What caught my eye this week.
A bad week for those who long for sunlit uplands swathed in magic money trees.
National insurance rates up. Dividend tax rates up. The triple-lock on pensions suspended.
It’s good that the government has at least made a stab at fixing the social care crisis, with a new cap on lifetime costs.
But otherwise the best that can be said about this week’s machinations is that nearly everyone has something to moan about.
Time to pay
Credulous people who voted to leave the EU on the promise of a £350m a week ‘dividend’ for the NHS – £17bn a year – might wonder why their incomes are now being docked in part to fund the health service.
Those who saw in Tory Brexiteers a plan for Singapore-on-the-Thames might question why taxes on wealth creators are rising and UK graduates will soon face a marginal tax rate of effectively 50% [search result].
Meanwhile those on the left – for whom even the unprecedented hundreds of billions of public money spent on Covid relief measures wasn’t enough – have been reminded that one way or another the bill always come due.
And those who argue – with some justification – that today’s low rates mean it’d be better for the government to keep borrowing rather than hiking taxes are re-learning that politics doesn’t work that way.
All this while the economy stops and starts, supply chains snag, and the US return to work stalls.
A rebuke to those who thought we could just put daily life into suspended hibernation via repeated lockdowns without deep economic consequences.
Tax take
None of this is to argue that lockdowns, the pausing of the triple-lock, extra money for the NHS, or even Brexit was necessarily a bad thing.
Well not today, anyway.
I’m just highlighting that this week’s reality check ought to be felt more widely than simply in one’s (digital) wallet.
It’s a theme picked up by Merryn Somerset-Webb in the FT [search result]:
You might be beginning to feel the sands shifting slightly beneath your feet.
Nothing is quite what it used to be — or supposed to be.
Indeed. When even the cosseted pensioner class starts complaining, the times are surely a-changing.
For us as investors of course, it’s (always) time to take evasive action.
This latest mishmash of tax measures makes things yet more complicated.
But nobody is more interested than you are in getting yourself through this tax maze.
(And yes, National Insurance is just income tax with better PR).
Hands off my castle
Make strenuous efforts to fill your ISA to avoid being taxed on your gains again later.
(Probably) only after contributing all you can to your pension, to truly soften the blow.
But when we recover from this week of tax whammies, we might ask ourselves why those owning property outside of a limited company were spared a hit to their income.
Or why as ever Government policy is hellbent on protecting those who would inherit a family home from the impact of social care costs.
All at the expense of young people from less-moneyed backgrounds who stand no chance of ever buying their own home.
It’s all very feudal.
Most Britons are against inheritance tax paid by those who’ve done nothing to earn it.
Yet they will shake their fist at this week’s tax hike on others struggling just to get by – whether young wage earners or pensioners living off dividends.
I suppose we can’t see the wood for our own magic money trees.
From Monevator
How to read a bond fund web page – Monevator
Is there a case for gearing up your investments? – Monevator
From the archive-ator: Never say never again – Monevator
News
Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!1
Triple-lock pension guarantee to be temporarily suspended – Which
UK house prices up 7.1% to hit new record high in August – ThisIsMoney
‘Why have we not grown any giant companies?’: the UK’s attempt to take on Silicon Valley [Search result] – FT
Brexit bungling sees EU nationals in the UK hit by status SNAFUs – Guardian
Nuisance robo-calls could lead to multimillion-pound fines – Guardian
Bitcoin crashes on first day as El Salvador’s legal tender… – BBC
…but El Salvador’s president tweeted he bought the dip – via Twitter
Rents outside London increase at the fastest rate for 13 years – Zoopla
Products and services
A deep dive into Lloyds’ new £100 switching offer – Be Clever With Your Cash
Nationwide to end free European travel insurance for FlexAccount customers – Guardian
Sign-up to Freetrade via my link and we can both get a free share worth between £3 and £200 – Freetrade
Six benefits of getting a Power of Attorney – Which
Get up to £500 cashback when you transfer your pension to ii [Offer ends 30 September 2021] – Interactive Investor
Homes fit for a start-up, in pictures – Guardian
Comment and opinion
The US house price boom is small potatoes on the global stage – AWOCS
The importance of drawdowns in retirement planning – Validea
Hiding in the doing – My Quiet FI
Allan Roth: Six things learned in business school that turned out to be absolutely wrong – Advisor Perspectives
‘Bucketing’ a retirement portfolio in withdrawal mode – Humble Dollar
Cripes, @ermine has bought [a bit of] Bitcoin – Simple Living in Somerset
Research finds selective memory drives investor overconfidence – Ars Technica
Future of funds mini-special
Direct indexing: the next big thing in passive investing [Podcast] – Oddlots
Are funds still the future? – Morningstar
Naughty corner: Active antics
The two types of investors – Compound Advisors
Dave Nadig on apes, rocks, and the future of finance [/NFTs]… – ETF Trends
…Seth Godin says such speculation is the new luxury good – Seth Godin
Should we abandon fair value calculations? – Part One and Part Two by Klement on Investing
Was Ben Graham a quant? – Albert Bridge Capital
Covid corner
Boris Johnson to publish Covid blueprint for ‘difficult’ winter – Guardian
Rare heart inflammation side-effect dogs decision to vaccinate teens – BBC
How Valencia crushed the coronavirus with AI – Wired
When an athlete gets long Covid – ESPN [hat tip Abnormal Returns]
Kindle book bargains
Stuffocation: Living More with Less by James Wallman – £0.99 on Kindle
The Basics of Bitcoin and Blockchains by Antony Lewis – £2.19 on Kindle
Captivate: The Science of Succeeding with People by Vanessa van Edwards – £0.99 on Kindle
The Smartest Guys in the Room: The Fall of Enron by Peter Elkind and Bethany McLean – £0.99 on Kindle
Environmental factors
Space-based solar power will finish off fossil fuels – Charlie Stross
There’s gold in green investing – Evidence-based Investor
Off our beat
The exponential age will transform economics forever – Wired
Study links too much free time to lower sense of well-being – Guardian
One woman’s mission to rewrite Nazi history on Wikipedia – Wired
Video games will change humanity as we know it – Bloomberg
Can progressives be persuaded that genetics matter? – The New Yorker
Why William Gibson is a literary genius – The Walrus
The history of the Frappucino – History of Business
How computationally complex is a single neuron? – Quanta
“A stranger secretly lived in my home…” – Guardian
And finally…
“I have an income nearly sufficient for my wants (no one’s income is ever quite sufficient, you know).”
– Anthony Hope, The Prisoner of Zenda
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Comments on this entry are closed.
First stab at fixing social care and all you can come up with is brexit scaremongering and remoaner living up to the name.
True, some people lied, but there were lies on both sides. But hey, staying in EU would’ve solved this issue! Who cares if low wage workers get a raise? As long as my pension keeps going up.
^ Classy. Also it feels more like a first stab at paying for Harding’s Test and Trace.
Strange that the government is happy to break manifesto pledges but then only for a small amount. Surely people will remember broken promises not by how much they were broken? I think one fair way would of been higher NI rate for self employed. A lot were entitled to GRANTS (not loans) during the scamdemic. My old man got just over 20k in 4 payments. My cleaner bought a new car. Lower NI for self employed is ok if you don’t get the safety net of sick/holiday etc but I don’t think anyone could argue recouping some of these windfalls through NI is unfair.
It does seem the government is happy to let this crisis go to waste. It was an ideal opportunity to slay some sacred cows but instead we got a small tweak.
I am not a market timer or trader but I find myself this last few years smelling a market top and taking my current years drawdown at that point
This I did again last week
The portfolio remains totally invested at all times so each years drawdown is not particularly significant
However I am enjoying my “ability “ to read the market which of course is totally delusional
Is this the start of a big correction-who knows?
xxd09
@jim — It’s pretty well-documented that the many self-employed people who operate via Limited Companies got little support compared to others during the pandemic. Even the ever-populist Martin Lewis took up the cause: https://www.moneysavingexpert.com/news/2021/03/chancellor-confirms-to-martin-lewis-the–door-is-firmly-shut–fo/
@xeny @BBB — I’ll be talking about Brexit in a decade, as will politicians and the wider media, because its mild but chronically unhelpful consequences will still be lingering, both politically and economically.
Which I warned would be the case five years ago. I have zero intention of forgetting this self-harming tilt at windmills or its pernicious consequences. Just a heads up. 🙂
I am one of the ‘forgotten’ ltd. I never wanted any money because like any responsible adult I had provisions put aside to weather any storms. As it happens I never had to stop working, my old man lost around 2 weeks while his site shut down and I never laid the cleaner off once. I’m not talking about self employed people like myself who are actually ’employed’ by own ltd companies. I resent any tax rises having never claimed any furlough etc. I’m talking about self employed operating under their own name who pay a lower rate of NI than normal PAYE folk.
Don’t ruin your reputation by claiming being in EU would’ve solved social care or EU would’ve fixed our nhs.
Blame the govt all you want for taxes. But if you want to blame someone for brexit, start with Blair who laid the foundation by promising all benefits and residency to EU immigrants.
It’s very disappointing that the government has decided to raise taxes when 10-year Gilt yields are still just 0.67%. Taxes do need to rise eventually but this is not the right time. Reducing expenditure on policies such as the furlough scheme and UC top ups is long overdue but the UK needs to grow out of this and raising NI 2.5% won’t help that.
Even worse these tax rises are as inequitable as ever. I don’t mind paying more tax but the playing field has to be fair. Those working are yet again paying for the retired and those who inherited wealth. Property yet again dodges the bullet it so richly deserves. More feudalism, more rentier capitalism, no imagination to think differently or willingness to take risks. The UK never learns. As a country, we deserve to decline.
@everyone — I’m turning comments off for about an hour from around 13:55 UK GMT as we’re doing some site maintenance and I don’t want anyone’s typings to be wasted. 🙂
@BBB – You write:
Agreed, and I don’t claim that. I believe things would have continued as they were. It was Leavers who claimed leaving the EU would fix the NHS. You might remember a certain bus.
I happen to agree that the Blair government was too complacent about the size and pace of immigration, as discussed in the past, although of course I do also believe that within the EU, people moving freely should in general get the benefits they’re entitled to.
As discussed and shown many times though immigration was a net contributor to UK taxes and the economy, but I’m sure neither of us have the energy to knock about that red herring again. 🙂
@all — Okay, comments are turned back on again now. 🙂
Technical shenanigans mean that there may be some quirks about the place over the past/next 6-12 hours.
Also, if anyone sees anything that looks broken on the site (apart from me being a broken record on Br*xit 😉 ) then please do drop a comment here so we can look into it.
Apologies for the interruption to normal service! 🙂
Guess I must be one of the ‘cosseted pensioners’. To be more exact, I receive the state pension. No other. I acquiesce with the removal of one part of the triple lock for a period of one year. However…, for me, energy costs are a large chunk of my expenditure. I live in a rural area. Without a car you are pretty well stuffed. Petrol is now at its highest price for, I believe, 5 years. Electricity is also a very significant part of my outgoings. Last October there was an increase in electric costs. I changed provider. In spring this year, there was another general increase in price. My new supplier, Octopus, increased theirs by 8%. This was less than numerous others suppliers. Right now, across the industry, there’s more hefty increases coming in the next few weeks. In the last few months, I’ve been making significant one-off payments, in addition to the monthly D/D’s, into my account to cushion what I see as the shock to come.
I can only say that I get pretty tired hearing this cliché about cosseted pensioners.
Hi all, thanks for another great read and links suggestions
On a finance related topic could someone knowledgeable please confirm my understanding of Tax relief on pension contributions as I am struggling to get my head round this being true.
Can a higher rate tax payer get a 67% return on their present value cash by making a pension contribution ie £10k sipp contribution costs £6k in cash with £4K tax relief (£4k/£6k =67%)???
I’m struggling to get my head round this and why if it is the case it’s not being talked more about / taught in schools as one of the greatest wealth creating no brainers ever….
Any confirmation / comment would be very appreciated. Thanks
I was the fool typing when the lights turned off! Doh! 🙂
I have to agree with @ZXSpectum48K that the extra tax could have been applied more fairly.
The rich will bear the smallest of burdens compared with their free capital after necessities and their offspring will benefit the most from the cap on care – 2 x 85K (probably a 1 in 7 chance each of blowing the full amount per partner IIRC) – could easily wipe out many inheritances at the bottom decile but would have a small impact in the top decile of wealth. A true Tory policy in that light. That said, I welcome another societal safety net.
It also has the impact of making the next generation pay, which will even out after a few generations as the present tax payers become beneficiaries but places an unfair and unwelcome burden on the struggling young trying to make ends meet and seeing the housing market inaccessible until even later in life.
My own position reflects this well. As I had planned on early retirement next year, I dodge the majority of the years NI hike, there is no extra tax on the pension when I start drawdown late next year, no extra tax on ISA dividends and not a hint of a tax on wealth. The only effect this week will have on Me and Mrs JimJim will be the triple lock not sticking to plan and, as Andrew says above, hits the poorest pensioners hardest and, as that is a decade away for us on average, not at all now.
Having been a fan of science fiction since a youth and waiting for any space news since the moon landing with eagerness the piece “Space-based solar power will finish off fossil fuels” brought a hopeful tear to my eye.
I am surprised the IG Nobel prize for economics didn’t make the reading list…
“ECONOMICS PRIZE [FRANCE, SWITZERLAND, AUSTRALIA, AUSTRIA, CZECH REPUBLIC, UK]:
Pavlo Blavatskyy, for discovering that the obesity of a country’s politicians may be a good indicator of that country’s corruption.” 🙂
JimJim
Much as I like reading Indeedably and now MyQuietFI, and appreciate their insights, I do find the writing style a little too poetic at times. Eloquent. A bit too… wordy. The way they mix long and short sentences to me is a bit distracting. Irksome. A little unnecessary. Perhaps? Still they are out there writing regularly which is more than I can say. My selection of half finished blog posts are crying out at me, not yet louder than our 3 month old, but competing for my head space. Fatigued. Cloudy with a chance of rain. And other such metaphors.
@Youcannotbeserious
It’s a bit more complex than that. For example, someone on £150K/yr who sacrifices 10% of their income in to their pension (£15K) takes home only £8.7K less, so their “return” appears to be 15/8.7 = 1.72 or 72%.
In reality of course they’ll pay tax in retirement. If you assume they have a £1M pot for example and take home £40K (4%)/yr then they’d be (currently) paying about 15% total tax (no NI after state pension age). That makes the total return more like 1.46 or 46%
So yeah, make the most of it while you can. There have been rumours for years that government will crack down on pension tax relief.
@Youcannotbeserious
Oh, and it’s important to have some perspective. A 50% boost to returns on a pension sounds like a dream but annualized over 30 years it’s only 1.4%/year.
Imho, the defined benefit pension schemes of yesteryear that are really blessed. Guarantueed income regardless of market returns!
@youcannotbeserious
> Can a higher rate tax payer get a 67% return on their present value cash by making a pension contribution ie £10k sipp contribution costs £6k in cash with £4K tax relief (£4k/£6k =67%)???
Yes, if and only if they run the SIPP out at a rate less than the personal allowance. I did this for a few years, burning my SIPP down to the ground at just under the personal allowance. The problem is you have an income of only the personal allowance, which is a bit of a shock for somone who was paying HRT while working, so you usually need other savings to avoid eating dog food and dried noodles once you hand in your security pass for the last time.
It’s still well worth doing if they are still a BR taxpayer post retirement, and it’s even still a 6 and a bit % bung if they are a HR taxpayer because of the way the 25% tax-free pension-commencement lump sum works. It is more in practice because these are the marginal rates, most people have less SIPP income than when they were working.
So yes, run, don’t walk to pension savings as a HR taxpayer if it is possible for you. I took the policy that I just didn’t want to be paying HR tax at all, anything over the threshold got lobbed into a SIPP-like pension. If your employer offers salary sacrifice then you get a sweet deal on saving NI too!
@TI – “Off our beat” The New Yorker
Thanks for the link, which has lead me to pre-order the book in question, The Genetic Lottery (Harden) – release date 21/9/21.
Behavioural genetics is a long-standing interest of mine. With both The Bell Curve and Blueprint (Plomin) gracing the shelves of my bookcase, reading the new book will be interesting but the Amazon “Look inside” excerpt shows the author to be seemingly unafraid of adducing her opinion as fact, so she will have some ground to make up to gain my respect.
Thanks @ermine and @andrew
It’s blown me away, I thought it was an offer too good to be true!
Someone electing to access their pension pot at 55 could draw down £10k a year for 9 years paying no tax on this income as it would be below the personal allowance and receive a £30k tax free 25% pension commencement lump sum ie a total of £120k back tax free over the period from 55 to 64 for an upfront cash contribution of £72k.
Yes I know not many will say they can “survive” on only £10k a year but if you combine this base income with cash savings/ income from ISA wrapped investments it’s surely got to be the best deal available and the first place anyone contemplating FIRE should look to establish.
It’s just not talked about or taught anywhere to people.
As a lorry driver who, along with many in this country in low paid jobs has seen a long overdue wage rise and improvements in conditions and terms after over a decade and a half of wage compression thanks to employers taking full advantage of the freedom of movement to bring in 100,000s of Eastern Europeans willing to work for minimum wage (as well as farmers finding legal ways to pay even less than that) , I’m finding it extremely hard to give a toss. My wage rise more than compensates for the tax increases, the extra money I have to invest more than compensates for any penalties on pensions or investing.
If you’re one of those who’ve been more than willing to benefit off the backs of our labour getting us on the cheap for the last 16 years as you make more and more money I’m guessing you’re suffering. Let me play you a tune on the world’s smallest guitar. Don’t expect pity because you haven’t seen any gains from Brexit and are now being hit with tax increases because we haven’t any.
@ The Investor “It’s pretty well-documented that the many self-employed people who operate via Limited Companies got little support compared to others during the pandemic.”
And why was that? Oh that’s right, it’s because they were avoiding £10,000s a year in national insurance by abusing the low salary and dividend method as well as, lets be honest, partaking in a bit of tax evasion too – things like claiming mileage when the journey was ordinary commuting, claiming 100% of a mobile phone bill when the majority of use was personal, putting their partner on the books who did sod all to draw another £12k a year out tax free.
I find it hard to care and neither do the millions of other people on PAYE.
@Conor #20 & 21
If you are genuinely a lorry driver, then I for one absolutely appreciate what you and your colleagues do and I certainly don’t begrudge you fair reimbursement for your hard work.
A word of well-intentioned advice though. If you seek to argue a point, then you seriously weaken your position if you use sweeping generalisations.
Finding the comments on this and other papers & blogs generally quite amusing.
General pervasive underlying theme tends to be taxes need to rise as long as I don’t have to pay for it. As soon as anything negatively impacts me, it’s unfair. Not sure what fairness has ever had to do with anything, ever. It’s the voting booth that tends to have prevalence. Given that seems to be most people’s views, I also am finding it increasingly hard to ‘give a toss’ about anyone else.
UK will continue to decline relative to other countries (although absolute standards of living will advance), which will further upset people as wages generally equalise downwards, public spending demands will continue to outstrip tax receipts, politicians will continue to spend money inefficiently. All of which means in the coming years, future govts are coming after everyone’s wealth whose got more than the average and I have a general desire to hide as much for it as possible from them.
How to do – seems like income is the real focus here for govts to tax at the moment. I’ve already switched investment styles to focus on capital growth investments rather than dividends or rents. At least then it’s your choice when to capitalise on them, the tax rates are lower and if you so choose, you could pull the plug and five years later it’s CGT free if you pick the right third party country – nice way to see the world whilst being out of the UK. Admittedly an annual wealth tax would scupper that but that feels a long way off. Also there is still plenty of scope for a husband / wife in the UK to realise circa £70k of capital gains yearly and pay just circa £700 tax in the UK if you are non or basic rate tax payers. That’s the ticket. Let someone else pick up the tab.
If you earn £80k – £100k and someone offers you a promotion that means more hours / stress and they’ll pay you say £120 – £150k – think long and hard about that. If you can put the whole amount into a pension – salary sacrifice even better – do that every day of the week. Otherwise, I suspect your free time is worth more than a circa 63% tax rate to £120k. Let some other poor sap in the country pay those taxes and chill out and take the easier life. Why bother?
Sound financial advice on this blog and others is to not by too much house. But any growth is tax free and the govt has an obsession with pumping up house prices. So go with the flow and put a good portion of your wealth in there and avoid paying any tax on growth that you might do with other investments. Let someone else pick up the tab on that tax you might have paid from other investments.
There was a good article a week ago or so on this blog around borrowing to invest. Not withstanding the psychological challenges and scope to go bankrupt if you don’t manage it correctly, this country (and others) is engaged in rampant financial repression. Join the party – get a five year fix 30k and scraping to buy a house. Have a look at working in other countries with a lower tax rate (e.g. Dubai) and build up some savings there. Whilst you are young you are more likely to look past some of the downsides. Let someone else in the UK pick up the tab – why should you bother pay for anyone else. Come back when you’ve earned your wealth and avoiding as much UK tax as you can.
Obviously fill up your isa, pension, jisa, 2k allowance, 12k CGT, Gold Britannia’s (CGT free), Interest allowance for a basis non paying spouse etc etc and then look at other ways to deal with any excess. Otherwise you are just picking up the tab and avoiding an open goal.
All sounds rather selfish doesn’t it – can’t think where I’ve picked up that vibe!
part of the rant got corrupted! Probably as it was so terrible….
There was a good article a week ago or so on this blog around borrowing to invest. Not withstanding the psychological challenges and scope to go bankrupt if you don’t manage it correctly, this country (and others) is engaged in rampant financial repression. Join the party – get a five year fix 30k and scraping to buy a house. Have a look at working in other countries with a lower tax rate (e.g. Dubai) and build up some savings there. Whilst you are young you are more likely to look past some of the downsides. Let someone else in the UK pick up the tab – why should you bother pay for anyone else. Come back when you’ve earned your wealth and avoiding as much UK tax as you can.
> It’s good that the government has at least made a stab at fixing the social care crisis, with a new cap on lifetime costs.
Probably in the minority here but I actually find this pretty offensive. So people with > £100k in assets get capped lifetime care costs. The rest is footed by the tax payer. What?? But these people by definition *have* money. They *can* pay. So paying for yourself and taking responsibility for yourself is no longer to be encouraged. Why should the tax payer pay for people who can pay for themselves? As someone who very much can pay for myself, I’m against this and very serious. I can afford to also pay for my medical costs up to fairly obscene amounts of money and would have no problem doing so etc. etc.
Instead, this means people with > £100k, which – let’s face it – is (rather unsurprisingly) most home owners at a ripe – get capped costs and their estates subsidised by the tax payer (maybe under the inheritance tax bracket). i.e. incentivises inheritance vs working.
What’s wrong with somebody effectively using their house to cover their care costs and dying a (relative) pauper? I think this is great from a collective perspective. Maybe the children inheriting little don’t agree as they have mortgages etc. But we all now suffer as a whole for individual selfishness. And particularly people on low wagers who now need to pay more tax to cover the (relatively) wealthy cashing in – that’s economically and morally wrong.
@An Admirer — Well as I imply in the article and have batted back and forth on Monevator many times, I’m with you on inheritance tax. In my view it’s obviously better to tax someone who is dead then someone who is working hard to stay alive. Most see it differently though (they seem to see it as a tax on someone alive, that happens to be paid when they were dead, as best I can figure out.) This is before we even get into the preferable route — of taxing the inheritance recipients — which people also oppose.
However I do see a rationale for capping care costs, rather than making people pay their own care until they’re out of money.
Firstly, who needs long-term / old-age care is a complete lottery, with extremely different outcomes. You could argue that problem could be addressed with insurance, but in this country we have a State-based health care system to solve this problem (the health lottery) for most and it’s logical to me that people think the state should therefore be there to support them if they get an unfortunately roll of the dice on care, too.
Secondly, it probably incentives average people to save more money — and thus be less of a burden on the State etc running up to any care year demands — if they know they won’t have to spend everything otherwise. Like with means-tested benefits, it’s a disincentive to save if you know those savings will just be taken by the state to pay the costs of someone who didn’t save (effectively). A cap on care costs in a pragmatic compromise, in my view.
You can no more tax someone who is dead than you can pay for their education.
How is a redistribution of “who pays” for social care a fix for it? Did I miss something? The young/working population will now pay for my own social care (beyond the cap) rather than myself and my progeny. How will this simple redistribution of financial burden improve the quality and availability of social care and ultimately, the quality of life for those in need? Are second-order benefits to quality and availability assumed?
@Youcannotbeserious, that is exactly the strategy we have used for my wife who is younger than me but wanted to retire at the same time. She filled her work DC pension (rules like a SIPP) benefitting from the tax relief uplift though not from higher rate, to generate at her planned early retirement age a 25% tax free lump sum and income just under the tax threshold. This will keep her going until some historic DB pensions and the state pension reach maturity, but means our living costs are also running down both our pension lump sums. Works for us.
@TI and others, I’m with you on inheritance tax but many aren’t. The person who gets less money is the recipient, but I can’t see that for them there is any entitlement to a specific sum of money, getting money you haven’t worked for is more like the luck of a win on premium bonds.
However more of a concern to me is the claim that the government have “fixed” social care. They haven’t done anything at all for social care, they have just added a new tax. Fixing social care needs a funded structure and care capacity that will allow seamless movement of vulnerable patients from hospital care into residential or at-home care, and that is what is missing at the moment and will remain missing in anything that has been proposed.
@TI – I think it’s relatively unlikely a care cap is going to encourage people to save more, especially people who would be reliant on state support. I have never seen any evidence that people with enough wealth for the care cap to make a difference are intentionally making themselves destitute to avoid care costs; or at least not as part of wider “legacy management” plans for the very wealthy that would still exist. Anyone who chooses to retire on the basis of living off the state pension, would probably see the care cap as more evidence that there’s no need to save as everything will be provided (and is going to have a rude awakening).
@Mezzanine – It allows the wealthy elderly to pass on more of their assets by passing the burden onto working people; it doesn’t matter if it’s sustainable or not, they’ll be dead and their wealth spent or passed on. I honestly worry for people in their 50s/60s now; the anger of a lot of the younger generations from issues like this could lead to a big over-correction when they finally get political influence and it’ll be the elderly at that point that pay the price.
@Youcannotbeserious:
….. and not to forget any employer inputs like: basic contribution, matching contributions, and, in some cases, the return of [some] employers NI too.
As Jonathan B (#30) points out it is about managing the differential between the average tax rate deferred on the way in (accumulating) and that paid on the way out (de-accumulating), noting: a) 25% tax-free pension commencement lump sum (PCLS); b) as Ermine (#18) hints at: you could perceive the progressive tax rate system [and possibly NI deductions] as working in your favour both on the way in and on the way out; and c) not to forget: rules can and do change.
On top of this you should (on average) make some investment gains too – in which case the method used for emptying the SIPP (e.g. drawdown vs UFPLS) can have an influence too. BTW, keeping the SIPP in cash is an attempt to side-step the downside of short-term volatility albeit at the peril of inflation.
Benefits, of course, are not limitless, and the annual allowance and lifetime allowance are part of that armoury.
The above information is – and AFAICT always has been – available in the public domain. Personally, I was around fifty before I sort of appreciated the overall potential impact.
There is a great multi-part Monevator series on this topic that starts at:
https://monevator.com/how-to-maximise-your-isas-and-sipps-to-reach-financial-independence/
@SF (#24):
With tongue firmly in cheek – good tip re Gold Britannia’s being free from CGT!
@SeekingFire. The reality is the majority are happy that taxes fall ever more heavily on work and not wealth. They prefer taxes to fall on the young and poor, not the retired and wealthy. They want house prices constantly ramped higher. Tax avoidance turned into an art form. They want selfishness. These are all things the majority desire. If they didn’t want these things then, surely, they’d simply stop voting for them over and over again?
ZXSpectrum48k.
I feel your comment hits the nail bang on the head. It is a sad reflection on us all.
It helps to explain why almost nothing being proposed leads to an improvement in actual services other than who pays and it conceivably never will.
Ho hum.
TP2.
@zx. Given the age profile of voters in general and especially Tory voters it can be no surprise we get the policies we do.
That such policies have negative economic effects is barely relevant to their voter base.