pots as I'm 75 next Spring and am talking to my IFA next month.

Thanks for the advice leftie but tbh I view IFAs with same disdain that I view management consultants. I prefer to do my own research (and make my own mistakes too of course!). 

[johntel]

Oct 28, 2022 17:21:56 GMT Mr Poppy said:

Mark It appears that great minds think alike. Could you delete my issue specific thread and I'll repost the my comments on the one I created here. johntel beat me to it!

Thanks TW. It was because you suggested a separate thread that I started it  .

[leftieliberal]

Oct 28, 2022 17:25:30 GMT johntel said:

Oct 28, 2022 16:47:31 GMT leftieliberal said:

I strongly recommend getting advice from an independent financial adviser, if you don't already have one. I'm facing the same issue with my smaller pension pots as I'm 75 next Spring and am talking to my IFA next month.

Thanks for the advice leftie but tbh I view IFAs with same disdain that I view management consultants. I prefer to do my own research (and make my own mistakes too of course!). 

An IFA isn't, or shouldn't be, a replacement for doing your own research but more for covering your blind spots. If you are not asking your IFA difficult questions, you are not getting full value out of them.

[johntel]

I'm wondering how annuity providers set their rates - are they based on what return they think they can get on the capital and they keep the capital when you die as their commission. Or do they count on returning a certain amount of capital each year and increase the spread between the rate of return they expect to get and what they pay out, to get their commission? It must be fiendishly complicated.
Anyway, they must take their cut - which is why for myself I'd rather invest the capital myself so I keep control of it and back myself to get a a good return.
However because of equality rules women's rates have to be the same as men's which means they get a much better deal. But what that equates too in reality I've no idea.

[Mr Poppy]

Oct 28, 2022 17:33:34 GMT leftieliberal said:

Oct 28, 2022 17:25:30 GMT johntel said:

Thanks for the advice leftie but tbh I view IFAs with same disdain that I view management consultants. I prefer to do my own research (and make my own mistakes too of course!). 

An IFA isn't, or shouldn't be, a replacement for doing your own research but more for covering your blind spots. If you are not asking your IFA difficult questions, you are not getting full value out of them.

See previous links for where you can get some free advice. Everyone's circumstances are unique but in general there are some 'for most people' things subject of course to disposable income and other priorities (eg younger people saving for a house means its more complex for them):

1/ Always max out your pension contributions in whatever scheme you can (keeping an eye on the lifetime allowance so that you don't go over that - you need some maths skills and to make some assumptions for that)
2/ Once you've maxed out your own contributions then max out spouse, kids (from the day after they are born), etc - assuming you intend to stay together and want to use smart ways to avoid the 'Avoidable Tax' (aka Inheritance Tax). Not something everyone can do I know. 

Then once you near retirement age, or are past that age, then generally (much more circumstances specific)
3/ Take the 25% lump sum and do something smart with it (circumstances specific but you can continue to do 1+2 above, pay off your mortgage if you still have one now that rates are going up, etc)
4/ Do a lot of research, ask lots of people for advice (incl. the free one and being careful not to buy anything from someone selling you stuff unless/until your sure it is right for you). Don't ask taxi drivers for share tips (unless you want to know what to short)
5/ Make sure to consider ALL your incomes and pots of wealth (eg you can progressively draw down from ISAs which you could have turned into bond funds to ensure they look a lot like an annuity; do you intend to downsize your house; etc)
6/ Review your pension pot and reassess your decisions regularly, especially after big moves in the market. Be careful with stuff you read in the sensationalist press who want a headline rather than giving honest advice. However, don't review everything so often that you give yourself an ulcer. 

Beyond that it is so circumstances specific that you'll need to buy me a beer or give me some generous gimmees on a golf course

For annuities then you do get 'guaranteed' income and for a lot of people that peace of mind and predictability is very useful but the provider is making some fees and profit. If you're a dab hand at spreadsheets then you can replicate what an annuity would provide by yourself and save some fees + achieve a higher % + skew it towards an inheritance pot (if you want). For a smallish pot of cash then 'replicate' isn't going to work as you'd need to buy very small amounts of lots of different bonds of different maturities. 

[Mr Poppy]

Oct 28, 2022 17:52:32 GMT johntel said:

I'm wondering how annuity providers set their rates...

1/ Actuaries estimate how long you're likely to live using 'averages' from tables they all have (bit like car insurance, they consider a lot of factors) 
2/ Lots of specific types of annuities available so you need to consider if you want a pot left at the end, etc.
3/ They generally buy bonds of specific maturities (and sometimes some high income shares, pref shares, etc) that 'MATCH' the assets to the liabilities within the policy they sell you (lots of strict rules on that)
4/ They then add a fee/profit margin to the various specific types they offer (see #2 and some of the links previously provided)

NB The guaranteed income and peace of mind aspect of annuity is something well worth considering for most people. Bond yields are off their recent highs but there is often a lot of 'inertia' in the annuity rates being offered. Due to the recent very high levels of volatility (big daily moves) then the rates haven't fully reflected the yields on the underlying investments (mostly gilts). Hence, annuity providers have been hesitant to offer the best (market) rate if the market might swing wildly the other way within the period with which you can take their offering/cool off (same thing for mortgages where fixed rates are only just starting to come back onto the market at 'competitive' (current market) rates)

[shevii]

I recently used the free government service pensionwise (and, whatever you decide to do, a box will appear when you do do it mentioning this service or "have you consulted"). It goes on for best part of an hour and they basically read to a script and you would be forced to go through this before getting to your specific questions answered. They do explain your options and you can ask questions about the options at the end of the phone session, but they won't answer anything like "what's the best thing for me to do".

I've already forgotten the options now as I decided which one I was taking (and then deleted the recycle bin in my brain straight away!) but if I remember right, a) annuity, b) drawdown with 25% lump sum tax free of fund value at the time and then fully taxed on future drawdowns, c) drawdown paying tax on 75% of each drawdown. Drawdowns are basically whenever you decide you want one subject to scheme rules. (Deleted can correct me if I got any of this wrong and can probably give you your basic options in 5 lines if I have missed something!). You may have to move schemes for the drawdown options so just search online for the ones that do what you want them to do.

No-one can really advise on your best option so DIY is down to what you predict will happen and then what fits in best with your tax and personal situation. The drawdown 25% not taxed each time would give you more total money tax free if you think your funds are going to rise compared to the upfront 25% tax free and then taxed on 100% of future drawdowns and vice versa but at the mercy of the markets and fund value. Annuities vs drawdown is purely down to personal circumstances I think- guaranteed income for life vs still willing to risk the markets and risk running out of money. Even if everyone is saying annuities are good at present that might not help swing your personal reasons for taking the drawdown route.

Tend to agree with you on IFAs- I asked a few people who had done this whether I should use one and they were pretty non committal or said no real need to bother. You're balancing some unknown advantage in managing your funds via a "professional" against the money they would charge for doing this.

[Mr Poppy]

Oct 28, 2022 19:20:07 GMT shevii said:

..but if I remember right, a) annuity, b) drawdown with 25% lump sum tax free of fund value at the time and then fully taxed on future drawdowns, c) drawdown paying tax on 75% of each drawdown.

d/ tax-free drawdown of 25% then put the rest of it in an annuity (combo of a+b)

For b+c then depends how you're doing it and your tax rate etc. 

In our previous discussion then I was merely pointing out that annuity rates were much better than they have been for over a decade. Most of the press at the time was focussing on 'pension crisis' which was wrong given that there is the Pension Protection Fund for DB schemes and DC is DIY. Worse, I didn't see any press alert pensioners who had opted for drawdown or those near to retirement age that actually their situation was a lot better than it was when gilt yields were ridiculously low. Drawdowns were by far the best option when annuity rates were very low (2009ish to a few months ago) but annuities are worth another look and/or back as something that a lot of people could/should consider at current rates. Fully agree it is very specific to individual/couple/family circumstances. 

The major downside of annuities (which all advisors should mention) is that you are then locked in (usually until you die although some are for fixed periods). That should mean you can forget about it and enjoy your retirement but it also means you might be prone to 'buyers remorse' if stock market rallies or rates get even better. 

As we also discussed a while back then being able to see what your pension is worth via 'live' updates on an app/web is a double edged sword. Great when things are going up, not so pleasant when they are going down. For some people then locking an annuity would avoid that 'stress' but I'm certainly not suggesting annuities (off the shelf or DIY) are the best option for everyone. 

PS Sorry to hear the free taxpayer advice wasn't very helpful. I guess the old adage of 'you get what you pay for' has some merit (although I'll accept a 'virtual' beer or buy me one in a parallel universe) 

[shevii]

Oct 28, 2022 19:50:35 GMT Mr Poppy said:

Oct 28, 2022 19:20:07 GMT shevii said:

..but if I remember right, a) annuity, b) drawdown with 25% lump sum tax free of fund value at the time and then fully taxed on future drawdowns, c) drawdown paying tax on 75% of each drawdown.

PS Sorry to hear the free taxpayer advice wasn't very helpful. I guess the old adage of 'you get what you pay for' has some merit (although I'll accept a 'virtual' beer or buy me one in a parallel universe) 

It was helpful! One missing link of information on drawdown that allowed me to work out how best to do it.

[alec]

johntel - whether you go for an annuity largely comes down to your risk appetite and your personal circumstances. What is often said is that at least an annuity gives you some guaranteed income, so sometimes it's worth working out you minimum 'survival' requirements (eg food, rent if applicable, household bills) and then making sure you have a guaranteed income to meet this level of spending through whatever state pension you have plus an annuity. You should also game out the circumstances for each partner if the other dies, so is there any pension rights accruing to the remaining partner etc. This can be particularly important for women, who often have lower pension values accruing. You can then decide whether you want a level annuity or one that rises over time (commonly at 3% per year) with this option giving more long term security but reducing the starting amount.

The lower your overall pension entitlements, the more attention you should pay to security, I would suggest.

Like shevii I think mentioned, you also need to consider tax. My understanding is that there is no tax implication when buying an annuity, with the arising income then being subject to tax. But if you use a draw down pension, you can get 25% lump sum tax free, but then have to pay tax on the remainder of the pot when you access it in the future - unless you then buy an annuity with that. My understanding is that you could use a draw down pension to purchase annuities in small chunks, so hedging against future potential annuity rate rises (eg buy a small annuity now using a draw down option, but then use future withdrawals to purchase further annuities if the rates look good). Also worth recalling that if you delay buying an annuity, the rate will improve markedly anyway, as you will be older therefore better value for the annuity provider.

Also, on the tax issue, look at your wife's future tax situation. With £56K plus a full state pension, she is unlikely to hit the income tax threshold, unless she has other income, so it would be quite tax efficient to lump the full amount into an annuity now, for a guaranteed future income without paying any tax. But if you use the drawdown option you could eat into that amount with tax bills when you access the fund.

Like the others, I think IFAs can only really help by highlighting the things to think about and the risks to consider, but you've got UKPR2 to do that for you, completely free!

Just btw also, a couple of years back when rates were poor, I worked out the if I drew my pension via an annuity at 3% annual uplift, I would need to live for perhaps 17 years to make the transaction worthwhile. It will be alot less than now I expect, but still probably worth it for security.

[Mark]

Oct 28, 2022 17:21:56 GMT Mr Poppy said:

Mark It appears that great minds think alike. Could you delete my issue specific thread and I'll repost the my comments on the one I created here. johntel beat me to it!

No problem! Deleted as requested.

[Mr Poppy]

Consultation period has recently ended on what, I hope, will be the way that Rachel can fund her 'Green New Deal' (see comments on Energy thread)

Broadening the investment opportunities of defined contribution pension schemes
www.gov.uk/government/consultations/broadening-the-investment-opportunities-of-defined-contribution-pension-schemes/consultation-broadening-the-investment-opportunities-of-defined-contribution-pension-schemes

[Mr Poppy]

A long read on country comparison for Pensions

researchbriefings.files.parliament.uk/documents/SN00290/SN00290.pdf

Note the fairly low % for the first pillar 'public transfers' in UK and the corresponding relatively high % for 'occupational' + 'capital' (table on page2). Then skip to p13 and see that is the main reason why UK spends a lower % of GDP from taxpayer money on pensions. Note also that UK % has been going down (eg by raising retirement age) where as for most countries then the % is rising and will continue to rise unless they start tackling the issue of unfunded state pensions. Some countries already spend 10% of GDP on state provided pensions, more than twice that of UK. That money comes from current taxpayers which means higher taxes and/or less spending (and/or the need for much higher growth!)

[Mr Poppy]

Nov 15, 2022 13:30:32 GMT colin said:

Nov 15, 2022 12:12:25 GMT leftieliberal said:

www.visualcapitalist.com/ranked-the-best-and-worst-pension-plans-by-country/

Above is an excellent link, thank you colin

Reposting it on the Issue Specific thread so we can find it again easily.

Go down to 'Full Ranking' and can 'sort' by each of the 3 categories. UK scores very high on 'Integrity' (8th/44) and 'Adequacy' (9th/44) and although we do slip onto page2 (as 13th/44) for 'Sustainability' then that's still pretty good.

It is no surprise to see Italy in last place for 'Sustainability' (Greece not being one of the 44 countries listed). Macron* wants to move France up on 'Sustainability' (currently 33rd/44) but of note is that I very much doubt likes of Netherlands (3rd/44) or Germany (28th/44) want the EZ to become a 'transfer+debt' union whereby their taxpayers pay towards the pensions for rEZ.

* 'Live longer, work longer': Macron vows to raise French retirement age to 65
www.france24.com/en/france/20221027-french-president-macron-vows-to-raise-retirement-age-to-65-up-from-62

[moby]

Oct 28, 2022 14:25:34 GMT johntel said:

I'm trying to work out if it's worth converting my wife's 56K pot to an annuity while the rates are high and I understand annuities make more sense for women than men. I don't think we'll have any particular need for a big lump sum in the coming years - and I certainly don't want to be paying higher rate tax if we withdraw it in cash. Any thoughts anyone?

I've used these threads on MSE because you get a lot of experts from within the industry contributing; imo it's well worth starting a new thread with your question:

forums.moneysavingexpert.com/categories/pensions-annuities-retirement-planning

[Deleted]

Nov 15, 2022 13:55:24 GMT Mr Poppy said:

Nov 15, 2022 13:30:32 GMT colin said:

www.visualcapitalist.com/ranked-the-best-and-worst-pension-plans-by-country/

Above is an excellent link, thank you colin

Reposting it on the Issue Specific thread so we can find it again easily.

This is the source data :-


chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.mercer.com/content/dam/mercer/attachments/private/gl-2021-global-pension-index-mercer.pdf

[Mr Poppy]

Nov 15, 2022 14:19:44 GMT colin said:

Nov 15, 2022 13:55:24 GMT Mr Poppy said:

This is the source data :-


www.mercer.com/content/dam/mercer/attachments/private/gl-2021-global-pension-index-mercer.pdf

Thanks again. I note under 'Sustainability' ('C' grade for UK) they say "Indeed, the World Bank notes that: “most public pension schemes are not viable financially and cannot keep their promises to younger cohorts that will retire in the future.”

to which they then mention policy areas:
"This sub-index therefore brings together several measures that affect the sustainability of current programs. Although some demographic measures,
such as
(1) the old age dependency ratio (both now and in the future) are difficult to change, others such as
(2) the state pension age,
(3) the opportunity for phased retirement and
(4) the labour force participation rate amongst older workers
can be influenced, either directly or indirectly, by government policy"

State Pension age is the obvious one but they go to state: An important feature of sustainability is the level of funding in advance, which is particularly important where the ratio of workers to retirees is declining.

Growth and level of government debt, public pension expenditure also get a mention. 

Lots of other very useful in that link, but I was looking specifically at 'affordability' (sustainability). Their 'adequacy' metric is difficult to breakdown. They "recognise that the net investment return over the long-term" is important and the principle of 'annuitisation' is covered (Q:A6) but I didn't spot any mention of the income rate from 'annuitisation' (be it forced or voluntary). For UK then I do think we give people a bit too much choice, which was fair enough when annuity rates were pitifully low but given the 'plan' to "Broadening the investment opportunities of defined contribution pension schemes" (see earlier link) then.. hhhmmm... if I was Rachel I'd be tempted to go a bit further than Rishi is likely to go as it's Captain Obvious how you can find a 'good' income stream for pensions that is win/win/win for pensioners/the planet/future generations.

[Deleted]

Nov 15, 2022 15:04:28 GMT Mr Poppy said:

Nov 15, 2022 14:19:44 GMT colin said:

This is the source data :-


www.mercer.com/content/dam/mercer/attachments/private/gl-2021-global-pension-index-mercer.pdf

Thanks again. I note under 'Sustainability' ('C' grade for UK) they say "Indeed, the World Bank notes that: “most public pension schemes are not viable financially and cannot keep their promises to younger cohorts that will retire in the future.”

to which they then mention policy areas:
"This sub-index therefore brings together several measures that affect the sustainability of current programs. Although some demographic measures,
such as
(1) the old age dependency ratio (both now and in the future) are difficult to change, others such as
(2) the state pension age,
(3) the opportunity for phased retirement and
(4) the labour force participation rate amongst older workers
can be influenced, either directly or indirectly, by government policy"

State Pension age is the obvious one but they go to state: An important feature of sustainability is the level of funding in advance, which is particularly important where the ratio of workers to retirees is declining.

Growth and level of government debt, public pension expenditure also get a mention. 

Lots of other very useful in that link, but I was looking specifically at 'affordability' (sustainability). Their 'adequacy' metric is difficult to breakdown. They "recognise that the net investment return over the long-term" is important and the principle of 'annuitisation' is covered (Q:A6) but I didn't spot any mention of the income rate from 'annuitisation' (be it forced or voluntary). For UK then I do think we give people a bit too much choice, which was fair enough when annuity rates were pitifully low but given the 'plan' to "Broadening the investment opportunities of defined contribution pension schemes" (see earlier link) then.. hhhmmm... if I was Rachel I'd be tempted to go a bit further than Rishi is likely to go as it's Captain Obvious how you can find a 'good' income stream for pensions that is win/win/win for pensioners/the planet/future generations.

Thanks. Yes I was going to look at the state of pay as you go tax funded state pension promises. It seems to be a widespread hidden debt.

[Mr Poppy]

IFS have a lot of articles on pension reform:

ifs.org.uk/topics/savings-pensions-and-wealth

One that the press has picked up today (for some reason??) was from a while back, most of the details are in the below link rather then trudge though everything IFS has written recently.

IFS calls for government to scrap 25% tax-free lump sum
www.pensions-expert.com/Law-Regulation/IFS-calls-for-government-to-scrap-25-tax-free-lump-sum?ct=true

Good idea, but won't be very popular with the 'marginal' age group that CON need to keep and LAB want to convert.

[Mr Poppy]

Feb 21, 2023 13:49:05 GMT leftieliberal said:

Feb 21, 2023 10:29:30 GMT alec said:

It's more serious than that. I couldn't access the FT site that Mr Poppy uses, but here is another on the same issue: https://capa-data.com/ifs-proposes-scrapping-the-25-per-cent-tax-free-lump-sum/

According to Selby, one of the key concerns, if tax-free death benefits of drawdown for deaths before age 75 were scrapped and pensions were brought into the scope of IHT, would be whether those who have made retirement spending decisions or pension contributions would be protected. Without protection, the quick shifting of the tax goalposts runs the possibility of making someone pay tens of thousands of pounds in additional taxes as a result of a prudent financial choice. He argues that those who would feel as though a retrospective tax adjustment has resulted in a massive tax burden would feel quite wronged.

“In terms of the financial decisions people make, the most obvious consequence of increasing taxation on death would encourage more people to spend their pension pots during their lifetime. As things stand, it can often be sensible to spend your non-pensions assets first in order to minimise the IHT your beneficiaries will pay on death.”

This is an issue that could see sudden tax liabilities of not just five figures but six figures.

See my previous post on this thread. I didn't use FT (or FTAdviser where the link I did use 'first appeared'). The 'Pension Expert' site shouldn't be paywalled but I also included all the recent IFS articles so folks could read the details if they wanted to. 

I'm not getting involved in the 'tangent' onto IHT (do people 'plan' to build a large pension pot then die before 75?? Anyway IHT is a separate issue). The IFS and the article are primarily discussing the '25-per-cent-tax-free-lump-sum'

A lot of people will be intending to use the 25% tax-free lump sum to pay off their mortgage and consider retiring/semi-retiring early (hence it hits 'Middle Aged Mortgaged Man' (don't ask me why Starmer was gender specific)). You don't necessarily need a massive pension pot or own a massive house. Anyone who wisely chose to max out their pension contributions rather than pay down their mortgage during the 'magic money tree' years of very low interest rates will be 'miffed' if the 25% tax-free lump sum is scrapped and their plans to pay off the mortgage (possibly also via 'downsizing') and retire early are 'stolen' from them (to add the drama and use the word that any opposition party is likely to use). Unpopular policy. 

More realistic is the 25% lump sum is 'capped' at a reasonable level (as IFS suggest: "At a minimum, it said the tax-free lump sum should be capped so that it only applies to 25 per cent of the first £400,000, for example, of accumulated pension wealth") then not that big a deal for most people, especially those in the Midlands-North (where most of the marginal CON-LAB seats are) 

However, I'm sure as a LDEM person you remember LDEM's campaign into GE'17 and the whole 'May's Estate Agent' stuff, not to mention McDonnell's claims of a 'triple punch to pensioners'. Messing with people's retirement is not popular and any opposition party will whip people into a frenzy with exaggerated 'scare mongering' so that a 'good' idea (eg scrap the triple lock or cap the 'tax-free' lump sum) is abandoned. IIRC McDonnell also wanted to reintroduce Inequality to pensions by backing the WASPEs (E not I) with a very expensive, unfunded policy that fortunately didn't seem to win Corbin any extra votes. 

So IMO no party should bring up pension reform in their manifesto but just quietly get on with it once in power. Baby steps though. Starting with a £400k 'cap' on the tax-free allowance seems a good place to start, then reduce the cap slowly over time until the tax-free allowance is eventually scrapped.

I expect Hunt has considered it, given the 'work shy' issue of large numbers of economically inactive people nearing 'official' retirement age (67) but I very much doubt a CON HMG will mess with pensions as it will go down like a bucket of sick for the 'marginal' voter cohort (Starmer's 'Middle Aged Mortgaged Man').

So one for LAB, circa late 2025, would be my guess (by which time I'll be over 55   )

[leftieliberal]

Feb 21, 2023 19:50:09 GMT Mr Poppy said:

Feb 21, 2023 13:49:05 GMT leftieliberal said:

See my previous post on this thread. I didn't use FT (or FTAdviser where the link I did use 'first appeared'). The 'Pension Expert' site shouldn't be paywalled but I also included all the recent IFS articles so folks could read the details if they wanted to. 

I'm not getting involved in the 'tangent' onto IHT (do people 'plan' to build a large pension pot then die before 75?? Anyway IHT is a separate issue). The IFS and the article are primarily discussing the '25-per-cent-tax-free-lump-sum'

A lot of people will be intending to use the 25% tax-free lump sum to pay off their mortgage and consider retiring/semi-retiring early (hence it hits 'Middle Aged Mortgaged Man' (don't ask me why Starmer was gender specific)). You don't necessarily need a massive pension pot or own a massive house. Anyone who wisely chose to max out their pension contributions rather than pay down their mortgage during the 'magic money tree' years of very low interest rates will be 'miffed' if the 25% tax-free lump sum is scrapped and their plans to pay off the mortgage (possibly also via 'downsizing') and retire early are 'stolen' from them (to add the drama and use the word that any opposition party is likely to use). Unpopular policy. 

More realistic is the 25% lump sum is 'capped' at a reasonable level (as IFS suggest: "At a minimum, it said the tax-free lump sum should be capped so that it only applies to 25 per cent of the first £400,000, for example, of accumulated pension wealth") then not that big a deal for most people, especially those in the Midlands-North (where most of the marginal CON-LAB seats are) 

However, I'm sure as a LDEM person you remember LDEM's campaign into GE'17 and the whole 'May's Estate Agent' stuff, not to mention McDonnell's claims of a 'triple punch to pensioners'. Messing with people's retirement is not popular and any opposition party will whip people into a frenzy with exaggerated 'scare mongering' so that a 'good' idea (eg scrap the triple lock or cap the 'tax-free' lump sum) is abandoned. IIRC McDonnell also wanted to reintroduce Inequality to pensions by backing the WASPEs (E not I) with a very expensive, unfunded policy that fortunately didn't seem to win Corbin any extra votes. 

So IMO no party should bring up pension reform in their manifesto but just quietly get on with it once in power. Baby steps though. Starting with a £400k 'cap' on the tax-free allowance seems a good place to start, then reduce the cap slowly over time until the tax-free allowance is eventually scrapped.

I expect Hunt has considered it, given the 'work shy' issue of large numbers of economically inactive people nearing 'official' retirement age (67) but I very much doubt a CON HMG will mess with pensions as it will go down like a bucket of sick for the 'marginal' voter cohort (Starmer's 'Middle Aged Mortgaged Man').

So one for LAB, circa late 2025, would be my guess (by which time I'll be over 55   )

The site wanted me to register before it would let me see the article, which is why I went elsewhere.
Frankly, I didn't like "May's Estate Agent" any more than accusations of the Tories introducing a "dementia tax". As a country, we have been failing to deal with the cost of care for people with dementia for more than a decade and at present it is a lottery: if you die at an advanced age from cancer, your care is effectively free; if you die at an advanced age from a dementia you can end up losing all your assets to care fees. Just enabling my wife to stay at home during her last illness was costing us £50k/year and that was just for two carers to come in for an hour four times a day. I hate to think what it would have cost had I not been there to cover the other 20 hours. So an insurance scheme to cover dementia would have been good (although as my wife only lived for another 10 months after coming out of hospital, we would have been out of pocket on the proposed premium).

I don't think that the 25% tax-free lump sum is such a big issue now, the mis-selling of pension mortgages and endowment mortgages is something that took place long in the past, so I doubt there are many people who still have them. At age 50, I was advised to go back to a straight repayment mortgage, which I paid off nearly two years before I retired. On the assumption that Starmer will get two terms, I would put it in the 2024 manifesto with a 2029 introduction date and then phase out the £100k tax-free lump sum over 5 years. Much more important is getting the taxation of income from wealth (what used to be called unearned income) to the same level as earned income. That needs to be done as a priority for 2024, and if I was Reeves, I would be raising the additional rate to 60p, which would raise north of £20bn for the Exchequer, even allowing for behavioural changes (it would be just under £30bn if there were no behavioural changes). As income tax payers already pay an effective 60p in the £ above £100k due to withdrawal of the personal allowance, there is no good reason why those above the additional rate threshold should pay a lower marginal tax rate.

[Mr Poppy]

Feb 21, 2023 20:55:16 GMT leftieliberal said:

Feb 21, 2023 19:50:09 GMT Mr Poppy said:

Lots of tangents in there but I think we agree the 25% tax-free lump sum (currently available on ones full pot, info on how big that could be previously posted or easy to find) could/should be phased out.

On other tax issues then maybe one for a different thread but I'm erring on the side of caution with my own plans and that will certainly mean taking the full 25% tax free lump sum the day I turn 55 (anyone using drawdown to chip into the 25% should consider maxing that 25% before budget day 2025). Beyond the 'minimum' IFS suggestion then I don't think Starmer is going to be too 'radical', especially not in a GE manifesto, as it risks upsetting 'aspirational' types who have used previous/current 'rules' wisely. Pretty sure he was as shocked as most people about how well Corbyn did in GE'17 when May shot herself in the foot by saying she'd 'do the right thing', which then saw CON VI collapse into that GE.

Some of the comments I gave on this thread back in Oct'22 are obviously only applicable to the current rules. EG Oct 28, 2022 at 6:55pm

"Then once you near retirement age, or are past that age, then generally (much more circumstances specific)
3/ Take the 25% lump sum and do something smart with it (circumstances specific but you can continue to do 1+2 above, pay off your mortgage if you still have one now that rates are going up, etc)"

Points #1 and #2* in that post would also need to be reconsidered if the rules change and from an 'economy' point of view then I'd be hesitant about overdoing pension reform as IMO it is an incentive to work hard and build up a large nest egg. Overdo pension reform and you remove some incentive to work hard (IMO, but then I'm RoC). Tinkering is OK and I appreciate we do need to raise some more tax from somewhere and we do need to incentivise people to work hard into their late 50s-60s (not the 'royal we' though - I've paid plenty of tax in my lifetime IMO, maxed everything I can max and am now mostly 'ticking down the clock' as they say, much to the chagrin of likes of Hunt and Braverman I expect ) 

* Anyone who did start a pension for their kids the day they were born (well maybe a few days later but you can backdate them) has done a lot of IHT avoidance already, although if LAB sound like they are going to become too 'radical' then plenty of other countries in the World for young aspirational people to live/work/pay tax in. I hear some of those countries are 'poaching' Brits and IMO it would be foolish of LAB to provide even more incentive for young aspirational people to consider their options!

[Mr Poppy]

Since pensions popped back up then I expect a lot of people have heard that the ability to voluntarily pay to fill in some gap years in NI contributions is changing. I'm absolutely not giving any specific advise but ensuring you have sufficient years of NIC is required to get the full state pension (and I doubt LAB would mess with that, although they should scrap the triple lock IMO). Anyway, just making sure everyone knows they can easily get the info and might want to check if they have any 'gap' years and then decide what to do about it. It's quick and easy to:

Check your National Insurance record
www.gov.uk/check-national-insurance-record

[birdseye]

Oct 28, 2022 17:52:32 GMT johntel said:

I'm wondering how annuity providers set their rates - are they based on what return they think they can get on the capital and they keep the capital when you die as their commission. Or do they count on returning a certain amount of capital each year and increase the spread between the rate of return they expect to get and what they pay out, to get their commission? It must be fiendishly complicated.
Anyway, they must take their cut - which is why for myself I'd rather invest the capital myself so I keep control of it and back myself to get a a good return.
However because of equality rules women's rates have to be the same as men's which means they get a much better deal. But what that equates too in reality I've no idea.

Annuities are like other forms of life assurance. Sales costs are deducted up front and then its a simple calcuation of expected investment returns on your cash set against your life expectancy. For an individual policy the profit can only come when you die and payments stop but they do large numbers of policies and take those profits year by year in aggregate.

The life expectancy calculation can take into account issues like smoking. Gender Neutral Pricing is yet another piece of woke stupidity. Insurance should relate to risk not politics. Ironically, the current one rate for all approach gives a worse deal to black and indian Britons who have a longer lifespan than white Britons

[Mr Poppy]

Moving to the Issue Specific thread as I expect the Pensions issue will now drop out of salience for politicians and the public (ie unlikely have any further impact on VI). Further discussion is hence best kept to the Issue Specific thread so folks can easily check for specific info and links rather than have to keep going over everything every time on the main thread.

Mar 22, 2023 8:32:47 GMT Mr Poppy said:

In other 'expected' news then instead of being accused of punching soon to be pensioners then Hunt has decided to kick the can..

"Rise in state pension age put on hold – report"
www.standard.co.uk/business/money/rise-in-state-pension-age-put-on-hold-report-b1069023.html

Current plan stays for now:
1/ State Pension age is gradually increasing for men and women, and will reach 67 by 2028
2/ For the now capped tax-free lump sum and minimum age for DC schemes: "The government has confirmed plans to increase the minimum age you can access your pension from 55 – to 57 from 2028. From then on, the minimum pension age will remain ten years below State Pension age"
(slightly different for DB schemes or in special circumstances)
www.moneyhelper.org.uk/en/pensions-and-retirement/taking-your-pension/when-can-i-take-money-from-my-pension

IMO #2 would have been a good idea with excellent timing, given the scrapping of the LifeTime Allowance (LTA) and jump in annual allowance. A bung (carrot) to keep working with a stick to reduce the incentive for said workers to load their pension and retire as early as they can. 

Hence another missed opportunity given that people like certainty and Pensions will likely now drop out of salience - for politicians and gen.pub 
(any further discussion perhaps back to the Issue Specific thread?)