Pensions Question
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That depends what their plans might be. The fact that annual contributions are being hammered will limit future options (especially for high earners), but in terms of those retiring in the next 12 months, actual AFPS provision won't be affected, no.
However, someone retiring with a gratuity that they planned on placing into a Personal Pension, such as a SIPP, in order to make up to 40% overnight, could well find their plans changing. Not adversely maybe, because you can feed contributions in over more than one year of course, but there is certainly a lot more to consider.
Some may choose to consider Venture Capital Trusts instead for instance, which are riskier (with higher potential for high returns), which don't offer as much tax relief (just a flat 30% - but that still makes them attractive to lower rate tax payers who are more inclined to be younger and slightly less risk averse), and the cash is only tied up for a few years - not until aged 55.
HM Revenue & Customs: Venture Capital Trusts
However, someone retiring with a gratuity that they planned on placing into a Personal Pension, such as a SIPP, in order to make up to 40% overnight, could well find their plans changing. Not adversely maybe, because you can feed contributions in over more than one year of course, but there is certainly a lot more to consider.
Some may choose to consider Venture Capital Trusts instead for instance, which are riskier (with higher potential for high returns), which don't offer as much tax relief (just a flat 30% - but that still makes them attractive to lower rate tax payers who are more inclined to be younger and slightly less risk averse), and the cash is only tied up for a few years - not until aged 55.
HM Revenue & Customs: Venture Capital Trusts
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Thanks Al, that's a good pointer.
Another thought just came to me; if a 24 year sqn ldr on AFPS75 gets promoted to wg cdr then his pension instantly raises by £7,000 pa. Might that mean that he gets hit by a £20,000 tax bill?
Tax-free amount staff can put into pension is cut to £50,000 a year
I think that quote started me worrying!
Another thought just came to me; if a 24 year sqn ldr on AFPS75 gets promoted to wg cdr then his pension instantly raises by £7,000 pa. Might that mean that he gets hit by a £20,000 tax bill?
Tax-free amount staff can put into pension is cut to £50,000 a year
However, pensions experts say middle-income earners on £40,000 to £50,000 who have been on generous final-salary schemes all their careers could be caught, resulting in big tax bills.
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I think mine was called a "Free standing AVC" (in my case stands for Audi Veryfast Car savings scheme) and was with someone like Standard Life. I watched the recent Panorama about pensions, definately worth doing plenty of research, which I did, yes, it all worked out OK for me although I'm not driving my new R8 cabrio today as its drizzling. Maybe I'll polish it instead!
Looks like the "Golden Era" of military pay and pensions is about to come to an end, oh look there's a twin engined exec jet just flown over with a trainee navigator in the back-now thats cost effective, especially as they have to avoid all the retired senior officers flying around with air cadets
Looks like the "Golden Era" of military pay and pensions is about to come to an end, oh look there's a twin engined exec jet just flown over with a trainee navigator in the back-now thats cost effective, especially as they have to avoid all the retired senior officers flying around with air cadets
Last edited by Topofclimb; 14th Oct 2010 at 14:05.
It’s rather galling that we are all making the best efforts to save our cash for the future whilst at the same time nations are racing to devalue their currencies and store up massive inflation for the future. Inflation is the killer of saving and in this current climate I have less and less faith in the fiat currencies as time goes by.
If the Fed chooses more 'accommodation' (QE2) in its Nov meeting then the USD could suffer even more and drag other G20 currencies down with it. Why do you think Gold is in a secular bull trend? More and more people I know in the city are moving into physical gold as there is a good chance that even paper held gold (ETFs, ETCs, Gold Mining Shares) could become worthless to as you'd be selling and converting them into a falling and worthless fiat currency. Coins and Bullion have the problem of VAT being added and I’d be interested Al, to know more about the mechanism for placing physical gold into the SIPP (esp the fact the Government tops up some of the price!)
I think the next 5 years we will see a huge shift of power to the East. China is now the economic powerhouse holding all the aces. Whilst the West binged on debt, China soaked it all up and became a huge creditor; it now has the ability to hold the west to ransom. All this talk of China needing US consumption to survive will soon be a distant memory as domestic consumption from a growing middle class starts to pick up where the falling US consumption tails off. The fall of the great US Empire is going the same way as all Empires from the Romans to the British. Over stretched and breaking under the strain of massive consumer and government debt. In an environment such as this paper assets could become worthless so I would advocate getting hold of physical assets that will retain some worth – gold, land, art, stamps, property etc. SIPP the lot! And bury some coins in the garden as there is a good chance that gold ownership could be banned (as it was in the US back in the 1930’s!!) by Governments.
Al - What, in layman’s terms does this new pension ruling mean to us? Does is affect the lump-sum and what we can do with it? I was fully intending to top my SIPP up with the lot (après a few debt payments etc)
If the Fed chooses more 'accommodation' (QE2) in its Nov meeting then the USD could suffer even more and drag other G20 currencies down with it. Why do you think Gold is in a secular bull trend? More and more people I know in the city are moving into physical gold as there is a good chance that even paper held gold (ETFs, ETCs, Gold Mining Shares) could become worthless to as you'd be selling and converting them into a falling and worthless fiat currency. Coins and Bullion have the problem of VAT being added and I’d be interested Al, to know more about the mechanism for placing physical gold into the SIPP (esp the fact the Government tops up some of the price!)
I think the next 5 years we will see a huge shift of power to the East. China is now the economic powerhouse holding all the aces. Whilst the West binged on debt, China soaked it all up and became a huge creditor; it now has the ability to hold the west to ransom. All this talk of China needing US consumption to survive will soon be a distant memory as domestic consumption from a growing middle class starts to pick up where the falling US consumption tails off. The fall of the great US Empire is going the same way as all Empires from the Romans to the British. Over stretched and breaking under the strain of massive consumer and government debt. In an environment such as this paper assets could become worthless so I would advocate getting hold of physical assets that will retain some worth – gold, land, art, stamps, property etc. SIPP the lot! And bury some coins in the garden as there is a good chance that gold ownership could be banned (as it was in the US back in the 1930’s!!) by Governments.
Al - What, in layman’s terms does this new pension ruling mean to us? Does is affect the lump-sum and what we can do with it? I was fully intending to top my SIPP up with the lot (après a few debt payments etc)
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Grim,
In Layman's terms, not a lot. If you think (in the most basic terms) that an average final salary pension pot in pre payment, might be £500,000 accrued over 30 years or so, you will still have plenty of wriggle room. The SIPPs that I buy gold for, are niche SIPPs although Standard Life will allow it from the end of this year. For my (mostly mil/ex mil) clients, my SIPPs will take physical gold quite easily (it is stored in Baltimore) and although it just sits there absorbing neutrinos, buying it at 40% discount and CGT free for a SIPP is a neat idea (for some of course, not for all).
The US g'ment proved with QE1 that it cannot sex up the economy without a drastic cut in the value of the dollar. If many of us responded to QE1 though, by hoarding gold instead of spending cash on fridges and new cars etc (as what happened), then Obama knows that the chances of a hot (let alone a cold) restart are slim with QE2. The Fed will begin to print money at huge rates, but how can it restart the economy if the printed money is simply taken and stuffed into gold? So, does he confiscate gold - does he stop us from buying it up and compel us to spend it?
BRIC funds are no longer so 'emerging', rather more these days, 'evolving' or 'growing'. However, with that growth will continue to come inflation and devaluation - we certainly live in interesting times. The basics ring true again - all things in moderation, diversify properly, 'hedge' against worse case scenarios, have a plan that allows you to be proactive and reactive, know WHY you are doing what you're doing, be contingent, remain flexible and stay involved with your money. If you want to trust the bank and its financial review once a year, then fine - but if you don't - consider Plan 'B'.
In Layman's terms, not a lot. If you think (in the most basic terms) that an average final salary pension pot in pre payment, might be £500,000 accrued over 30 years or so, you will still have plenty of wriggle room. The SIPPs that I buy gold for, are niche SIPPs although Standard Life will allow it from the end of this year. For my (mostly mil/ex mil) clients, my SIPPs will take physical gold quite easily (it is stored in Baltimore) and although it just sits there absorbing neutrinos, buying it at 40% discount and CGT free for a SIPP is a neat idea (for some of course, not for all).
The US g'ment proved with QE1 that it cannot sex up the economy without a drastic cut in the value of the dollar. If many of us responded to QE1 though, by hoarding gold instead of spending cash on fridges and new cars etc (as what happened), then Obama knows that the chances of a hot (let alone a cold) restart are slim with QE2. The Fed will begin to print money at huge rates, but how can it restart the economy if the printed money is simply taken and stuffed into gold? So, does he confiscate gold - does he stop us from buying it up and compel us to spend it?
BRIC funds are no longer so 'emerging', rather more these days, 'evolving' or 'growing'. However, with that growth will continue to come inflation and devaluation - we certainly live in interesting times. The basics ring true again - all things in moderation, diversify properly, 'hedge' against worse case scenarios, have a plan that allows you to be proactive and reactive, know WHY you are doing what you're doing, be contingent, remain flexible and stay involved with your money. If you want to trust the bank and its financial review once a year, then fine - but if you don't - consider Plan 'B'.
Agree totally Al - thanks for a great post that confirms my thoughts too. Mates a la city are all saying that if QE2 does go ahead then the only benefactors will be the BRIC economies in the search for yield. I think QE2 is looking more and more shady as the weeks pass. The recent rally in stocks has all been QE2 driven as people try to get ahead of the curve. I fear many could get burnt. With Mid-terms due though I doubt that the president wants the distraction of another lurch into depression so I guess QE2 could still be on the cards. Oh for the Bretton-Woods days - without the physical gold to pack up each printed dollar the Fed can pretty much do as it wishes!!
I fail to see the benefits of QE1 or 2 - all the markets are doing is raping the tax payer in the biggest transfer of wealth in human history. This Maddof style ponzi scheme run by the Fed is about to go bust and possibly take most of the Western economies (and our savings) with it. Grim times...
I fail to see the benefits of QE1 or 2 - all the markets are doing is raping the tax payer in the biggest transfer of wealth in human history. This Maddof style ponzi scheme run by the Fed is about to go bust and possibly take most of the Western economies (and our savings) with it. Grim times...
I don't own this space under my name. I should have leased it while I still could
I think a lot is media hype and totally irrelevant to even a well paid wg cdr. The limit of £50k per year would only realistically apply to someone with £50k per year spare salary.
It could, for instance, apply to a couple of sqn ldrs who chose to put one salary into the pot. For the average Joe, including those on PA Spine, it would only apply it they wanted to put their gratutity away into the pension pot.
Being realistic that gratutity may well have other calls on it, like the new kitchen or bathroom.
IMNSHO the Torygraph is just trying to inflame opinion against the coalition. Brogan, OTOH, seems more in favour of the coalition now.
It could, for instance, apply to a couple of sqn ldrs who chose to put one salary into the pot. For the average Joe, including those on PA Spine, it would only apply it they wanted to put their gratutity away into the pension pot.
Being realistic that gratutity may well have other calls on it, like the new kitchen or bathroom.
IMNSHO the Torygraph is just trying to inflame opinion against the coalition. Brogan, OTOH, seems more in favour of the coalition now.
I don't own this space under my name. I should have leased it while I still could
Anyone have any thoughts/info regarding the CPI/RPI increase next april. I read with interest that the state pension is rising with RPI next april, CPI from then on. Benefits will rise by CPI.
Do you think we shall follow state pension or benefits?
Sep 2010 RPI 4.6%-CPI 3.1%
Big difference over a few years!
Do you think we shall follow state pension or benefits?
Sep 2010 RPI 4.6%-CPI 3.1%
Big difference over a few years!
We're all doomed I tell, doomed .........
Oh, and to answer the question, what do you think George would do?
The following web site harks back to July but essentially shows that there are questions such as yours:
CPI Pension Increases | Pitmans Lawyers News
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I just found this which sheds a bit more light on the question I asked earlier.
Tax relief on pensions is reduced
There seems to be good news and bad news. First the bad news.
So just about any sqn ldr (or major) on AFPS75 will fall into that category on being promoted.
Now the good news:
Not sure how that will work in practice, but it looks like things won't be too bad.
Unless you're a One Star or above - and then it looks quite hideous!
Tax relief on pensions is reduced
There seems to be good news and bad news. First the bad news.
The annual limit will be reduced from £255,000 to £50,000 in April.
.
.
The formula for calculating the increase in someone's pension if they are in a defined benefit scheme will also become more aggressive.
The increase in accrued pension will be multiplied by a factor of 16, not 10 as at present.
So someone whose pension entitlement increases by more than £3,125 in any one year may be faced with a tax bill set at their highest rate of tax.
.
.
The formula for calculating the increase in someone's pension if they are in a defined benefit scheme will also become more aggressive.
The increase in accrued pension will be multiplied by a factor of 16, not 10 as at present.
So someone whose pension entitlement increases by more than £3,125 in any one year may be faced with a tax bill set at their highest rate of tax.
Now the good news:
However they will be able to offset that year's increase in their underlying pension pot against any unused tax-free allowance from the previous three years.
Unless you're a One Star or above - and then it looks quite hideous!
Last edited by LFFC; 14th Oct 2010 at 21:49.
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LFFC,
As with most things, its not until you're about to lose something, that you start to realise how good it is. We have had anti-forestalling rules in place for a while which effectively, limit a wealthy saver's opportunity to get maximum public subsidy. As I suggested, there will be some form of Transitional Protection (just as we had Enhanced and Primary Protection a few years ago), so although the BBC piece casts a little more light on things, the picture is still emerging. It is good news that one off lump sumps (such as redundancy payments/gratuities) might be exempt (there can't be many more satisfying ways of getting 40% tax relief on a slug of tax free cash) and another saving grace is that the Annual Allowance is removed in your final year before retirement anyway. So, unless that gets removed too, it could be that high earners simply look for some form of intermediate 'coping' strategy to see them through until the final year before making one final large contribution with otherwise accrued income.
The people who will suffer are not going to be so much those who are mature, high-ish earners, rather the self employed who find cash flow difficult to project and younger graduate professionals who will fall behind and become prey to the 'cost of retirement delay' and working out how to pay off their soon to go through the roof tuition fees and saving for their retirement. I can see why the G'ment has done it - on the surface it is an elegant and simple solution, but its a short term fix. Yes, it might get more money sloshing around the economy, but it is going to stash away problems for 40 years hence.
The social battleground of the future may not be divided so much on North/South, Rich/Poor divides, but rather; Young/Old. Baby Boomers have had it good, certainly a lot better than those currently in their 20s and 30s and this is the State calling 'time'. We have taken their annual allowance for granted for far too long and we forget we can be 30+ years in retirement - 30 years which see fitter healthier people wanting to enjoy life longer and longer - but with what?). Now, retirement has been placed into much sharper relief so when I ask clients if they have used their annual pension entitlement as they might use their annual ISA allowance, it will have real meaning - it is not some whimsical quarter of a mill figure that has no meaning to anyone. It is going to compel/induce people to face up to the future and the potential consequences of doing nothing. On balance, these measures are a good thing because they can be circumnavigated with a little insight and foresight and because they will compel people not to take retirement planning for granted.
As with most things, its not until you're about to lose something, that you start to realise how good it is. We have had anti-forestalling rules in place for a while which effectively, limit a wealthy saver's opportunity to get maximum public subsidy. As I suggested, there will be some form of Transitional Protection (just as we had Enhanced and Primary Protection a few years ago), so although the BBC piece casts a little more light on things, the picture is still emerging. It is good news that one off lump sumps (such as redundancy payments/gratuities) might be exempt (there can't be many more satisfying ways of getting 40% tax relief on a slug of tax free cash) and another saving grace is that the Annual Allowance is removed in your final year before retirement anyway. So, unless that gets removed too, it could be that high earners simply look for some form of intermediate 'coping' strategy to see them through until the final year before making one final large contribution with otherwise accrued income.
The people who will suffer are not going to be so much those who are mature, high-ish earners, rather the self employed who find cash flow difficult to project and younger graduate professionals who will fall behind and become prey to the 'cost of retirement delay' and working out how to pay off their soon to go through the roof tuition fees and saving for their retirement. I can see why the G'ment has done it - on the surface it is an elegant and simple solution, but its a short term fix. Yes, it might get more money sloshing around the economy, but it is going to stash away problems for 40 years hence.
The social battleground of the future may not be divided so much on North/South, Rich/Poor divides, but rather; Young/Old. Baby Boomers have had it good, certainly a lot better than those currently in their 20s and 30s and this is the State calling 'time'. We have taken their annual allowance for granted for far too long and we forget we can be 30+ years in retirement - 30 years which see fitter healthier people wanting to enjoy life longer and longer - but with what?). Now, retirement has been placed into much sharper relief so when I ask clients if they have used their annual pension entitlement as they might use their annual ISA allowance, it will have real meaning - it is not some whimsical quarter of a mill figure that has no meaning to anyone. It is going to compel/induce people to face up to the future and the potential consequences of doing nothing. On balance, these measures are a good thing because they can be circumnavigated with a little insight and foresight and because they will compel people not to take retirement planning for granted.
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Whilst we're on the subject of pensions, one door closes and er.. another one closes.
International Adviser :: Army bans transfers to Wenns QROPS
International Adviser :: Army bans transfers to Wenns QROPS
Last edited by Al R; 15th Oct 2010 at 14:50. Reason: To remove link to Unregulated 'advice' 'service'.
Just to add insult to injury today, when we weren't flapping about the cuts, our Colonel came in and well and truly startled the horses concerning the latest pension arrangements.
Defence Intranet had an interesting piece on the impact of the latest reduction in contribution limits, which seemed to imply - unless we had it wrong - that many personnel could be due to get a rather nasty surprise in the form of a pensions related tax bill.
According to the blurb
So, assuming that an individual hasn't taken out any AVCs, which count towards this limit, the to stay under the 50K limit means that our pensions can't increase by more than £3,125 / year. However, I had a quick look on the MOD Benefits Calculator (different to the pensions calculator). For an SO2 pension, the Benefits Calculator states that the annual value of your pension (Employer's Contribution), the value of which might be estimated at £16,859.
Now, the crux of the matter is this 16K value - is that the amount the MOD actually contributes each year, or is that the market value i.e. what you would have to contribute if you were to go to the open market looking to invest? If it's the former, then 16.8K multiplied by the actuarial factor of 16 puts your annual contribution at around 270K. With a 50K annual limit, this could potentially mean a 40% tax bill on the 220K difference.
Has my entire office got it wrong, or are we potentially facing bankruptcy trying to pay an annual tax bill well in excess of our total salary or will our pension payments essentially be handed straight back to the Treasury as tax payments? Having spent the best part of the past 10 years getting repeatedly shot at, I have to say I am for the first time more than a little worried!
This could affect how many people ..... if the intention is to finally kill off the 75 scheme and get people to leave, depending on how they handle this they might just have managed it.
Defence Intranet had an interesting piece on the impact of the latest reduction in contribution limits, which seemed to imply - unless we had it wrong - that many personnel could be due to get a rather nasty surprise in the form of a pensions related tax bill.
According to the blurb
the value of contributions to defined benefit pension schemes is deemed to be the increase over the year in accrued benefits. In calculating accrued benefits, the increase in annual pension will be multiplied using an actuarial factor of 16 (currently a factor of 10 is applied); both changes will be applicable from the tax year 2011 / 2012. This essentially means that the overall amount which is contributed to your pension annually will be multiplied by 16. if the total calculated contributions are in excess of £50,000 then you will have exceeded your annual allowance.
Now, the crux of the matter is this 16K value - is that the amount the MOD actually contributes each year, or is that the market value i.e. what you would have to contribute if you were to go to the open market looking to invest? If it's the former, then 16.8K multiplied by the actuarial factor of 16 puts your annual contribution at around 270K. With a 50K annual limit, this could potentially mean a 40% tax bill on the 220K difference.
Has my entire office got it wrong, or are we potentially facing bankruptcy trying to pay an annual tax bill well in excess of our total salary or will our pension payments essentially be handed straight back to the Treasury as tax payments? Having spent the best part of the past 10 years getting repeatedly shot at, I have to say I am for the first time more than a little worried!
This could affect how many people ..... if the intention is to finally kill off the 75 scheme and get people to leave, depending on how they handle this they might just have managed it.
Last edited by Melchett01; 19th Oct 2010 at 21:23.
Have you really? I bet the only people who have been shooting at you in your air conditioned office are those who have been flicking elastic bands at you. Blunties!!! Don't you just love em?
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Melchett,
Thankfully, you are wrong. Its an unfunded scheme, which means the money isn't physically lodged with Xafinity Paymaster (which adminstrates AFPS once in payment). Its paid by the State as and when it needs to, and if that means the State raising taxes in 30 years time (or whenever) in order to do it, then thats what it'll do.
To get the figure, you need to make lots of assumptions, least of all based on the fact AFPS is a 1/60th scheme. Some people will be getting pinged with a tax bill, I have no doubt - but not many at all. If you want to drop me a PM to put your mind at rest, then feel free to send me some numbers. This link might be useful for some.
Armed Forces scheme pensions pensioners queries Xafinity Paymaster
Now, the crux of the matter is this 16K value - is that the amount the MOD actually contributes each year, or is that the market value i.e. what you would have to contribute if you were to go to the open market looking to invest? If it's the former, then 16.8K multiplied by the actuarial factor of 16 puts your annual contribution at around 270K. With a 50K annual limit, this could potentially mean a 40% tax bill on the 220K difference.
To get the figure, you need to make lots of assumptions, least of all based on the fact AFPS is a 1/60th scheme. Some people will be getting pinged with a tax bill, I have no doubt - but not many at all. If you want to drop me a PM to put your mind at rest, then feel free to send me some numbers. This link might be useful for some.
Armed Forces scheme pensions pensioners queries Xafinity Paymaster
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Al R,
Very good informative posts - thank you.
Just a bit confused.com - you keep stating that 'the AFPS is a 1/60th scheme';are you sure?; is it not 1/70th? Or have I missed something?
S4G
Very good informative posts - thank you.
Just a bit confused.com - you keep stating that 'the AFPS is a 1/60th scheme';are you sure?; is it not 1/70th? Or have I missed something?
S4G
Last edited by Sand4Gold; 20th Oct 2010 at 08:50.
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Sorry, me typing with brain in neutral - yes, it is 1/70th of course.
(The fractioning doesn't apply to '75', just '05' which works out the pension on the best 365 days of the final 3 years including Substitution Pay in any of the final 3 years, so it might not always be the final 12 months in service).
(The fractioning doesn't apply to '75', just '05' which works out the pension on the best 365 days of the final 3 years including Substitution Pay in any of the final 3 years, so it might not always be the final 12 months in service).
Last edited by Al R; 20th Oct 2010 at 11:12.