Pensions

I used to be anti pensions on the grounds there were serious hidden costs involved. This all changed in the 2014 budget and now I think pensions are great.

The three things I didn't like were the requirement to purchase an annuity, which meant the insurance company got to keep your capital, the exit charge, of 55%, if you withdrew more than the rules allowed, and the restrictions on how much you could drawdown each year if you didn't buy an annuity. These requirements are now either gone or they are going.

The advantage of a pension now is you save tax at your marginal rate when you put the money in and then you can get 25% of it out when you are 55 tax free. You still pay the marginal rate of tax on any money taken out in excess of 25% but at least you get to choose how fast you withdraw the money so higher rates of tax become voluntary. So a basic rate taxpayer reduces the effective tax rate from 20% to 15% and a higher rate taxpayer reduces the effective rate from 40% to maybe 15% but at least to 30%.

Did you know...

Public Sector Workers

Did you know that public sector workers make up 18% of the workforce but they are entitled to 36% of accumulated pension rights. Essentially private sector workers are financing index linked public sector pensions whilst at the same time being told they are not saving enough for themselves.

Gordon Brown

Gordon started the rot with his pension raid when Labour first came to power. By denying pension funds the right to recover the tax credit on dividend income he reduced pension fund income by 20% a year. This costs our pension funds £5 billion a year.

MP's pensions

At the same time as they lecture us about not saving enough MP's have voted themselves one of the most generous government pension schemes in the world.

Tony's pension

Tony Blair's pension is reckoned to be worth £1.5 million. That is the amount required to buy an annuity equal to the monthly pension he will be entitled to. Under laws to be introduced it won't be possible to save this much in a private pension scheme so Tony gets a pension that will be impossible for the rest of us. I don't begrudge him his pension but it should be possible for the rest of us as well.

Useful Links

HM Revenue and Customs

Companies House