Short posts this week. I’m on early shifts again.
I have a pension. A proper one, not just the government’s one. Which means I get something back that’s related to what I paid in, not just the government scheme where everyone gets the same whether they’ve paid vast amounts of NI or none at all.
It isn’t a huge pension. It goes up a little each year and it’s currently looking at paying out about £10,000 a year with a lump sum at the start too. I can live on it, but I won’t be living the high life. Which is okay. I don’t much like heights. They tend to be painful to fall off.
I’d still have to do some kind of work to pick up extra but the pension will cover the basics. I’m pretty relaxed about it. I won’t have to slog myself to death just to stay alive.
Now we can take that pension money out and spend it all. Is that a good idea? In my case, probably not. I doubt I can invest it any better than a professional pension fund manager and I’d probably spend it all on whisky and a wild woman. Then when retirement day came I would have to slog myself to death just to stay alive. I’m leaving it alone.
As I understand it, if you take some out, the first 25% of that is tax free and the rest is taxed as income. If you take it all in one tax year and it’s substantial, you’ll pay 40% tax on a large chunk of it. If, like me, you aready have an income then that withdrawal just makes your tax bill worse. So taking it out isn’t a good option for me. I don’t need to anyway.
It is nice to have that option though. Maybe at some point in the next few years I’ll need a sudden large cash amount available. It’s good to know the option is there.
For now though, it’s best that pension stays where it is. I know what I’m like with money. It’s slippery stuff.
underdogs bite upwards 
I think most people who have been sensible enough to save for a pension are unlikely to do anything stupid. Still when you read daily about people being scammed. It makes you wonder, it all seems so obvious, but I suppose you can never account for greed or gullibility.
LikeLike
How much do you owe on the mortgage? Interest rates are on the rise, could you pay it off, and put the money you’d pay monthly into krugerrands/sovereigns?
LikeLike
I’d call this twitter feed junk science but its lower than that
LikeLike
I was faced with the same problem several years back. I had four small pensions which I took out at various time, one more substantial than the others.
I took 25% out plus annuities for the 3 smaller sums but I wouldn’t do that now while the annuity rates are so low. They don’t add up to £100 a month.
The bigger one was a problem because up to now you had to take an annuity at 75, so to get around that I took 25% as a lump and put the rest into a drawdown scheme. I’d still have the 75 year old annuity problem but it staved it off. Now I’m increasing the amount I draw monthly above the government GAD limits (that no longer apply) so that I extinguish it slowly over around 10 years by which time my state pension will have cut in to make up the difference.
Of course if interest rates improve (which they will if Labour get in) then the pot will last longer but I can always in crease the amount I draw out each month.
Don’t buy an annuity (unless you’ve already done so of course). They take your money, pay interest at the same rate you can get in a bank and when you die they keep the capital. It’s legalised robbery. At least with the drawdown, if I die then my beneficiaries get the pot.
LikeLike
I dare say that this new trick, like most things governments do, is designed to net more tax. People are inherently poor at acting now in order to have more in future; this is known as emotional intelligence and equates to telling the feeling brain sub-system to shut up and wait a bit.
When you combine this with the British tax code, which is the most complex one in the world, you end up with a system whereby HMRC can more or less do as they choose and point to the relevant part of the tax code in order to justify themselves; the only people who can challenge this being large companies who can take them to court and point at a different bit of the tax code for justification. When dealing with HMRC, one never gets a straight answer, never the same answer twice, and never an apology for mistakes on their part.
With this in mind, it is wise to try to shift some of one’s assets into some form (like gold) that these legalised thieves cannot track, and accept that once converted to gold all further dealings will be cash only.
LikeLike
I’m no expert but I’m sure as soon as people start taking out their pensions, every vulture from top to bottom is going to take a bite. The money taken out of the pension pots will shrink the earnings of those remaining in the funds, screwing over those who try to be sensible and stick to the plan they were told to years ago. If their investments start to tank, they will jump ship triggering a run on pensions. I think this will end badly for everyone except HMRC and professional conmen, although for the sake of everybody I hope it doesn’t.
LikeLike
(Not financial advice, but an indication of what is possible…):
Take the 25% Tax Free Lump Sum at 55. This does not count as income in any of the following calculations.
For each year from 55, you have a income tax allowance (2014/15) of £10,000 – subtract any earnings you have during the year (i.e. zero if you’re not working, but include state pension when you start getting that) from that, and you can take that much from your pot with 0% tax being deducted. Anything over that (£10,000-£41,786) will get taxed at a marginal 20% (i.e. up to the 40% limit.)
If you can live off an amount equivalent to the income tax allowance, then you don’t need to pay income tax on your income whether it comes from employment or whatever’s left of that 75% of your pension pot.
Of course, if your income is coming from employment there is the matter of the NI you’ll be paying after (earned income over) (2014/5) £8,060 which doesn’t apply to income from a pension.
—
Not that the above presumes you’re not currently, or planning on, taking any state related benefits (apart from state pension, which was mentioned above,) which could be affected by doing any of the above.
LikeLike
Professional fund managers are vastly overrated, you’re better off just tracking the market than paying someone else to either do that (and charge you a fee) or invest based on their own personal biases.
LikeLike
When the smoking ban came in, I started putting all the money I was saving by not doing loads of things I used to do, like taking holidays, weekends away, theatre trips, evenings at restaurants and pubs, days out shopping, cinema trips and countless days out to places where I knew I now wouldn’t be able to smoke, even in the cafeteria or restaurant (e.g. museums etc). This was largely out of anger at my employers, who “gold plated” the legislation by banning smoking across all premises – inside and out – which was a uncharacteristically unreasonable act for an employer who, until then, had been reasonable-ness personified.
Even I was staggered by how much money I now wasn’t spending and even with my greatly increased pension contributions, my bank balance now often swells to such an extent that it can get just a teeny bit embarrassing. Every now and again I take out a lump sum and invest it (“normal” investments, not pension ones) and even with these regular deductions my bank balance continues to grow. I never realised how much money I used to spend on pleasurable frivolities until I stopped. And this still leaves enough money for me to buy full-price cigarettes (what a mug, eh?) and, in the last two years, install a completely new bathroom and kitchen without batting an eyelid.
I’ve now amassed sufficient funds, if I wished, to retire now. I just haven’t thought seriously about what I’d do with my time, and I’d likely get bored if I didn’t have anything meaningful to do. But I’ve got an idea or two up my sleeve – I just need to get off my butt and start making some enquiries and some definite plans and I’ll be out of my now constantly-mildly-resented anti-smoking employer’s clutches like a shot. What a shame – I used to regard my workplace as kind of like a second home, I was so happy there. But the unnecessarily extra-harsh smoking ban really felt like a personal smack in the eye (which, of course, for smoking members of staff, it was), which took all the enthusiastic wind out of my sails, and although I’ve adapted to the ban by changing my break-and-lunchtime routine, sadly, it’s never really come back. All I need now are a few definite plans and a big dose of courage, and I’ll be “outta here,” as they say …
LikeLike
“my bank balance now often swells to such an extent that it can get just a teeny bit embarrassing. ”
I know the feeling….and I have been on benefits for the last decade or so! Last year I had to go into my bank and ask the manageress something about my account. That involved her ‘asking’ the computer-as it always does these days, the days when a Bank Manager was considered adult enough to make any decision by himself are long gone.
Lady called up my account, looked at the balance and said with patent sincerity: “Your current balance is ££££-something, I *wish* mine was that healthy”.
I gave up being a professional alcoholic around the time of the smoking ban, around the time I stopped spending £70 a week in cafes where I could smoke and although I never could get the hang of ‘saving’ since then, like Jax1st, month for month not paying UK Duty Paid Price(which I decided not pay any more after the Smoking Verbot came in) and not buying a litre and half of sctoch a day have meant I now end the month with almost a full month’s money in the account some months and that is with foreign holidays and running a car.
A couple of years back I publically (online) thanked the guys from N2D for saving me enough money to pay our Winter heating bill. I saved so much by Xborder shopping for my smokes.
LikeLike
Need to be very careful these days with the govt and other thieves. I don’t even have an ISA, don’t want any complications at all.
LikeLike
Erm, old fellow…
I am happy for you that your life appears to be about to perhaps change, in ways that you clearly desire. I am very pleased for you, really; I am.
I do hope that, however, your blogposts will be as nasty and acerbic towards our mutual enemies as they have been so far, and hopefully will continue to be, and that your good woman will not “pre-moderate” you……
I hope that the lady will also share your desire to spread the seeds of Nicotiana (sp.) all over Scotland, and hopefully other areas too, like “The North West”. If you ever decided to visit, we would put you both up for a night or two, as friends – I just need a couple of days’ notice to “clear the guest bedroom” (we have one!) of mobile objects like guitar amps, radios, effects units, speakers etc.
I would be able to direct you to “sites of special scientific interest” round here, where the seeds of Nicotiana species and varieties would be able to sprout and thrive unchecked. Warmish, sunny (ish), out of the prevailing wind (ish), and so on. Apart from anything, this would _really_ get up the noses of “Natural England” – you know! – the blokes and blokettes that wetted themselves orgasmically with delight, at the disaster of the flooding of the Somerset Levels last year! And who wanted to chop down all the Sefton Coast Pine Forests, so as to “give proper environments for toads and newts”…
LikeLike
Oh no need to worry about the barbs and vitriol, She thinks rather like me on matters political and social 😉
And you can leave all the gadgets in that spare room. I might make something interesting out of them in an idle moment…
I haven’t planted baccy in my garden this year since I have no idea what the future holds and as usual, only the sketchiest of maps on how to get there. But the Man who Went to Seed still has the wild-baccy plan.
LikeLike