I'd definitely buy albums at a quid. Net result: I'd spend more money that at present, when the last time I bought an album was, oh... over five years ago?
On the other hand, there's the principle that if you make something too cheap, people value it less.
I don't think that "Yaaaaay" adds in any way to your cred as a politically savvy individual.
I know the changes will only really affect badly those making multiple hundreds of thousands a year. But the article seems yet another one setting 100k/yr up as the marker of 'rich'.
I'm kinda tired of the "rich bashing". £100k/yr is NOT fucking rich. It just isn't. I know, I have been there (somewhat over it in fact. Gross. You generally see about a gnat's whisker over half net). It ain't poor, and I won't pretend it's even close to having to be careful (unless you have kids and live in London/the south east and want a house with a garden for them to play in - even then it might take some *seriously* creative budgeting but that's a choice, right?).
Your life still, in general, consists of rocking up to some office or other, sitting your backside down and doing what you are told all day til you die of boredom or exhaustion. It's just that you have managed to position yourself advantageously through a good few years effort, thought and some degree of innate talent at what you do. (though I am, these days, no better at what I do than you are, Andy [it being the same thing], I just prioritised getting paid for it...)
If there's no (or less) reward for the effort why the hell would anyone bother? I suspect fewer will even try....
Even if you earn that level for 10 years it doesn't mean you are set for life in any way shape or form. Disillusioned, me? Nah, don't think I had them in the first place. But it really is not lifechanging levels of dosh. I don't know how to eloquently put that over. You might be able to afford better toys but it's not enough to buy your way out of the system. The life is no better nor worse than when I earned lots less, or indeed nothing at all (though my days of unemployment were a long long time ago, nothing much there seems to have changed). People earning twice, three, four times as much as me tend to have even less life - on 24 hour call on the evil Blackberry and in the office til past ten 6 or even seven days a week, looking ill and stiff and moving like they are 10 years older than they are.
So, maybe lay off the very ordinary dude(ettes) that have had a medium-successful game plan. They are not the enemy and it's not a zero-sum game. Even if it wasn't me (which actually, it isn't right now) I'd not be going "yaaaay". I repeat, they are NOT the enemy.
OK, you work out just how big a pension pot YOU will need to pay you out, say, £30k gross pa for 25 years. Don't forget to adjust that £30k each year for inflation. And the cr@p performance of pension funds. I'm off to do just that....
But there's a limit to what I'm happy with people escaping tax on.
If you're putting away twice the average way tax-free each year, then frankly that's quite enough.
The point of tax relief on pensions is to encourage people to save towards a pension so that they will not be dependent on the state in their old age. Anything more than that is effectively money that could be spent on other things.
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pete stevens (from livejournal.com)2010-10-15 04:25 pm (UTC)(link)
The point of tax relief on pensions is because pensions are taxable. The inland revenue is deferring the income until after the person retires rather than collecting it now.
To make the maths simple, let us suppose I have 100k and I'm a higher rate tax payer.
Situation (1), I put it into a pension,
I pay 100k from my gross salary into my pension which costs me 60k of net income (actually more because of NI, but we'll ignore that for now).
Sometime later I draw it out of my pension, if I'm still a higher rate tax payer I'll then pay 40k of tax on the money on the way out.
The only tax advantage occurs if my tax band is lower at the point of withdrawing the money than when I put it in in the first place.
Situation (2)
I accept 60k now and put it in the bank. When I withdraw it at retirement I still have 60k.
You'll note that in both situations you end up with the same amount of money, it's just the tax is paid later in case (2).
If money goes into pensions from after tax income and is taxed on the way out it makes more sense to put your money under the mattress than in a pension fund. This is bonkers.
Note that if basic tax rates rise between now and retirement you could end up paying more tax than you would do today.
If you account for growth of the fund at the same rate the numbers come out the same providing the income from the pension and private savings are taxed the same way. Once you account for the loss of flexibility in a pension fund compared to savings and the typically higher annual management fees in pension funds compared to ISAs it quickly starts to make sense to dump after tax money into a tracker fund / mortgage in preference to a pension.
There used to be a tax advantage in that you could reclaim corporation tax paid on dividends in a pension fund but not as an individual, but Gordon took that away.
Yes. I know this. I work for a company that does pensions.
The fact remains that (a) there's a tax-free lump sum that allows you to bypass a lot of tax and (b) your income is very frequently in a lower tax bracket when you're taking your pension than when you were paying it in.
What the government is basically saying is that (a) you can't have either of those advantages any more, (b) it would like you to do stuff with the money now rather than sticking it away somewhere safe, and (c) it would like the tax now, rather than in 30 years.
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pete stevens (from livejournal.com)2010-10-15 04:53 pm (UTC)(link)
Apologies for stating the obvious. I've met a lot of people who didn't know this.
Now the conclusion I came to was that saving for a pension as a private individual is basically bonkers until you've filled all your ISA allowances, because pension funds all charge much larger annual fees than good tracker funds which means that the majority of pension funds are a worse investment than a tracker.
The only tax advantage I can see is the deferring income into future tax rates on the assumption that your future marginal tax rate will be lower than the current one.
Yes. A SIPP put into index tracker(s) is a much better, more flexible option (though I'd think seriously about a mix with corp bonds). I used to work for a pensions company too. Beating the market is rare (and usually predicated on sheer luck or insider knowledge), beating it over the long term is practically unheard of.
Having said that, I am neither heavily invested nor pensioned up right now. I was all prepped for a 70's style recession with high inflation and high interest rates....
Why do you (or anyone) get to decide what is enough? Why do you (or anyone) get to decide that someone else cannot choose to put big bucks in now and none at all later? Why should advantage accrue to those who put regular, smaller amounts in every year as opposed to people who put in the same total amount over the same overall period - just in more erratic chunks?
It's called democracy. We all get a vote as to which party we support, and they get to put forward plans as to how they will collect tax. It's not a new system, I'm surprised that you don't understand this.
I'd be, to be honest, perfectly happy with just having a lower total amount that can be saved into a pension. Which would seem simpler in many ways, and wouldn't have the side effect of not dealing with erratic incomes.
Andy, you really can be the most outrageously patronising git when you put your mind to it. I don't think that was called for. I have staged no personal attacks, and I don't feel I deserve one. Nor do you.
In my opinion, our elected representatives do what they damn well please once they are actually in power. We just have to hope that that might sometimes be something approximate to what they promised. In my opinion, as in any job, the majority of politicians, at least the ones higher up the tree, are in it for the politics, not to 'get the job done'. I see this as being true in any workplace - it's the theory that best fits my observations, and the only one that, to me, makes any sense of what goes on.
You asked "who gets to decide what is enough?" which is a complete fatuous question, usually designed to complain about paying taxes at all, and about anyone else having access to money that people have worked for. I felt that my response was a perfectly accurate response to that.
If it wasn't meant for that, then I don't understand what you were asking. It certainly wasn't an attack, I was simply completely baffled as to what you were asking if it wasn't "Why do other people get to decide how much of my money to take?"
I really didn't mean to come across as patronising. I took your question seriously, but was somewhat astounded by it. I'm sorry for the tone in it. And still baffled as to whether you actually meant it seriously.
What I actually said was Why do you (or anyone) get to decide what is enough?
which, in retrospect is fairly nonsensical taken as it is written down.
you had said
But there's a limit to what I'm happy with people escaping tax on.
If you're putting away twice the average way tax-free each year, then frankly that's quite enough.
The thought/feeling in my head at the time was that you were pushing your own slant on how you think contributions to pensions should be managed as if it were the the only possible was it could be done, as if any right thinking person would surely agree - but without much by way of explanation/backup/logic as to *why*. Which is maybe not at all how you intended to come across - I believe my idea was to provoke some kind of logical defence of your view point. To just because you (or indeed anyone or any group of individuals, even a majority) don't like an idea doesn't mean to say it's automatically wrong!
I was probably also influenced, I suppose, by the flavour I get of your views on wealth, taxes, democracy and fairness form both knowing you and from what you write. (with which I often disagree to some extent).
I'm not really one to accept happily or unthinkingly the rule of the majority (given that my personality, interests and motivations are really rather far from 'average'). Yup, that means that I'm not sure I am actually much keen on democracy as such - just haven't got any better suggestions. It's damned hard to make sure that a benign tyrant stays benign :-)
To say that just because you (or indeed anyone or any group of individuals, even a majority) don't like an idea doesn't mean to say it's automatically wrong!
Naah, I wasn't trying to say that my way was _right_. I don't believe there is a right or a wrong way to govern the country, per se. There are things I like more than other things, and there are principles I care about more, but I understand that everyone has different priorities.
I don't think that limiting the pension to x-amount yearly is necessarily better than limiting it to x-amount overall, or some combination or the two. It all comes down to a balancing act, and what they can get a variety of different politicans to agree to.
I do think that there are loopholes that will be taken advantage of in any legal framework, and that there will be a constant battle between people taking advantages of loopholes and other people closing them. And that I'd rather have a simpler system that leaves a few people outside of it than an incredibly complex one that (theoretically) covers everyone.
But I don't get to run the country.
And yes, democracy is definitely the least-worst of all governing systems. Churchill was right.
In my opinion, our elected representatives do what they damn well please once they are actually in power.
In my opinion, our elected representatives are paid to exercise their judgement on our behalf to govern and/or scrutinise those that govern to the best of their abilities.
In other words, that sentence of yours basically explains the way the British constitution is supposed to work. That we have a historic tendency to elect a bunch of numpties as MPs is a fault within the system that's as much our fault as it is theirs and/or the system itself.
the majority of politicians, at least the ones higher up the tree, are in it for the politics, not to 'get the job done
Politics is getting the job done. Politics="the governance of the city". I suspect, however, you meant politicking and/or gamesmanship ;-)
JUST on the pensions bit. Ok, hard to get a real quote without going through a lot of rigmarole, but extrapolating from the 100k fund examples given at http://www.sharingpensions.co.uk/annuity_rates.htm#text1, who use a 3% inflation rate, you need a fund of 813k to get a 30k annual income.
If you start now, at £30k (gross), get 1% pay rise every year (that's my dodgiest point, I admit, so feel free to readjust that) and put 25% of your gross into your pension (that'd be £625 a month right now) and assume a pension fund growth rate of 8% (they aim for that in general, or used to, so I'll be generous and assume they actually make it) it'll take you .... just shy of 30 years to make that level of fund.
Just to show you that you need a really quite horribly big pension fund to get any sort of income at all. Not really on my main point, but trying to put contributions in perspective.
What if you are a company director whose income varies wildly with the fortunes of the company (which will typically make a loss for years in a row) - or even a man in a van who does painting and decorating with slow months/years and better ones. Or you take time (years) out of earning to do a degree/raise kids/look after granny/work on your new whizzy bit of world-changing engineering in your shed? Capping the yearly rate disadvantages these sorts of people when compared to the good little drones who grind away day in day out year after year. Under a tight er cap, they can't "make up for it" so effectively when they have a spectacular year.
I'll get back to the bias against just having/earning money later....
If you run a company with wildly varying income then, yes, you may be caught by this. But even then £50k for a few years will happily catch you up. I suspect the numbers caught out by this due to wildly varying incomes are a fair bit smaller than the numbers of people who simply earn large amounts.
One of the reasons for this is to stop directors who massively pad out their pensions when they are appointed - which is something that I've seen happen repeatedly in the finance industry. Look at Fred Goodwin, for instance, who ended up handing half of his back under pressure. Suddenly had a load of cash handed to him, in the form of a ridiculous pension that wasn't based on anything except hiding the income he was getting.
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pete stevens (from livejournal.com)2010-10-15 04:55 pm (UTC)(link)
You appear to have forgotten the £268k lump sum payout in your calculation. If you exclude this you only need £536k. This is still a lot of money, but quite a lot less.
There are other things to address in your reply but I have to marshal my thoughts to make my response considered, coherent and comprehensible. I'll be back...
I'm constantly bemused by this idea that taxing people who are really rather well off (or in this case, restricting the amount of tax relief they're entitled to) is somehow bashing them. But they* are able to afford a greater percentage tax burden than people on the median wage, and a tax system reflecting that is just pragmatic, not punative.
*I say they, rather than we, as I'm also not in that demographic now, but would be surprised not to be by my mid-30s.
100k/year is a GREAT DEAL OF MONEY. I have lived all my life in the South East, I have never lived in a household that had anywhere near that much money coming in (net or gross). I have never lacked for food, clothing, housing (NICE housing even), my parents even drive a Mercedes... yeah, I never had a pony or a house in Monaco but come on! just because you can expand your expenses to match your income doesn't mean that you NEED to, just that you WANT to.
And yes, it is a zero-sum game. Because there is a finite amount of space in the UK, the larger your house is the less space is left for me to have a house; because there is a finite amount of food being grown, the more you eat (or throw away) the less that is on my plate. The bigger the difference between the well-off and the poor the harder it is to be poor.
Try it now. With house prices etc. as they are. You could get a 1 bed flat for 30k in Guildford about 10-15 years ago that'd cost you 160 now. 4 bed house in Redhill in 1995 - £60k, 2008 £450k (that'd be a bit less now, but still...) 2 bed flat in Norwich £55k 8 years ago £110 last year. (these are real figures from real houses in places I happen to know about).
I didn't grow up with money at all. I grew up on a council estate. I'd agree totally that you do not need lots of money to have a nice life. I did try to put that across in my post, but I seem to have failed somehow.
I am trying to speak as possibly the only person on this list who is actually in the 100k+ bracket - and to point out that it's not some sybaritic trouble-free, money-worry-free paradise. It's not in any really significant way any different.
I suppose the biggest difference is that I can manage probably 2 years without any income without having to receive any government benefits (and in fact, I believe as a company director I am not entitled to any until something like a year after the company shuts down), that's about the size of it. After that, I'd be stuffed. Ok, so others couldn't manage that - but then they'd be entitled to help straightaway (and that's only right!). In my biz (software development), if I have that amount of time out I'm back to maybe being able to get a job earning 30-40k - if I can get a job at all...
I have no mortgage, but I live in a 1 bed flat which I didn't buy until 2007 (i.e. not when it was cheap, cos I didn't have the money then!). I still have to pay for heating/food/council tax etc like the rest of you. I have a 12 year old motorbike. The only 'luxury' item is a half share in a small sailing boat - worth about 20k. But I have no kids, and I can imagine I'd have spent more than that on them over the past 10 years :-).
I am personally pretty damned frugal (always have been) - others on my path may well have saved far far less....
I don't see financial success as a zero-sum game. If I climb the corporate ranks/ start my own business / invest shrewdly / whatever (at these low-middling levels), then it in no way hampers you or anyone else from doing the same (or indeed whatever moneymaking scheme you come up with - assuming that's the sort of thing you are interested in.)
There is no inherent 'sin' in having money - it seems there's a flavour of that floating around (though in a kinda atheistic way). I can't put my finger on it, but it feels a bit like that.
I don't object to taxes, even to high taxes - the Scandinavians seem to do OK, right? (I have spent a bit of time over there this year). I object to the reflexive dislike/reactions to what are really quite modest levels of income. The 'line' is being drawn too low (IMO) - if indeed a line can be drawn at all. I am just trying to illustrate that.
I also don't object to some people making sh*tloads of money - so long as entry into those jobs is not barred by anything other than personal talents/abilities/experience! (I appreciate that this is not quite true - and that IS a problem - but that's not a majority, not that I see....). Not everybody can do everything and sorry, but not everything is equally valued in monetary reward by society at large. I don't much care whether a particular profession 'ought' to carry that wage - I am not making moral judgements here. We can all look at payscales and see which professions/occupations (I include entepreneurship but dunno how to classify it) pay well - and if we so desire we can get ourselves on the path to one of them. Whichever suits us best. There's ways into nearly everything - some are a little longer or harder than others, and if you are less clever/well connected/well educated/ have less cash behind you then you'll have to try harder. But I don't (and have never) see any outrageously difficult barriers in the UK to so doing.
Suppose (at least some of) the 'rich' spend some (or even a lot) of their excess cash on other people less fortunate? If there are no people to do that then where are we? Do you trust the govt to do it?
I don't think "rich" means "OMG I have so much money I don't know what to do with it", I think it means having more money than most people. And 100k/year is certainly a lot more than most people!
I earn roughly the national median wage; I can't afford to buy a whole house, but I could afford to buy a 50% share in a 1-bed flat, or if I was willing to move out of our tiny city I could probably buy a whole 1-bed flat all to myself. As it is I rent my partner's spare room, he owns a 3-bed terraced house; he earns more than me... but not 100k/year levels.
I think that unequal distribution of wealth is something that is in general bad. I'm not sure a totally flat distribution of wealth would be best (it probably wouldn't) but a flatter distribution than the one we have would be better (Sweden are doing better than us for instance). What you get from flattening your wealth distribution is greater happiness at all levels of society.
Whilst many (certainly not all - some are too ill for instance) individuals could work to earn money, if they all DID then they'd all be back where they started. Such is the way of the world - when everyone's a millionaire everything will cost millions of pounds.
In fact I do trust the taxation system (flawed though it is) to redistribute wealth more efficiently than private charity, which is not to say that private charity isn't good.
I think this comment show the kind of difference in thinking that it takes to say that £100k isn't all that much, really. You say that you don't have a mortgage as though it isn't that big a deal, but for most people that's about a third to a half of their net income. You put inverted commas around a luxury which is worth more than a year's median net salary.
I don't have a negative reaction to high earnings in themselves, but the assertion that people on 100k have it nearly as hard as people on a quarter of that is pretty much guaranteed to put people's backs up.
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pete stevens (from livejournal.com)2010-10-15 04:40 pm (UTC)(link)
There's a fair point that £100k is actually about three times the income of £25k once tax/NI is accounted for (£60k versus about £20k). It's also true that to earn £100k you probably are having to put in considerably more hours and have to live somewhere considerably more expensive which means you may not be anywhere near as well off as people assume you are.
£10k isn't that expensive for a luxury. It compares fairly well with smoking, driving or drinking for example, it's just they're consumables so they're not conspicuous. Certainly people think my piano is an expensive luxury (£5k + £100/year in tuning) whereas running is a cheap hobby (£400/year in trainers, £500/year in event entry fees and travel, £500/year in post running beer).
However, anyone who doesn't have a mortgage pretty much meets my definition of well off - certainly my target is to be in a position that I could not have a mortgage even if it's cheaper for tax reasons to have one.
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pete stevens (from livejournal.com)2010-10-15 04:42 pm (UTC)(link)
Actually, I should probably add £600/year in BUPA to the running tally - I picked the ridiculous level of cover option in order that it covered physio too, and the only reason I have cover is because when I had a running induced stress fracture in my foot it took the NHS longer to diagnose it than it took to heal.
At no point did I say that that people on 100k have it nearly as hard as people on a quarter of that. I thought I was really quite careful all along to clearly indicate that I do *not* think this. I find it interesting that someone has somehow managed to read that rather stereotypical statement into what I actually wrote. Such a statement would indeed get people's backs up - but I never said it! I'll say again, I do NOT think that. I *DO* think that the quality of life change that many people imagine for such an income level does not exist in any real way. I couldn't see that/didn't know that before I got there. I'm just trying to show/tell how it is, what it feels like, from a point of view of the actual experience, not some distant one.
I don't think not having a mortgage is nothing. It just makes surprisingly little difference to my daily life as compared to when I did have. *I* was surprised (and to be totally honest, somewhat disappointed) how little. I have generally always saved (or invested) about half my income, no matter what that was, maybe that's why. People on housing benefit don't have a mortgage either... not saying their situation is *in general* anything like mine, but in that specific respect, it's identical.
My parents, who have never earned any significant amount, have twice paid out a mortgage in full, well before term, less than 10 years (can't recall exactly). Once on their ex-council house and once, later, on the house they now live in. It's not the preserve of the well-off. My mum has never worked full time, was a part-time cleaner or factory worker. Dad works in engineering, probably makes about median wage but I can't be sure.
I could be genetically and environmentally ill-disposed to paying interest :-) [none of my family have loans of any type for anything so far as I know]. To me, "no debt" is an intensely desirable state and on to which I have/will go to much effort and heavily prioritise. It is the 'normal' and certainly the desired state of affairs. I have never run an overdraft, didn't have a student loan (I was lucky in that we didn't have to pay tuition back then), never had any credit card debt, took one 4 year loan back in 1994 just to get a credit rating, and resisted buying property so long because I hated the thought of a mortgage. When I decided to buy a flat I used my savings to make a big deposit and went into overdrive to pay it off, going for the highest paying contracts and spending as little as I could get in order to pay it off as soon as possible. I suspect most people are not like that? I am always looking at ways to spend less! For me, if my spending 'has' to increase, I'll find ways of earning/making more. It drives me that way. Which means the govt benefits in the increased tax revenue. Which, hopefully, they then use some of to help balance things out for people in trouble. Yeah it is LOTS better than private charity, have to agree.
On the boat front, I'll reiterate the comparison I made at the time - how much money have people with children spent on them over, say, 10 years? Just feeding/clothing etc, nothing fancy or extra. More or less? Would you be taking me to task over that spending in the same way? Kids and boats are both pricey - but optional :-).
I am not boasting or flaunting or defending my financial situation, Nor am I downplaying it. I am trying to give an insight into the life and mind of ordinary person without any advantageous background who has ended up north of a much touted imaginary earnings line.
mum was telling me about watching this being debated in holyrood a few months ago, and how some MSPs refused to believe this existed beyond a handful of cases. she said the battleaxe female MSPs seemed to especially struggle with the concept. :>
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andrewducker) wrote2010-10-15 12:01 pm
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On the other hand, there's the principle that if you make something too cheap, people value it less.
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I don't think that "Yaaaaay" adds in any way to your cred as a politically savvy individual.
I know the changes will only really affect badly those making multiple hundreds of thousands a year. But the article seems yet another one setting 100k/yr up as the marker of 'rich'.
I'm kinda tired of the "rich bashing". £100k/yr is NOT fucking rich. It just isn't. I know, I have been there (somewhat over it in fact. Gross. You generally see about a gnat's whisker over half net). It ain't poor, and I won't pretend it's even close to having to be careful (unless you have kids and live in London/the south east and want a house with a garden for them to play in - even then it might take some *seriously* creative budgeting but that's a choice, right?).
Your life still, in general, consists of rocking up to some office or other, sitting your backside down and doing what you are told all day til you die of boredom or exhaustion. It's just that you have managed to position yourself advantageously through a good few years effort, thought and some degree of innate talent at what you do. (though I am, these days, no better at what I do than you are, Andy [it being the same thing], I just prioritised getting paid for it...)
If there's no (or less) reward for the effort why the hell would anyone bother? I suspect fewer will even try....
Even if you earn that level for 10 years it doesn't mean you are set for life in any way shape or form. Disillusioned, me? Nah, don't think I had them in the first place. But it really is not lifechanging levels of dosh. I don't know how to eloquently put that over. You might be able to afford better toys but it's not enough to buy your way out of the system. The life is no better nor worse than when I earned lots less, or indeed nothing at all (though my days of unemployment were a long long time ago, nothing much there seems to have changed). People earning twice, three, four times as much as me tend to have even less life - on 24 hour call on the evil Blackberry and in the office til past ten 6 or even seven days a week, looking ill and stiff and moving like they are 10 years older than they are.
So, maybe lay off the very ordinary dude(ettes) that have had a medium-successful game plan. They are not the enemy and it's not a zero-sum game. Even if it wasn't me (which actually, it isn't right now) I'd not be going "yaaaay". I repeat, they are NOT the enemy.
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I'm not in favour of offering people rewards more than are necessary to get them to do it.
If you're putting aside more than £50k into a pension fund each year then you have gone well beyond the level at which I have any sympathy.
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But there's a limit to what I'm happy with people escaping tax on.
If you're putting away twice the average way tax-free each year, then frankly that's quite enough.
The point of tax relief on pensions is to encourage people to save towards a pension so that they will not be dependent on the state in their old age. Anything more than that is effectively money that could be spent on other things.
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To make the maths simple, let us suppose I have 100k and I'm a higher rate tax payer.
Situation (1), I put it into a pension,
I pay 100k from my gross salary into my pension which costs me 60k of net income (actually more because of NI, but we'll ignore that for now).
Sometime later I draw it out of my pension, if I'm still a higher rate tax payer I'll then pay 40k of tax on the money on the way out.
The only tax advantage occurs if my tax band is lower at the point of withdrawing the money than when I put it in in the first place.
Situation (2)
I accept 60k now and put it in the bank. When I withdraw it at retirement I still have 60k.
You'll note that in both situations you end up with the same amount of money, it's just the tax is paid later in case (2).
If money goes into pensions from after tax income and is taxed on the way out it makes more sense to put your money under the mattress than in a pension fund. This is bonkers.
Note that if basic tax rates rise between now and retirement you could end up paying more tax than you would do today.
If you account for growth of the fund at the same rate the numbers come out the same providing the income from the pension and private savings are taxed the same way. Once you account for the loss of flexibility in a pension fund compared to savings and the typically higher annual management fees in pension funds compared to ISAs it quickly starts to make sense to dump after tax money into a tracker fund / mortgage in preference to a pension.
There used to be a tax advantage in that you could reclaim corporation tax paid on dividends in a pension fund but not as an individual, but Gordon took that away.
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The fact remains that (a) there's a tax-free lump sum that allows you to bypass a lot of tax and (b) your income is very frequently in a lower tax bracket when you're taking your pension than when you were paying it in.
What the government is basically saying is that (a) you can't have either of those advantages any more, (b) it would like you to do stuff with the money now rather than sticking it away somewhere safe, and (c) it would like the tax now, rather than in 30 years.
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Now the conclusion I came to was that saving for a pension as a private individual is basically bonkers until you've filled all your ISA allowances, because pension funds all charge much larger annual fees than good tracker funds which means that the majority of pension funds are a worse investment than a tracker.
The only tax advantage I can see is the deferring income into future tax rates on the assumption that your future marginal tax rate will be lower than the current one.
Or am I missing something more important?
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But basically you have the tax-free lump sum, and the lowering of total tax paid due to a lower tax bracket as the two main reasons.
I get cheap pension servicing, which makes it more worthwhile for me, but even so I have debated just paying off my mortgage faster.
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Having said that, I am neither heavily invested nor pensioned up right now. I was all prepped for a 70's style recession with high inflation and high interest rates....
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I'd be, to be honest, perfectly happy with just having a lower total amount that can be saved into a pension. Which would seem simpler in many ways, and wouldn't have the side effect of not dealing with erratic incomes.
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In my opinion, our elected representatives do what they damn well please once they are actually in power. We just have to hope that that might sometimes be something approximate to what they promised. In my opinion, as in any job, the majority of politicians, at least the ones higher up the tree, are in it for the politics, not to 'get the job done'. I see this as being true in any workplace - it's the theory that best fits my observations, and the only one that, to me, makes any sense of what goes on.
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If it wasn't meant for that, then I don't understand what you were asking. It certainly wasn't an attack, I was simply completely baffled as to what you were asking if it wasn't "Why do other people get to decide how much of my money to take?"
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I really didn't mean to come across as patronising. I took your question seriously, but was somewhat astounded by it. I'm sorry for the tone in it. And still baffled as to whether you actually meant it seriously.
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which, in retrospect is fairly nonsensical taken as it is written down.
you had said
But there's a limit to what I'm happy with people escaping tax on.
If you're putting away twice the average way tax-free each year, then frankly that's quite enough.
The thought/feeling in my head at the time was that you were pushing your own slant on how you think contributions to pensions should be managed as if it were the the only possible was it could be done, as if any right thinking person would surely agree - but without much by way of explanation/backup/logic as to *why*. Which is maybe not at all how you intended to come across - I believe my idea was to provoke some kind of logical defence of your view point. To just because you (or indeed anyone or any group of individuals, even a majority) don't like an idea doesn't mean to say it's automatically wrong!
I was probably also influenced, I suppose, by the flavour I get of your views on wealth, taxes, democracy and fairness form both knowing you and from what you write. (with which I often disagree to some extent).
I'm not really one to accept happily or unthinkingly the rule of the majority (given that my personality, interests and motivations are really rather far from 'average'). Yup, that means that I'm not sure I am actually much keen on democracy as such - just haven't got any better suggestions. It's damned hard to make sure that a benign tyrant stays benign :-)
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To say that just because you (or indeed anyone or any group of individuals, even a majority) don't like an idea doesn't mean to say it's automatically wrong!
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I don't think that limiting the pension to x-amount yearly is necessarily better than limiting it to x-amount overall, or some combination or the two. It all comes down to a balancing act, and what they can get a variety of different politicans to agree to.
I do think that there are loopholes that will be taken advantage of in any legal framework, and that there will be a constant battle between people taking advantages of loopholes and other people closing them. And that I'd rather have a simpler system that leaves a few people outside of it than an incredibly complex one that (theoretically) covers everyone.
But I don't get to run the country.
And yes, democracy is definitely the least-worst of all governing systems. Churchill was right.
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In my opinion, our elected representatives are paid to exercise their judgement on our behalf to govern and/or scrutinise those that govern to the best of their abilities.
In other words, that sentence of yours basically explains the way the British constitution is supposed to work. That we have a historic tendency to elect a bunch of numpties as MPs is a fault within the system that's as much our fault as it is theirs and/or the system itself.
Politics is getting the job done. Politics="the governance of the city". I suspect, however, you meant politicking and/or gamesmanship ;-)
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If you start now, at £30k (gross), get 1% pay rise every year (that's my dodgiest point, I admit, so feel free to readjust that) and put 25% of your gross into your pension (that'd be £625 a month right now) and assume a pension fund growth rate of 8% (they aim for that in general, or used to, so I'll be generous and assume they actually make it) it'll take you .... just shy of 30 years to make that level of fund.
Just to show you that you need a really quite horribly big pension fund to get any sort of income at all. Not really on my main point, but trying to put contributions in perspective.
What if you are a company director whose income varies wildly with the fortunes of the company (which will typically make a loss for years in a row) - or even a man in a van who does painting and decorating with slow months/years and better ones. Or you take time (years) out of earning to do a degree/raise kids/look after granny/work on your new whizzy bit of world-changing engineering in your shed? Capping the yearly rate disadvantages these sorts of people when compared to the good little drones who grind away day in day out year after year. Under a tight er cap, they can't "make up for it" so effectively when they have a spectacular year.
I'll get back to the bias against just having/earning money later....
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One of the reasons for this is to stop directors who massively pad out their pensions when they are appointed - which is something that I've seen happen repeatedly in the finance industry. Look at Fred Goodwin, for instance, who ended up handing half of his back under pressure. Suddenly had a load of cash handed to him, in the form of a ridiculous pension that wasn't based on anything except hiding the income he was getting.
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(scrolls down, sees followup)
...huh, I was right.
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*I say they, rather than we, as I'm also not in that demographic now, but would be surprised not to be by my mid-30s.
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And yes, it is a zero-sum game. Because there is a finite amount of space in the UK, the larger your house is the less space is left for me to have a house; because there is a finite amount of food being grown, the more you eat (or throw away) the less that is on my plate. The bigger the difference between the well-off and the poor the harder it is to be poor.
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I didn't grow up with money at all. I grew up on a council estate. I'd agree totally that you do not need lots of money to have a nice life. I did try to put that across in my post, but I seem to have failed somehow.
I am trying to speak as possibly the only person on this list who is actually in the 100k+ bracket - and to point out that it's not some sybaritic trouble-free, money-worry-free paradise. It's not in any really significant way any different.
I suppose the biggest difference is that I can manage probably 2 years without any income without having to receive any government benefits (and in fact, I believe as a company director I am not entitled to any until something like a year after the company shuts down), that's about the size of it. After that, I'd be stuffed. Ok, so others couldn't manage that - but then they'd be entitled to help straightaway (and that's only right!). In my biz (software development), if I have that amount of time out I'm back to maybe being able to get a job earning 30-40k - if I can get a job at all...
I have no mortgage, but I live in a 1 bed flat which I didn't buy until 2007 (i.e. not when it was cheap, cos I didn't have the money then!). I still have to pay for heating/food/council tax etc like the rest of you. I have a 12 year old motorbike. The only 'luxury' item is a half share in a small sailing boat - worth about 20k. But I have no kids, and I can imagine I'd have spent more than that on them over the past 10 years :-).
I am personally pretty damned frugal (always have been) - others on my path may well have saved far far less....
I don't see financial success as a zero-sum game. If I climb the corporate ranks/ start my own business / invest shrewdly / whatever (at these low-middling levels), then it in no way hampers you or anyone else from doing the same (or indeed whatever moneymaking scheme you come up with - assuming that's the sort of thing you are interested in.)
There is no inherent 'sin' in having money - it seems there's a flavour of that floating around (though in a kinda atheistic way). I can't put my finger on it, but it feels a bit like that.
I don't object to taxes, even to high taxes - the Scandinavians seem to do OK, right? (I have spent a bit of time over there this year). I object to the reflexive dislike/reactions to what are really quite modest levels of income. The 'line' is being drawn too low (IMO) - if indeed a line can be drawn at all. I am just trying to illustrate that.
I also don't object to some people making sh*tloads of money - so long as entry into those jobs is not barred by anything other than personal talents/abilities/experience! (I appreciate that this is not quite true - and that IS a problem - but that's not a majority, not that I see....). Not everybody can do everything and sorry, but not everything is equally valued in monetary reward by society at large. I don't much care whether a particular profession 'ought' to carry that wage - I am not making moral judgements here. We can all look at payscales and see which professions/occupations (I include entepreneurship but dunno how to classify it) pay well - and if we so desire we can get ourselves on the path to one of them. Whichever suits us best. There's ways into nearly everything - some are a little longer or harder than others, and if you are less clever/well connected/well educated/ have less cash behind you then you'll have to try harder. But I don't (and have never) see any outrageously difficult barriers in the UK to so doing.
Suppose (at least some of) the 'rich' spend some (or even a lot) of their excess cash on other people less fortunate? If there are no people to do that then where are we? Do you trust the govt to do it?
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I earn roughly the national median wage; I can't afford to buy a whole house, but I could afford to buy a 50% share in a 1-bed flat, or if I was willing to move out of our tiny city I could probably buy a whole 1-bed flat all to myself. As it is I rent my partner's spare room, he owns a 3-bed terraced house; he earns more than me... but not 100k/year levels.
I think that unequal distribution of wealth is something that is in general bad. I'm not sure a totally flat distribution of wealth would be best (it probably wouldn't) but a flatter distribution than the one we have would be better (Sweden are doing better than us for instance). What you get from flattening your wealth distribution is greater happiness at all levels of society.
Whilst many (certainly not all - some are too ill for instance) individuals could work to earn money, if they all DID then they'd all be back where they started. Such is the way of the world - when everyone's a millionaire everything will cost millions of pounds.
In fact I do trust the taxation system (flawed though it is) to redistribute wealth more efficiently than private charity, which is not to say that private charity isn't good.
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I don't have a negative reaction to high earnings in themselves, but the assertion that people on 100k have it nearly as hard as people on a quarter of that is pretty much guaranteed to put people's backs up.
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£10k isn't that expensive for a luxury. It compares fairly well with smoking, driving or drinking for example, it's just they're consumables so they're not conspicuous. Certainly people think my piano is an expensive luxury (£5k + £100/year in tuning) whereas running is a cheap hobby (£400/year in trainers, £500/year in event entry fees and travel, £500/year in post running beer).
However, anyone who doesn't have a mortgage pretty much meets my definition of well off - certainly my target is to be in a position that I could not have a mortgage even if it's cheaper for tax reasons to have one.
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I don't think not having a mortgage is nothing. It just makes surprisingly little difference to my daily life as compared to when I did have. *I* was surprised (and to be totally honest, somewhat disappointed) how little. I have generally always saved (or invested) about half my income, no matter what that was, maybe that's why. People on housing benefit don't have a mortgage either... not saying their situation is *in general* anything like mine, but in that specific respect, it's identical.
My parents, who have never earned any significant amount, have twice paid out a mortgage in full, well before term, less than 10 years (can't recall exactly). Once on their ex-council house and once, later, on the house they now live in. It's not the preserve of the well-off. My mum has never worked full time, was a part-time cleaner or factory worker. Dad works in engineering, probably makes about median wage but I can't be sure.
I could be genetically and environmentally ill-disposed to paying interest :-) [none of my family have loans of any type for anything so far as I know]. To me, "no debt" is an intensely desirable state and on to which I have/will go to much effort and heavily prioritise. It is the 'normal' and certainly the desired state of affairs. I have never run an overdraft, didn't have a student loan (I was lucky in that we didn't have to pay tuition back then), never had any credit card debt, took one 4 year loan back in 1994 just to get a credit rating, and resisted buying property so long because I hated the thought of a mortgage. When I decided to buy a flat I used my savings to make a big deposit and went into overdrive to pay it off, going for the highest paying contracts and spending as little as I could get in order to pay it off as soon as possible. I suspect most people are not like that? I am always looking at ways to spend less! For me, if my spending 'has' to increase, I'll find ways of earning/making more. It drives me that way. Which means the govt benefits in the increased tax revenue. Which, hopefully, they then use some of to help balance things out for people in trouble. Yeah it is LOTS better than private charity, have to agree.
On the boat front, I'll reiterate the comparison I made at the time - how much money have people with children spent on them over, say, 10 years? Just feeding/clothing etc, nothing fancy or extra. More or less? Would you be taking me to task over that spending in the same way? Kids and boats are both pricey - but optional :-).
I am not boasting or flaunting or defending my financial situation, Nor am I downplaying it. I am trying to give an insight into the life and mind of ordinary person without any advantageous background who has ended up north of a much touted imaginary earnings line.
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mum was telling me about watching this being debated in holyrood a few months ago, and how some MSPs refused to believe this existed beyond a handful of cases.
she said the battleaxe female MSPs seemed to especially struggle with the concept. :>