23 Feb 2016, 8:42pm
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  • wither pension tax relief and lump sum again?

    The flowers are coming out, there is the sound of the robin and the dunnock singing, Spring is in the air, and along with the snowdrops and early daffodils there are some stories in the press that come round every March/April time. Oyez oyez, it’s the last chance for you lucky higher rate taxpayers to get pensions tax relief. And as for you lot expecting to pay off your BTL mortgages with the pension commencement lump sums, well, better do it now while you can 1. ‘Twas ever thus

    1602_DSCN2798

    Going, going, gone…It’s the oldest trick in the book

    Sale – Must end Now – punters are suckers for a bit of FOMO, and pension providers always like to hit us with a quick giddy-up at this time of year. It’s always the same old story, sometimes it’s the PCLS that’s due for the chop, sometimes the tax relief. That’s not to say that adverse changes don’t happen with pensions, but they tend to come from left field – the reductions in the annual allowance ,and the introduction of the Lifetime Allowance are two, although these only hit the well-heeled. Presumably these well heeled got to be well-heeled because they had the odd brain cell to rub together; if they can’t be bothered to work it out for themselves Merryn Somerset-Webb of the FT is there to sock it to you straight between the eyes.

    The result is still up for grabs but one thing at least is clear: the game is up for higher earners. Whatever the new system is, it will further cut the reliefs given to them.

    Well, yeah, but it’s going to be more of a whimper than a bang, at a guess – they will be sliced and diced.

    The PCLS was introduced in 1988 I think, when the concept of a personal pension came into being, and every year since then the same stores have been trotted out by the pensions industry trying to stampede the rich into getting their money into a pension, like NOW. The poor, of course, well, they don’t save for retirement anyway.

    Despite having told HL for the last three years that I am an Ermine of very modest means, less than £3600 p.a. indeed, which is all I can save for a pension, they clearly think I am still one of the movers and shakers with a six-figure salary. As such I got my very own copy of this missive. No wonder HL is so damned dear for holding investments, as opposed to cash, if they have to mail so much cruft out to us all. I have nothing against them, well, apart from them demanding I pay £500 to be advised that transferring my AVC funds was a good idea, something I had worked out quite nicely for myself thanks. I observe they have got themselves into this advice game themselves, nowadays, clearly jobs for the boys is a revenue stream too good to miss.

    I am just a poor boy 2 though my story’s seldom told

    There’s a corollary here, which in fairness HL did list in a throwaway paragraph

    1602_DSCN2799

    Quite. Your impecunious scrivener, having failed to avoid earning about £5k can put this into his SIPP for the initial outlay of £4000. I’ve never really understood the status of the remaining £1k, obviously if I had been earning £20k then it would have disappeared into the taxman’s maw, but instead remains to be spent on beer and fast cars, or beaten down stocks. Anyway, the taxman adds the £1k back into the SIPP despite not taking it off me. The speculation on changes seems to vary between divvying up the HRT break into nothing extra for anyone, 25% tax relief for all, 33% tax relief for all, and zero tax-relief for all but the chance to have any gains tax-free in an ISA-like savings vehicle, but presumably one you can’t access before you are grizzled of years. I struggle to see the attraction here. Most people don’t save £15k a year into their pensions, so they may as well fill their ISAs first. The average DC pension capital on retirement is about £100k , elementary arithmetic indicates this is not saving £15k p.a. for 30 years. You read about all the options here. I am not sure that the savers of Britain are ready for a second major overhaul in the retirement savings structure and ethos in as many years without becoming suspicious refuseniks, but there we go.

    Should this go the 25% relief I guess I can hope for £1250, so there’s a potential £250 in it for sitting on my backside for a few weeks. Because I am entirely a cash saver in a SIPP, I always leave it to the last minute to contribute, because there’s no point in locking money away before I need to (to get the win of the tax break). Obviously the big money for HL is with the well heeled, but there are crumbs in it for the little sparrows in doing exactly the opposite of what is advocated in that HL exhortation. Indeed, for someone who is post 54 and intending to retire next year, the difference is respectable if they are earning, say £32,000 and toss the lot in. They could get £6400 at the moment going up to £8000 if the 25% tax relief happened. Of course it may not, or it may be deferred, but a potential £1600 would be worth waiting three weeks for. Obviously if you are one of the six-figure vHRT fellows then throw caution to the wind as HL advocate!

    Lifetime Allowance, Marginal Tax Relief, Annual allowance – one, not three

    I benefited well from higher rate tax relief, but even then my higher rate tax paying years were perhaps a third of my working life. Careers tend to be more contrasty now, they peak earlier, but people also burn out earlier. I’ve already put my colours on the mast for the lifetime allowance, which most accurately defines the ambition of tax-privileged pension savings to my eyes. All this fiddling with marginal tax relief and annual allowances sucks IMO – you should be able to get to the LTA in a couple of furious years in finance or 30 years of steady Eddie saving. It’s about the destination, not the journey.

    All the annual and lifetime restrictions combine to make tax-privileged pension saving more suited to your grandfather’s career arc than today’s sort where even the better off are likely to experience feast and famine, or burn out prematurely. Even I would have rubbed up against the annual allowance at the end of my career, and I got nowhere near the LTA.

    Erstwhile pensions minister Steve Webb scares the horses on the PCLS

    Meanwhile, Steve Webb says the pension commencement lump sum is due for the chop. Well, sort of – if the principle of tax-free pension saving on accumulation is iced, then yes. But those of you sitting on a potential PCLS, including me, this doesn’t mean you have to hook it out by the 16th March. Adverse pension changes are usually trailed at least a year ahead – such as the reduction in the LTA which was announced last year. Positive pension changes sometimes have immediate effect – the announcement of the pension freedoms was announced in March, giving me just enough time to open a SIPP in the old tax year.

    Pensions are still giving me a hard time to qualify the opportunities

    Say I take my PCLS this April, and start to run out the pension below the personal allowance. Let’s ignore that fact I am earning chickenfeed at the moment, say that is £0. I am still allowed to save £2880 a year and the tax man stumps up another £720. By rights 25% of that should be available as a PCLS – after all, say I opened another HL SIPP which had just that £3600 in it, there would be no quibble. I don’t know if HL are smart enough to be able to track that sort of thing.It isn’t as good as the deal used to be for me, because 3/4 of the tax credited is taken back again, so the gain is reduced from £720 to £180, but it’s still free money

    In theory, therefore, even I earned £10k all of which would be taxable at 20% because I am drawing pension income up to the personal allowance there would be a win to pass this through the SIPP. Because of the PCLS I could reduce my basic rate tax liability by a quarter. Paying tax at 20% × 0.75=15% seems like a step in the right direction, saving me £500 in that case. Of course changing to a post-tax savings regime would rain on my parade. Pretty much everything about pensions is hard, counterintuitive and full of wrinkles, that’s the nature of the beast.

    Notes:

    1. what with some of the changes to BTL tax relief on leverage there is more sense to that, but for different reasons
    2. Irony,dear reader, irony… ‘ere I take heat for being a PT b’stard.
    17 Feb 2016, 2:05pm
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  • An insight into the consumer heart of darkness of watches

    The peacock has his tail, and it seems humans have jewellery. In general the march of technology has made many things cheaper and sometimes better, though often not more durable. However, it seems the humble wristwatch is not one of these things, here we have a dude inquiring about finding good value in a watch for £8000. Don’t get me wrong – there are some sorts for whom maybe £8000 is about value. Say you are the crew of Apollo 13, you are SOL when the tank explodes in space, you are on 20% of electrical power, and you need a 5 minute burn to speed you on your way round the moon before your ticket to ride expires with the air. You have two chances to get this right. And the knob of the Command Module Interval Timer comes off in your hand. Then you might be grateful that someone spent a shitload of money on a watch that could survive takeoff. £8000 well spent, you get to see you wife and kids again. Early twenties, working for a REIT, looking to be individual in the stuff that you buy rather than the person you are, well, not so much.

    I was recently on a retreat where they aren’t keen on mobile phones. I’m with them there, I don’t tote a mobile most of the time, although often I have one with me when I am out, even if it is mainly switched off. I discovered it’s far too easy to switch it on in a pocket just by bending down, pressing the button on the side that starts it all up. I get to be that tosser with the mobile, and I don’t like it, even if it is just the Galaxy startup sound on low.

    A mobile is an okay way of telling the time, though I am still shocked that mobiles don’t update the clock from the mobile network, or failing that use NTP. But I have discovered that I want to go back to an old way of knowing the time, which used to be known as a watch. I have two, both from 30 years ago. One was my own, an automatic mechanical watch, because 1986 was still just in the time when it was cheaper to buy an analogue watch 1 as a mechanical one than a quartz watch and just about the time when mechanical cheap watches became serviceably accurate – the ones of my schooldays would gain or lose five minutes a day. The Seiko was good enough for that much a week ISTR.

    I could use this if I could wind it manually, but I'd have to wear it for half a day before it would run reliably

    I could use this if I could wind it manually, but I’d have to wear it for half a day before it would run reliably

    I would use the Seiko but I don’t want to wear a watch all the time. So it would run down and stop, and generally be a pain, because for some reason I can’t wind it manually, so I’d have to shake it about and hope the mainspring has enough energy to run, that’s too much trouble for occasional use. Plus it’s the 21st century, FFS. William Gibson was right. There is no point to a mechanical watch, which is exactly why they sell for shitloads of money. Because humans are funny like that. The other one has some sentimental value because it was given to my Dad on his retirement.

    1602_LDSCN2792

    This works – but the trouble is it eats batteries, they last less than a year. I took it to be changed a couple of times but after that I’ve had enough.

    What I basically want of a watch is battery powered – I can’t be fussed with winding them, and the mighty quartz crystal pretty much solved the drifting out problem, you can check a quartz watch monthly and never be more than a couple of minutes off. Analogue, because I can easily compute 20 minutes from now in a third of the sweep. I confess as a retiree it is sometimes nice to know what day it is as well as the date. I had a browse of Amazon, and after a couple of minutes I lost the desire to look any more, because the paradox of choice was doing my head in. I did since discover one should change watch batteries yearly or maybe every other year. This is to forestall the blighters spewing out sludge, the idea seems to be change the batteries before they run flat. I didn’t know that, though it applies to other sorts of batteries I guess.

    There are two other techniques, that replace the battery with a supercap. Either charged by movement energy like the automatic mechanical watches of old or by solar. The latter sounds like it could eliminate the not wearing it all the time and the battery leakage problem. So if my investment in a little bit of IPA and a new battery fails, that seems to be the way to go. Shame that people still putz about with a mechanical ring for the date, which is fundamentally a digital display. It wouldn’t be too hard to use a LCD display for the day and date, which would save mucking around with the date on months shorter than 31.

    a bit too industrial IMO. I am also disturbed by the concept of Sunday the 36th...

    a bit too industrial IMO. I am also disturbed by the concept of Sunday the 36th…

    Casio do these, but I can’t really cope with the idea of a plastic resin case. I don’t really care how ugly a mobile phone is, but a resin watch will offend me regularly with its gauche machismo. I am too old to join the military. I appreciate this is a matter of taste, but it isn’t mine. And I really don’t want a watch that even thinks of making a noise. Five alarms is five too many. It seems nobody simply takes all the mechanical gubbins of showing the day and date and swaps it for a LCD of the same size. Perhaps they can’t make LCD displays small enough and sharp enough, though with watches there seems to be some kudos in doing bizarre things mechanically that really should either not be done at all, or done electronically.

    The paradox of choice makes me think better

    A retiree should be insanely curious about the world. One is simply to sharpen the saw, the other is because he has the luxury of time, to really get into something because it is there. One of the incidental values of being curious is that it leans against the learned helplessness of living in an unrepairable consumer world. And so I thought ‘Self, for thirty odd years an electronics engineer, what is the obvious most likely cause of a watch working, but running batteries down excessively? Well, it is what battery operated devices left in a drawer for years have always suffered from – a battery leaks and leaves gunk behind, which adds a slight load. You don’t notice that with a radio or a power drill, but a 373 battery is tiny, so the added load is much bigger in proportion to the capacity of a watch battery 2. I confess I’d never really thought about a watch battery leaking, I have never seen a leaking button cell. I just didn’t think it happened.

    So I popped the back off this and observed that there was indeed gunk from a previous battery. Not only that, but neither the place in LA who had swapped the first battery in 1993 nor the well-known high-street jeweller’s in Ipswich  had seen fit to inform me of this (the battery I extracted was clean, so not at fault).

    leakage from an old battery

    leakage from an old battery and corroded terminal, easily visible to me, though I had to really push the contrast in the photo.

    A tissue and some isopropyl alcohol were my friend, so writing this post saved me the price of a new watch, by galvanising me to get off my backside and remain challenged and keep learning. It isn’t that I am short of the money for a replacement watch, and indeed if I miss having the day display then I will buy one. But  all H Samuel had to say is “we will change the battery for you for £5, but there is evidence of leakage and we recommend a clean of the compartment if you find battery life is reduced, that would be £25”. This took me less than five minutes 3 it would have been an easy £20 profit guys! Even if they didn’t want the profit warming me up to the issue wouldn’t have left me pissed off thinking they sold me an old battery when it expired in less than a year.

    A visit to the bizarre form over function world of Consumerism with a capital C

    When I was at school, the office used mechanical adding machines, because electronic calculators only started to appear in the mid 1970s. When the hell was the last time you saw a mechanical adding machine or a slide rule in an office? There is absolutely no reason for the mechanical watch to exist, perhaps save in the West Virginia Radio Quiet Zone or the like. The sheer exuberant impracticality of the mechanical watch and bizarre fetishes like the tourbillon have become mobile jewellery in themselves – Blancpain tells us

    The tourbillon compensates for running errors due to gravity by mounting the balance wheel in a rotating cage. Equipped with a tourbillon, your watch runs with greater accuracy.

    Well, yeah, but not half as much as throwing the bugger out and swapping it for a quartz crystal would.

    Call a tourbillon a complication? THIS is a complication. By I, Mogi, CC BY 2.5, https://commons.wikimedia.org/w/index.php?curid=2523740

    Call a tourbillon a complication? THIS is a complication. By I, Mogi, CC BY 2.5

    Okay, so you lose out on the pretty rotating device, but the accuracy wins out. I don’t know why they don’t get rid of the dial altogether then and have a living, breathing mass of rotating and shifting whatnots in a crystal round case. An orrery or an astrolabe, maybe an Antikythera mechanism would suit Sir to a T, and our young REIT worker could use his iPhone to tell the time while dazzling his boss and clients with his metropolitan sophistication and one-of-a-kind-ness

    Meanwhile, the Chinese can send me a working analogue quartz watch from Shenzen for less than three quid, delivered. That’s only twice the price of my replacement battery, although the aesthetics suck slightly (but not as much as the Casio IMO). Ain’t consumer capitalism amazing…

    Notes:

    1. digital display watches were cheaper
    2. leakage is a much bigger issue than I’d expected. After I got the replacement and pressed it into place with my fingers, I noticed the bit on the invoice where it said “please refrain from pre-testing watch and coin cell batteries, and only use plastic tools (no fingers!) to insert battery wherever possible to avoid premature failure of battery cells” Oops. Oh well, I will know next time, eh 😉
    3. this is apparently not the correct way to clean this off, but it will do for me
    10 Feb 2016, 11:37am
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  • Markets are squiffy again. Pound is also slip-sliding away in the background

    After a bit of cheer I was starting to wonder if the buying opportunity last month was a flash in the pan, but no, general squiffiness means an Ermine sticks a paw into the back pocket and buys another lump of VUKE in the ISA. I aim to do that once a month, to average into the unknown future shape of this bear market. I like to do it on days when the headlines are saying things like Shares dive as fears mount for health of global banking although this morning also looks good with Stock market rout intensifies amid fears central banks are ‘out of ammunition’. In moods of general jitteriness I’m not aiming to be smart, but I am aiming to be out there, buying something. There’s just so much out getting better value, and the £1k a month limit acts as a brake to spread myself out in a measured fashion rather than do the kid in a sweet shop grab all in one go scenario.

    Investment Trust discounts seem to be showing up too. I don’t buy ITs at a premium, and the premium/discount mechanism seems to amplify market sentiment, free money on offer when others are fearful. Last month I pitched for some CTY.L that I was sore about missing out on in 2009 after I read this on should you swap your shares for an IT on a discount. At the time I didn’t have any shares but the sound of the discount was nice, so I bought MRCH, then focused on building up a cash ISA firewall against getting canned and shoved money with both hands into AVCs, using a Global:FTSE100 50:50 fund which was one of the three choices available.

    Now that AVC move was good, because the Global part hedged me well against a 25% fall in the pound that also occurred, so it impressed upon me that one of the side functions of shareholdings is to hedge against governments torching the value of the currency, by say printing shitloads of it… That is the trouble with money, it is a relative scale, and it moves around all the time

    Going down - value of the pound in US dollars

    Going down – value of the pound in US dollars

    So although I am not particularly discriminating in terms of buying at the moment, if I had access to that L&G fund I’d probably use that

    1602_lg-ukx

    which performed thusly relative to the FTSE100. Sadly iii doesn’t go back far enough to show the deep joy that buying this from before March 2009 onwards was, I liquidated in March 2012 and stayed in cash, so obviously I kissed goodbye to another 30% lift in this AVC fund. However, I believed at the time that I would have to call on this very soon after leaving work. As it was this wasn’t true, but I will call on that money this year. You shouldn’t have money in the stock market you will need to use in the next five years, I’m easy with walking away from the 30% uplift. It’s not like I didn’t get any uplift in my ISA between 2012 and now, one should always leave a little behind in the markets for the other guy, otherwise you get greedy 😉

    I don’t think I can buy that fund outside a pension, perhaps even outside the Firm’s AVC scheme which I am out of now. There is a L&G fund BKF0  (ISIN GB00B2Q6HW61) which sort of does the International ex-UK half of that, and this will go up roughly by the fall of the pound, times of course the performance of the underlying assets. 57% North America equities, oy vey, I haven’t wanted to buy into the overpriced US market for the last few years, although I did in a Dev World ex-UK fund I held unwrapped. And very nicely that overheated market did for me. I can’t sell that unwrapped fund because I am up against the CGT limit for this year, but in April, assuming it’s still worth ‘owt I may do that, shove the wedge into my new Charles Stanley ISA and buy some of this L&G international, to get out of the pound and lean against the UK bias of my TD ISA which holds my HYP, which is largely big UK based fish.

    I also have two Cash ISA contributions from years back transferred into Charles Stanley. So maybe it’s time to start getting out of the pound. It has a nice 8% loss YTD, when I’m buying something generic like that I do like to see the previous owners losing money, because it means I don’t pay that on buying it. With individual shares you can go wrong with that principle, but it’s safer with broad index funds. I went with Charles Stanley because I am trying to break up my ISA holdings because of the government guarantee and in the interests of diversifying against platform counterparty risk, although this means I will have several accounts, which is always a pain to manage as an integrated whole. TD are very cheap to hold shares on, no annual fees on the account or for shares, Charles Stanley are cheap to hold funds with for small total amounts, and I will try and stay below £50,000 on there. So I will do funds on Charles Stanley, ETFs and shares on TD.

    Other ways of hedging the pound

    I bought a lot of gold last year in my ISA, because I couldn’t really bring myself to buy the in my view overpriced UK stock market or the US. Of course the cheap EMs that I bought in 2015 got cheaper but that’s life 😉  That gold seems to be reacting to the fall in the pound by going up a fair way. I don’t really feel terribly good about having 10% of the ISA in gold, but it’s working for me at the moment. It is, of course, possible to hedge the pound using spread-betting and FX, but that is a harsh mistress full of tiny changes in points bought/shorted making humdingers of changes in the total amount at risk, and these vary shockingly day to day. What I’d really like to do is buy SDRs from the IMF because what I really want to do is hedge the pound against a bunch of currencies, but I guess the Ermine economy is too small by a few squillion pounds to get a seat at the IMF. An ISA letting me hold the cash part in SDRs would be nice 😉

    Simulating SDRs by averaging forex holdings is tough, there are high carrying costs with spreadbetting FX. Well, paying anything to carry cash is bad news, because it is generally a wasting asset, not a productive asset. I’m already sore about screwing up and buying PHAU in my TD ISA, although the gold has gone up I failed to spot this is denominated in USD so I ate FX costs buying and no doubt will take the same hit on selling. In fairness the rise in the value of the gold will pay me handsomely for my trouble, but nevertheless it is a drag on performance I missed. Doing anything with FX is just like that, too many people with a hand in the till on every transaction.

    Overall, since I want to be a net buyer into a bear market hedging the pound then buying a global ex UK index denominated in pounds isn’t such a bad way to do it. I shall leave arcane forex shenanigans to the truly wealthy, like people bumping up against the lifetime allowance and the brave, like ERG. I haven’t got brains or balls enough for raw forex. Sometimes you gotta know when to hold ’em and when to fold ’em. Buying foreign productive assets to shovel money out of the UK I can relate to.

    It’s also worth noting that the contents of the FTSE aren’t totally GBP assets, a lot of these big fish make their money outside the UK. Mind you, at the moment making money isn’t something some of these FTSE100  firms are doing in a big way!

    Why is it all going titsup again?

    God knows. If it were just the markets that wouldn’t be so bad, that’s just what markets do, they have regular hissy fits. It’s their job, it is how they transfer capital from the timid to the brave 😉 But other things aren’t right. Moneyweek and the Torygraph say it’s all debt, I don’t think that we took the hit from the first credit crunch enough. In the past we used to take the hit of recessions straight between the eyes – Paul Volcker in the mid 1970s, Thatcher in 1979. The price of those interventions was some very serious economic pain – I had the bad luck to graduate into the very deep recession of 1982 that Thatcher’s medicine invoked, and was unemployed for six months at the start of my career. Since the dotcom bust we just aren’t prepared to take that sort of hit, which seems to smear everything out by driving the crap underground, for it to pop up in unexpected places. The oil price just ain’t right, and we aren’t going to stop using oil in the next 10 years; the exploration  investment that isn’t happening now we are going to rue bitterly in 10 years’ time, although we will hopefully use renewables for a larger proportion of our global energy consumption than currently used.

    Where is the bit that says buy UK residential property, BTL etc?

    I have had the experience of selling a house for nearly half the purchase price and endlessly pissing money into the mortgage for that hole. Every other bastard believes that house prices in the UK only go up, I know that this is not true from personal experience. The Ermine Does. Not. Do. Res. Property. I don’t care how great it is, why it will only go up, and up, and up. Quite frankly, I don’t give a damn. It’s worth owning the roof over my head, and after that it’s enough with the madness of crowds that is British res property. So often you hear punters say the stock market is a casino – well at least the chips are productive assets. Even being a total momentum-chasing asshole in the dot-com boom and bust I lost less money absolutely and proportionally to the capital invested than on housing. 1

    Why do I want to shift out of the pound?

    One word. Brexit…

    There may be a teeny bit of noise and hum associated with that, whichever way the referendum goes. And hell, finally the US stock market which seems to dominate ex-UK funds is getting less overpriced. So the stars are kind of aligning to make this the flavour of the first part of this year for me. Of course, this being the stock market it could all go titsup and the sky may fall and it all turns into endless pouring rain. In which case, well ,what the hell, perhaps let’s take a tip from the guys at Powerswitch and spin this doomer anthem from the last financial crash.

     

    Notes:

    1. because I have been in it for 28 years overall I am past the breakeven point on housing even taking the hit into account, because of subsequent rises. The stock market has been considerably kinder to me than British residential housing. Plus the trouble with thinking you are rich when your house rises is value is that you have to move out of it to realise that money, and observation shows old people don’t like to do that until they absolutely have to. The people who may benefit from the rise in value are your children when they come back from the crematorium, but you pushing up house prices means they couldn’t afford to buy earlier in their life. Funnily enough it’s always people with kids who go on about how great it is their house increased in value so they can leave it to the fruit of their loins, if I were the kids I’d slap ’em around the chops with a wet fish because that sort of thing is part of the problem, not part of the solution IMO. But British residential property is not my circus, not my monkeys.
    4 Feb 2016, 9:46am
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  • In praise of the pensions lifetime allowance

    The deal with pensions is this. In return for saving money for when you get old, you get to save before tax is taken off. There aren’t many legal ways of avoiding tax, but that’s one of them. The downside is that you don’t get your sweaty paws on the money until you are 55 1. And even then, if you want to preserve the tax-free status of that lump you are rate-limited on the amount you can draw, which is also fitting IMO. My pension savings are worth nowhere near the lifetime allowance, I will still be a taxpayer as a pensioner in a few years.

    It costs money to run a civil society, and that money comes from taxation. There are issues in that running that society seems to get dearer and dearer and more and more complex with time, but that is a different fight. Nobody likes paying tax. Nevertheless, that civil society would have to support you when you are old, so easing back on the tax early in your life in return for you being less of a burden later on is the rationale for that deal.

    I’m not going to be popular for saying this, since many people affected by the lifetime allowance (LTA) are dedicated followers of Ayn Rand, who feel they have the resources to be entirely self-sufficient and apart from the rest of us lowly scum, but the reason that this tax bung is there is to encourage people to do something they otherwise wouldn’t do. It only needs encouraging up to a point, and that point is okay at  £1,000,000. The retired colonels of the Torygraph continually spit bricks about how unfair this limit is because it stops them saving more money into a pension, but I don’t see what the problem is, on two counts.

    • If you can save a million pounds then you are ‘king rich by British standards 2. It’s not like they point a gun at your head as say you can’t save any more, they simply take the tax break off you for any further savings. So save somewhere else, chump. And pay your tax, you aren’t Google, though by all means plan to pay as little as possible, legally. If you can’t manage the concept and you really don’t like it then there’s a whole world out there…
    • You can buy an annuity with that £1m of £28,000 p.a. for life rising at 3% p.a (presumably retiring at 65), which is more than the average UK household income for working sorts.

    That’s a pretty reasonable limit – we will give you a tax break to save enough until you reach the average UK household working income. Where I do think they are wrong is placing an annual limit of £40k. There shouldn’t be a limit IMO – the £1M LTA one is good enough to define the ambition of what this is designed to do. If you want more, then save more but end of the tax break for you. It doesn’t matter if you earned that £1M in three frenetic years as a young finance wallah or you plodded away for forty years. It’s about how much of an income that will buy you. I’m not that exercised about limiting the tax advantage to 20% either. There’s no big deal in having the rich get there faster, as long as the total tax break is limited by the LTA. Good luck to them – the rich still get old like everybody else 😉 I wouldn’t even limit contributions to earned income, your pension would be a much better place for your inheritance than going into jacking up the price of houses for everybody else.

    Yes, it doesn’t greatly favour FI/RE because you need more if you are going to pack it in at 30. But in the end exceptional results need exceptional efforts, and until the robots really do come for everybody’s jobs then there isn’t a huge case for incentivising people to retire early. Contrary to much of the bitching about the LTA if you happen to have saved more than the LTA historically when they dropped the limits from the original £1.8m then you can apply for LTA protection to protect your large pension savings from tax. The deal is then that you don’t take the piss by adding to them. Again, this is fair enough – you aren’t retrospectively shorn of your tax-advantaged hoard. You are already rich enough and don’t need any additional incentive to save for your old age. Celebrate your good fortune and knock it off  😉 Obviously if you survey your domain and decide you did build all that and want to live in Galt’s Gulch, well, er, go and knock yourself out. It appears that the perpetrators of this Randian paradise on earth haven’t solved some of the fundamental requirements of a government, such as defence of the realm

    Contrary to much of the commentary on the LTA you are not stopped from saving on reaching it. You are stopped from saving into a pension scheme and benefiting from advantageous tax treatment on your contributions. So save somewhere else FFS.

    Notes:

    1. this age is a movable feast drifting upwards with longevity over the years to come, intended to keep 10 years before state pension age
    2. To qualify this, you are in the top wealth 5% if your household has £900,000 in assets from all sources including home equity, so if you are bothered by a £1m pension limit you are embedded firmly in that top 5%
     
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