Private Pensions - Budget

[Judith]

Say someone has no savings - but has say £30,000 in a private pension - and
has less than full State pension entitlement - does this mean:

Say this person who is unemployed, rather than buying an annuity, draws out the
full £30,000 when they are in their fifties - goes on a nice cruise for 5
weeks - and then gives the remainder of the money to their children.

(The children could of course give them "pocket money" in cash every month)

Will this person - who now has no savings - and has no private pension - have
to be totally supported by the state for the rest of their lives: most probably
being entitled to Pension Credits and perhaps other means tested benefits?


I am sure that the scenario cannot be true: but I would like to understand why
it isn't.

[Nightjar]

Post by Judith
Say someone has no savings - but has say £30,000 in a private pension - and
Say this person who is unemployed, rather than buying an annuity, draws out the
full £30,000 when they are in their fifties - goes on a nice cruise for 5
weeks

Given how little a £30,000 pension pot is likely to yield, that would
probably be the best option.

Post by Judith
- and then gives the remainder of the money to their children....

If they have anything left, they haven't chosen the right cruise.

Colin Bignell

[JNugent]

Post by Nightjar

Post by Judith
Say someone has no savings - but has say £30,000 in a private pension - and
Say this person who is unemployed, rather than buying an annuity, draws out the
full £30,000 when they are in their fifties - goes on a nice cruise for 5
weeks

Given how little a £30,000 pension pot is likely to yield, that would
probably be the best option.

Post by Judith
- and then gives the remainder of the money to their children....

If they have anything left, they haven't chosen the right cruise.

I suspect that a more common use of a small pension pot will be to pay
off (whether in full or in part) a mortgage which is still outstanding
at the date of retirement.

[Nightjar]

Post by JNugent

Post by Nightjar

Post by Judith
Say someone has no savings - but has say £30,000 in a private pension - and
Say this person who is unemployed, rather than buying an annuity, draws out the
full £30,000 when they are in their fifties - goes on a nice cruise for 5
weeks

Given how little a £30,000 pension pot is likely to yield, that would
probably be the best option.

Post by Judith
- and then gives the remainder of the money to their children....

If they have anything left, they haven't chosen the right cruise.

I suspect that a more common use of a small pension pot will be to pay
off (whether in full or in part) a mortgage which is still outstanding
at the date of retirement.

Only one pensioner in eight still has a mortgage at retirement.

Colin Bignell

[JNugent]

Post by Nightjar

Post by JNugent

Post by Nightjar

Post by Judith
Say someone has no savings - but has say £30,000 in a private pension - and
Say this person who is unemployed, rather than buying an annuity, draws out the
full £30,000 when they are in their fifties - goes on a nice cruise for 5
weeks

Given how little a £30,000 pension pot is likely to yield, that would
probably be the best option.

Post by Judith
- and then gives the remainder of the money to their children....

If they have anything left, they haven't chosen the right cruise.

I suspect that a more common use of a small pension pot will be to pay
off (whether in full or in part) a mortgage which is still outstanding
at the date of retirement.

Only one pensioner in eight still has a mortgage at retirement.

It's still more likely to be a common use of an encashed pot than a
world cruise is.

[Judith]

Post by Nightjar

Post by Judith
Say someone has no savings - but has say £30,000 in a private pension - and
Say this person who is unemployed, rather than buying an annuity, draws out the
full £30,000 when they are in their fifties - goes on a nice cruise for 5
weeks

Given how little a £30,000 pension pot is likely to yield, that would
probably be the best option.

And of course £30,000 is the average size of pension pots: so the budget plans
are not really going to help the vast majority of people - and will increase
the burden on the state.

[Nightjar]

Post by Judith

Post by Nightjar

Post by Judith
Say someone has no savings - but has say £30,000 in a private pension - and
Say this person who is unemployed, rather than buying an annuity, draws out the
full £30,000 when they are in their fifties - goes on a nice cruise for 5
weeks

Given how little a £30,000 pension pot is likely to yield, that would
probably be the best option.

The association of British Insurers put it at £36,800, but the FCA
reckon it is £17,700.

Post by Judith
so the budget plans
are not really going to help the vast majority of people - and will increase
the burden on the state.

It will help those who have planned their pensions properly and the
others were going to be a burden on the state anyway.

Colin Bignell

[Snow_Flower]

Post by Nightjar

On Wed, 26 Mar 2014 09:50:16 +0000, Nightjar

Post by Nightjar

Post by Judith
Say someone has no savings - but has say £30,000 in a private pension - and
Say this person who is unemployed, rather than buying an annuity, draws out the
full £30,000 when they are in their fifties - goes on a nice cruise for 5
weeks

Given how little a £30,000 pension pot is likely to yield, that would
probably be the best option.

The association of British Insurers put it at £36,800, but the FCA
reckon it is £17,700.

Very difficult to know, as many people have multiple small pots from
different employers. The pension provider will not be aware of what
other pots a customer has.

[Nightjar]

Post by Snow_Flower

Post by Nightjar

On Wed, 26 Mar 2014 09:50:16 +0000, Nightjar

Post by Nightjar

Post by Judith
Say someone has no savings - but has say £30,000 in a private pension - and
Say this person who is unemployed, rather than buying an annuity, draws out the
full £30,000 when they are in their fifties - goes on a nice cruise for 5
weeks

Given how little a £30,000 pension pot is likely to yield, that would
probably be the best option.

The association of British Insurers put it at £36,800, but the FCA
reckon it is £17,700.

Very difficult to know, as many people have multiple small pots from
different employers. The pension provider will not be aware of what
other pots a customer has.

Indeed. Besides the state pension, I have one occupational pension and
two private pensions, one of which I take no income from. It is
relatively small (10% of the other) and I treat it as 'mad money' to be
invested in a spread of relatively high risk investments, in the hope
(based on previous experience) that it may gain significantly in value
over the next decade or so.

I am, however, rather surprised that the average is so low. I presume it
reflects the number of people who have made no provision for their
pensions. I am pleased that I started at age 19.

Colin Bignell

[Alex Heney]

Post by Judith

Post by Nightjar

Post by Judith
Say someone has no savings - but has say £30,000 in a private pension - and
Say this person who is unemployed, rather than buying an annuity, draws out the
full £30,000 when they are in their fifties - goes on a nice cruise for 5
weeks

Given how little a £30,000 pension pot is likely to yield, that would
probably be the best option.

And of course £30,000 is the average size of pension pots: so the budget plans
are not really going to help the vast majority of people - and will increase
the burden on the state.

With the amount you could get from a £30000 pot, I think it might
actually be more valuable to be able to spend the money.

A £30,000 fund retiring at 65 will not get you more than about £2000
per year, fixed rate (i.e. no inflation rises).

[Roger Mills]

Post by Nightjar

Say someone has no savings - but has say £30,000 in a private pension
- and
Say this person who is unemployed, rather than buying an annuity, draws out the
full £30,000 when they are in their fifties - goes on a nice cruise for 5
weeks

Given how little a £30,000 pension pot is likely to yield, that would
probably be the best option.

- and then gives the remainder of the money to their children....

If they have anything left, they haven't chosen the right cruise.
Colin Bignell

Especially as they won't get the whole £30k if they draw it in a single
tax year. Even if they have no other income, they are going to be paying
20% tax on about £20k of the £30k - i.e. £4k tax, bringing the net
receipt down to £26k.

[Big Les Wade]

Post by Roger Mills

Post by Nightjar

Say someone has no savings - but has say £30,000 in a private pension
- and
Say this person who is unemployed, rather than buying an annuity, draws out the
full £30,000 when they are in their fifties - goes on a nice cruise for 5
weeks

Given how little a £30,000 pension pot is likely to yield, that would
probably be the best option.

- and then gives the remainder of the money to their children....

If they have anything left, they haven't chosen the right cruise.

Especially as they won't get the whole £30k if they draw it in a single
tax year. Even if they have no other income, they are going to be
paying 20% tax on about £20k of the £30k - i.e. £4k tax, bringing the
net receipt down to £26k.

That's still a hell of a lot better than taking an annuity that will
also be taxed at 20 per cent at every instalment. And they will have to
live another 30 years to get back their fund value.

[®i©ardo]

Post by Big Les Wade

Post by Roger Mills

Post by Nightjar

Say someone has no savings - but has say £30,000 in a private pension
- and
Say this person who is unemployed, rather than buying an annuity, draws out the
full £30,000 when they are in their fifties - goes on a nice cruise for 5
weeks

Given how little a £30,000 pension pot is likely to yield, that would
probably be the best option.

- and then gives the remainder of the money to their children....

If they have anything left, they haven't chosen the right cruise.

Especially as they won't get the whole £30k if they draw it in a
single tax year. Even if they have no other income, they are going to
be paying 20% tax on about £20k of the £30k - i.e. £4k tax, bringing
the net receipt down to £26k.

That's still a hell of a lot better than taking an annuity that will
also be taxed at 20 per cent at every instalment. And they will have to
live another 30 years to get back their fund value.

You are not taxed at 20% on every instalment if it is a conventional
purchased life annuity, i.e. one where there is no specific compulsion
to purchase an annuity because of pension plan rules or the by the
direction of a will.

Such annuities are calculated on the expected yield from the initial
investment and the annuitant's life expectancy to project the probable
payment period. Payments are deemed to be part capital and part
interest and tax is payable only on the interest content.

[tim.....]

"�i�ardo" wrote in message news:***@giganews.com...


Such annuities are calculated on the expected yield from the initial
investment and the annuitant's life expectancy to project the probable
payment period. Payments are deemed to be part capital and part
interest and tax is payable only on the interest content.

-------------------------------------------------------------------------

Not on a "force purchase" retirement fund annuity

The capital part is also taxed as you draw it, because the money got tax
relief on the way in.

It is only capital purchase annuities that are treated the way you describe

tim

[®i©ardo]

Post by ®i©ardo
Such annuities are calculated on the expected yield from the initial
investment and the annuitant's life expectancy to project the probable
payment period. Payments are deemed to be part capital and part
interest and tax is payable only on the interest content.
-------------------------------------------------------------------------
Not on a "force purchase" retirement fund annuity
The capital part is also taxed as you draw it, because the money got tax
relief on the way in.
It is only capital purchase annuities that are treated the way you describe
tim

Precisely - as I pointed out!

"i.e. one where there is no specific compulsion to purchase an annuity
because of pension plan rules or the by the direction of a will."

However, with the impending situation where by there is no compulsion to
purchase an annuity with one's pension funds, why should that contract
be any different then to one where the proceeds of a house sale are
used, for example. Or, to put it another way, are there going to be any
restrictions on the way that pension fund is spent on realisation?

[tim.....]

Post by ®i©ardo
Such annuities are calculated on the expected yield from the initial
investment and the annuitant's life expectancy to project the probable
payment period. Payments are deemed to be part capital and part
interest and tax is payable only on the interest content.
-------------------------------------------------------------------------
Not on a "force purchase" retirement fund annuity
The capital part is also taxed as you draw it, because the money got tax
relief on the way in.
It is only capital purchase annuities that are treated the way you describe
tim

Precisely - as I pointed out!

"i.e. one where there is no specific compulsion to purchase an annuity
because of pension plan rules or the by the direction of a will."

However, with the impending situation where by there is no compulsion to
purchase an annuity with one's pension funds, why should that contract
be any different then to one where the proceeds of a house sale are
used, for example. Or, to put it another way, are there going to be any
restrictions on the way that pension fund is spent on realisation?

-------------------------------------------------------------------

That will depend whether you are buying the annuity with "tax free" money or
not

Whilst the simple test is one of whether the annuity is a compulsory
purchase the actual effect is to extract tax on something that was previous
given tax relief

this desire will nor change even when the (pension) annuity purchase is not
compulsory, so I expect the rule will change to follow that desire

tim

[®i©ardo]

Post by ®i©ardo

Post by ®i©ardo
Such annuities are calculated on the expected yield from the initial
investment and the annuitant's life expectancy to project the probable
payment period. Payments are deemed to be part capital and part
interest and tax is payable only on the interest content.
-------------------------------------------------------------------------
Not on a "force purchase" retirement fund annuity
The capital part is also taxed as you draw it, because the money got tax
relief on the way in.
It is only capital purchase annuities that are treated the way you describe
tim

Precisely - as I pointed out!
"i.e. one where there is no specific compulsion to purchase an annuity
because of pension plan rules or the by the direction of a will."
However, with the impending situation where by there is no compulsion to
purchase an annuity with one's pension funds, why should that contract
be any different then to one where the proceeds of a house sale are
used, for example. Or, to put it another way, are there going to be any
restrictions on the way that pension fund is spent on realisation?
-------------------------------------------------------------------
That will depend whether you are buying the annuity with "tax free"
money or not
Whilst the simple test is one of whether the annuity is a compulsory
purchase the actual effect is to extract tax on something that was
previous given tax relief
this desire will nor change even when the (pension) annuity purchase is
not compulsory, so I expect the rule will change to follow that desire
tim

Exactly!

[Nightjar]

Post by Roger Mills

Post by Nightjar

Say someone has no savings - but has say £30,000 in a private pension
- and
Say this person who is unemployed, rather than buying an annuity, draws out the
full £30,000 when they are in their fifties - goes on a nice cruise for 5
weeks

Given how little a £30,000 pension pot is likely to yield, that would
probably be the best option.

- and then gives the remainder of the money to their children....

If they have anything left, they haven't chosen the right cruise.

Especially as they won't get the whole £30k if they draw it in a single
tax year. Even if they have no other income, they are going to be paying
20% tax on about £20k of the £30k - i.e. £4k tax, bringing the net
receipt down to £26k.

You seem to have omitted the 25% tax free allowance from your calculation.

Colin Bignell

[Roger Mills]

Post by Nightjar

Post by Roger Mills

Post by Nightjar

Say someone has no savings - but has say £30,000 in a private pension
- and
Say this person who is unemployed, rather than buying an annuity, draws out the
full £30,000 when they are in their fifties - goes on a nice cruise for 5
weeks

Given how little a £30,000 pension pot is likely to yield, that would
probably be the best option.

- and then gives the remainder of the money to their children....

If they have anything left, they haven't chosen the right cruise.

Especially as they won't get the whole £30k if they draw it in a single
tax year. Even if they have no other income, they are going to be paying
20% tax on about £20k of the £30k - i.e. £4k tax, bringing the net
receipt down to £26k.

You seem to have omitted the 25% tax free allowance from your calculation.
Colin Bignell

Oops, yes! OK, so they'll only pay 20% on £12.5k rather than £20k -
which is better. My point about then not getting the whole £30 is still
valid, albeit not as significant.

[JNugent]

Post by Judith
Say someone has no savings - but has say £30,000 in a private pension - and
Say this person who is unemployed, rather than buying an annuity, draws out the
full £30,000 when they are in their fifties - goes on a nice cruise for 5
weeks - and then gives the remainder of the money to their children.
(The children could of course give them "pocket money" in cash every month)
Will this person - who now has no savings - and has no private pension - have
to be totally supported by the state for the rest of their lives: most probably
being entitled to Pension Credits and perhaps other means tested benefits?
I am sure that the scenario cannot be true: but I would like to understand why
it isn't.

The rules for means-tested benefits include a test of whether the
claimant has (or has had) other income or capital assets. There is a
rule which allows an asset which has been disposed of to be notionally
taken into account.

[Phi]

Only within a certain timeframe.

[Judith]

Post by Phi
Only within a certain timeframe.

Care to expand just a little.

[tim.....]

"Judith" wrote in message news:***@4ax.com...


Say someone has no savings - but has say £30,000 in a private pension -
and
has less than full State pension entitlement - does this mean:

Say this person who is unemployed, rather than buying an annuity, draws out
the
full £30,000 when they are in their fifties - goes on a nice cruise for 5
weeks - and then gives the remainder of the money to their children.

(The children could of course give them "pocket money" in cash every month)

Will this person - who now has no savings - and has no private pension -
have
to be totally supported by the state for the rest of their lives: most
probably
being entitled to Pension Credits and perhaps other means tested benefits?


I am sure that the scenario cannot be true: but I would like to understand
why
it isn't.

----------------------------------------------------------------------------------------

Unless the actual legislation turns out to be different from the original
proposals, that scenario is entirely possible and IMHO entirely likely to
happen - often!

I think this change is a cleverly thought out election bribe, that doesn't
have to be paid for today.

As an interested party, I agree that the current annuity/draw-down rules are
too restricted and costly, but this change is a few steps too far in
addressing that and we'll (well you, as I'll no longer be a taxpayer) be
paying for it later [1]

tim

[1] just like the stupid, il-thought out, changes in student fees

[Judith]

On Wed, 26 Mar 2014 11:37:04 +0100, "tim....." <***@yahoo.co.uk>
wrote:

<snip>

Post by tim.....
[1] just like the stupid, il-thought out, changes in student fees

I see that:

Around 45% of university graduates will not earn enough to repay their student
loans, the government now believes.

If the figure reaches 48.6% experts calculate that the government will lose
more money than it gained by increasing fees in England to £9,000 a year.

http://www.bbc.co.uk/news/education-26688018

[Robbie]

Post by Judith
Say someone has no savings - but has say £30,000 in a private pension - and
Say this person who is unemployed, rather than buying an annuity, draws out the
full £30,000 when they are in their fifties - goes on a nice cruise for 5
weeks - and then gives the remainder of the money to their children.
(The children could of course give them "pocket money" in cash every month)
Will this person - who now has no savings - and has no private pension - have
to be totally supported by the state for the rest of their lives: most probably
being entitled to Pension Credits and perhaps other means tested benefits?
I am sure that the scenario cannot be true: but I would like to understand why
it isn't.

If the person has spent the money with intention to claim Pension Credit
then the DWP can treat the money as if it was still held. It could be
classed as deliberate deprivation of capital.

[Judith]

On Wed, 26 Mar 2014 13:35:55 +0000, Robbie <***@hotmail.com> wrote:

<snip>

Post by Robbie
If the person has spent the money with intention to claim Pension Credit
then the DWP can treat the money as if it was still held. It could be
classed as deliberate deprivation of capital.

And how do you think the DWP would a) find out and b) show that it was
deliberate deprivation of capital?

[tim.....]

"Judith" wrote in message news:***@4ax.com...

On Wed, 26 Mar 2014 13:35:55 +0000, Robbie <***@hotmail.com> wrote:

<snip>

Post by Robbie
If the person has spent the money with intention to claim Pension Credit
then the DWP can treat the money as if it was still held. It could be
classed as deliberate deprivation of capital.

And how do you think the DWP would a) find out and b) show that it was
deliberate deprivation of capital?

------------------------------------------------------------

you tick the honesty box

tim

[Judith]

Post by Judith
<snip>

Post by Robbie
If the person has spent the money with intention to claim Pension Credit
then the DWP can treat the money as if it was still held. It could be
classed as deliberate deprivation of capital.

And how do you think the DWP would a) find out and b) show that it was
deliberate deprivation of capital?
------------------------------------------------------------
you tick the honesty box
tim

Who? - Me? :-)

[Robbie]

Post by Judith
<snip>

Post by Robbie
If the person has spent the money with intention to claim Pension Credit
then the DWP can treat the money as if it was still held. It could be
classed as deliberate deprivation of capital.

And how do you think the DWP would a) find out and b) show that it was
deliberate deprivation of capital?

By checking bank statements. Also the PC form asks if the person
receives a works etc pension. It can easily be amended to ask if a lump
sum was paid.

If the DWP did find out or if the person indicates they have spent the
money the person will either be called in to a Jobcentre for an
interview or will be visited at home and will be asked about how and why
they spent the money.

[Judith]

Post by Robbie

Post by Judith
<snip>

Post by Robbie
If the person has spent the money with intention to claim Pension Credit
then the DWP can treat the money as if it was still held. It could be
classed as deliberate deprivation of capital.

And how do you think the DWP would a) find out and b) show that it was
deliberate deprivation of capital?

By checking bank statements.

Are you saying that the DWP have the right to ask banks for statements?

Post by Robbie
Also the PC form asks if the person
receives a works etc pension. It can easily be amended to ask if a lump
sum was paid.
If the DWP did find out or if the person indicates they have spent the
money the person will either be called in to a Jobcentre for an
interview or will be visited at home and will be asked about how and why
they spent the money.

All they have to say is that their children lent them money for home
improvements or a new car, or suchlike - and they have now repaid that loan.
There is no compulsion for such inter-family loans to be documented - and
indeed are often done as cash loans

[Robbie]

Post by Judith

Post by Robbie

Post by Judith
<snip>

Post by Robbie
If the person has spent the money with intention to claim Pension Credit
then the DWP can treat the money as if it was still held. It could be
classed as deliberate deprivation of capital.

And how do you think the DWP would a) find out and b) show that it was
deliberate deprivation of capital?

By checking bank statements.

Are you saying that the DWP have the right to ask banks for statements?

If needed, yes. And that's not a new power either. But the DWP can ask
the claimant to provide whatever documentation is deemed necessary in
order to process a claim.

The bizarrest thing about Guaranteed Pension Credit though is once a
person is aged 65 or over and is given an assessed income period they
can win £160 million on the Euromillions and will still get PC and
passported Housing Benefit. Capital doesn't have any effect on PC when a
person is in an AIP. When the AIP ends the person will then be unable to
claim any PC or HB. It's farcical.

Post by Judith

Post by Robbie
Also the PC form asks if the person
receives a works etc pension. It can easily be amended to ask if a lump
sum was paid.
If the DWP did find out or if the person indicates they have spent the
money the person will either be called in to a Jobcentre for an
interview or will be visited at home and will be asked about how and why
they spent the money.

All they have to say is that their children lent them money for home
improvements or a new car, or suchlike - and they have now repaid that loan.
There is no compulsion for such inter-family loans to be documented - and
indeed are often done as cash loans

They would have to provide proof of that, such as a signed statement by
the person who lent the money. And both parties can be prosecuted if
they make a false statement and subsequently get found out.

[Mel Rowing]

Post by Judith
Say someone has no savings - but has say £30,000 in a private pension - and
Say this person who is unemployed, rather than buying an annuity, draws out the
full £30,000 when they are in their fifties - goes on a nice cruise for 5
weeks - and then gives the remainder of the money to their children.
(The children could of course give them "pocket money" in cash every month)
Will this person - who now has no savings - and has no private pension - have
to be totally supported by the state for the rest of their lives: most probably
being entitled to Pension Credits and perhaps other means tested benefits?
I am sure that the scenario cannot be true: but I would like to understand why
it isn't.

I would think not though the details of the scheme are not yet available
AIUI people over age 55 will be allowed to draw down on their pension
pots but if they do they will pay tax at their marginal rate on 75% of
the draw down. This will create a record of the fact.

Arrangements are already in place to accomodate those who dishonestly
hide assets in order to quialfy for benefits.

[Charles Bryant]

In article <***@4ax.com>,
Judith <***@hotmail.co.uk> wrote:
}
}Say someone has no savings - but has say £30,000 in a private pension - and
}has less than full State pension entitlement - does this mean:
}
}Say this person who is unemployed, rather than buying an annuity, draws out the
}full £30,000 when they are in their fifties - goes on a nice cruise for 5
}weeks - and then gives the remainder of the money to their children.
}
}(The children could of course give them "pocket money" in cash every month)
}
}Will this person - who now has no savings - and has no private pension - have
}to be totally supported by the state for the rest of their lives: most probably
}being entitled to Pension Credits and perhaps other means tested benefits?
}
}
}I am sure that the scenario cannot be true: but I would like to understand why
}it isn't.

Why not? Say the same person instead of putting money into a pension
during their working life simply spent that money. Why should they
be treated differently for spending it as they earned it rather than
saving it and spending it all in one go?

[David Woolley]

Post by Judith
to be totally supported by the state for the rest of their lives: most probably
being entitled to Pension Credits and perhaps other means tested benefits?

One of the enablers for this change is that pension credits are being
abolished. State pension will be raised, but that is all you will get
from the state, pension-wise.