Delicious LiveJournal Links for 10-15-2010

[andrewducker]

• Former boss of Warner Music says that album prices should drop to £1.
  (tags: music marketing)
• Fascinating interview on Steve Jobs and his method of working and approach to design.
  (tags: apple interview stevejobs mac design inspiration)
• The problem with schools - not dumbing down but something more subtle
  (tags: education uk school exams)
• The best statement so far on the Chilean miners rescue
  (tags: startrek funny ChileanMiners)
• World's longest tunnel, joining Italy to Switzerland, is completed.
  (tags: switzerland italy construction transport)
• Rape 'impossible' in marriage, says British Muslim cleric. Of course, UK only changed away from this in 1991.
  (tags: law rape islam uk)
• Scottish male domestic abuse victims rise to 8,600. Female domestic abuse victims fall to 42,800
  (tags: abuse crime scotland uk)
• xkcd on tech support. Oh, how I wish this were true.
  (tags: xkcd funny)
• 10 Great Rock and Roll bloopers that you may not realise that you've heard.
  (tags: music funny)
• Humans completely destroy another life form, purely because it's not cute and fluffy. And it's a virus. And it's really nasty.
  (tags: virus genocide EpicWin)
• Netbooks still selling well, despite predictions of imminent demise.
  (tags: computers laptop)
• On reaching out to bullied kids
  (tags: bullying children)
• Firefox now as fast as Safari, very nearly as fast as Chrome.
  (tags: browser benchmark Firefox chrome safari)
• Pension tax benefits slashed for wealthy. Yaaaaaay!
  (tags: pension tax government uk)

Comments

[andrewducker]

A fair amount of money.

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.

[pete stevens (from livejournal.com)]

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.

[andrewducker]

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.

[pete stevens (from livejournal.com)]

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.

Or am I missing something more important?

[andrewducker]

I think National Insurance is also useful here, but I can't remember the details of whether/how much of an effect it has.

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.

[channelpenguin.livejournal.com]

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....

[channelpenguin.livejournal.com]

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?

[andrewducker]

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.

[channelpenguin.livejournal.com]

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.

[andrewducker]

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?"

[andrewducker]

I've been thinking about this more.

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.

[channelpenguin.livejournal.com]

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 :-)

[channelpenguin.livejournal.com]

Sorry, I meant:

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!

[andrewducker]

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.

[matgb]

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 ;-)