Millionaires... how?

grey_gym_sock

Malthusian wrote: »

They will raid private pensions, not the gold-plated final salary ones.

by "raid", do you mean dramatic things, such as cutting pension rights already accrued, or even pensions in payment? or the less dramatic stuff, like making them less favourable for pensions rights accrued in the future?

the less dramatic stuff is already happening for many final salary pensions, in both public and private sectors.

and in the world of defined-contribution private pensions, the changes in rules have overall been very favourable to ppl who hold those pensions (though i would add that the rate of change in the rules has been a bit disturbingly fast).

as for the more dramatic stuff, it's not going to happen ...

It will take a total collapse in government finances a la Argentina or Greece, one requiring a bail-out by foreign states, before government pensions take haircuts.

... because we have our own currency (unlike greece), and haven't borrowed in any other currency (unlike argentina).

gadgetmind

I made a lot of money when younger by starting early and doing difficult/risky stuff. So, 1st company in final year at uni, huge development contract with BT at age 24 (signed on birthday!), 2nd company soon after, £1m in turnover in year 2, sold company for a decent wedge by 30 and bought "forever" house outright plus got plenty in bank. Since then, I've turned down the risk, but my skills are very much in demand, and I know a bit about investing, so it's kept on building from there.

We're not designer clothes, 2 x skiing holidays per year, his and hers Ferraris people, so we've always been able to save half my income, which means I can sleep soundly at night.

Malthusian

and in the world of defined-contribution private pensions, the changes in rules have overall been very favourable to ppl who hold those pensions (though i would add that the rate of change in the rules has been a bit disturbingly fast)

Near-halving of the lifetime allowance, massive cuts in the annual allowance and the removal of tax relief on dividends is "very favourable"? The evergreen proposals to effectively tax higher rate tax payers for saving, remove tax relief entirely or cut the 25% tax free lump sum is "very favourable"?

Those previous cuts to allowances and tax relief have raised billions in tax receipts at the expense of savers, that qualifies to me as a raid.

The only thing that has substantially improved is the freedom to ability to pass pensions onto one's family, but that doesn't in itself benefit the people that hold the pension. Flexibility in retirement has also improved but much less dramatically than the media has made out. The incentives to save in the first place have been clobbered. Pension savers are the easiest targets around - an additional 10% tax on money that people will get in 30 years' time arouses less discontent than an additional 1% tax on their income now.

grey_gym_sock

Malthusian wrote: »

Near-halving of the lifetime allowance, massive cuts in the annual allowance and the removal of tax relief on dividends is "very favourable"? The evergreen proposals to effectively tax higher rate tax payers for saving, remove tax relief entirely or cut the 25% tax free lump sum is "very favourable"?

Those previous cuts to allowances and tax relief have raised billions in tax receipts at the expense of savers, that qualifies to me as a raid.

The only thing that has substantially improved is the freedom to ability to pass pensions onto one's family, but that doesn't in itself benefit the people that hold the pension. Flexibility in retirement has also improved but much less dramatically than the media has made out. The incentives to save in the first place have been clobbered. Pension savers are the easiest targets around - an additional 10% tax on money that people will get in 30 years' time arouses less discontent than an additional 1% tax on their income now.

first, i'm talking about the changes which have actually happened, not the evergreen rumours.

the main negative change is the lifetime allowance - i was thinking of the introduction of it, as well as the later cuts. however, ppl who exceeded the LTA before it was brought in, and took advantage of the earliest "protection" are unaffected, on condition of not making further contributions - some will have a fair number of millions in there (at 1 time, you could contribute up to c. £250,000 per year). latecomers are limited to £1m pots - which is enough to generate a decent retirement income, considering that nobody will only have that: i.e. if you have £1m in a pension, you've surely also paid for your house and been filling ISAs for many years.

meanwhile, the new flexibility turns pension pots into a tax optimization scheme for the wealthy. you no longer have to draw out a sustainable income from them. low income this year? draw enough from your pension to use your basic rate band (or even to take your income up to £100,000 or £150,000). high income next year? draw nothing. and this is all much less relevant for ppl who have a pension pot which will just give them the income they're looking for. so the big winners are the same ppl who may be affected by the LTA.

another win for the wealthy is that pension pots can now effectively be turned into intergenerational trusts, and passed free of both income tax (which was supposed to be only deferred - i.e. the whole idea of tax relief on pensions is that you don't pay on the way in, but do pay on the way out) and inheritance tax. a neat solution for ppl which with pre-LTA multimillion pound pensions - though they may need to only pass on £1m to each child/grandchild, to avoid giving them LTA problems of their own - an incentive for rich ppl to have lots of children!

meanwhile, for the less wealthy, for how many ppl is a limit of £40,000 per year on pension contributions not enough? (or for couple, with only 1 earning, £43,600 a year. when they can also put over £30,000 of after-tax income in ISAs.)

tax relief on dividends has been removed, but it shouldn't be looked at in isolation. in effect, pensions used to be able to reclaim most of the corporation tax paid on distributed profits, but none on retained profits. now they can't reclaim any corporation tax. but meanwhile, the corporation tax rate has been halved. which puts pension funds about back where they started.

"incentives to save"? don't make me laugh. ppl who have £1m pension pots, or who want to save more than £40,000 in pensions + £15,000 in ISAs per year don't need incentives.

gadgetmind

grey_gym_sock wrote: »

the main negative change is the lifetime allowance

For some, yes, I'm sure it's been a massive blow.

For myself the constant changes to annual allowance, the nasty special annual allowance, the horrid new tapering, etc. are a total PITA. In fact, they are such a PITA that I've decided to reduce to 4 days a week next year. This gets me back up to £40k pa into my pension and reduces my income tax bill by £20k pa.

Laffer curve in action.

grey_gym_sock

gadgetmind wrote: »

For myself the constant changes to annual allowance, the nasty special annual allowance, the horrid new tapering, etc. are a total PITA. In fact, they are such a PITA that I've decided to reduce to 4 days a week next year. This gets me back up to £40k pa into my pension and reduces my income tax bill by £20k pa.

but then you've said that the new flexibility is a big win for you, since it will allow you to draw an income to use up your basic rate band (when no longer earning). so overall, i'm not sure whether you're gaining or losing from the changes?

i'm sure there are some losers - it is all so complicated that there are bound to be - but i think rather few. it sounds like your income (while still earning) is comfortably within the highest 1% of incomes in the UK, so this is somewhat specialized.

gadgetmind

grey_gym_sock wrote: »

i'm sure there are some losers - it is all so complicated that there are bound to be

Yes, many losers without a doubt. But even those unaffected see the flood of constant changes and are fearful of putting money into pensions as they look like a minefield of doubt and uncertainty.

And remember, even rules that initially only affect a few have a tendency to be extended year by year so that they eventually catch the majority.

edinburgher

"incentives to save"? don't make me laugh. ppl who have £1m pension pots, or who want to save more than £40,000 in pensions + £15,000 in ISAs per year don't need incentives.

I think that this is a very valid point, although it might not get many positive responses in a thread for millionaires

gadgetmind

With the UK having to compete internationally, everyone needs incentives.

In fact, here is my advice for younger people who want to "be millionaires". Leave the UK. Do it as soon as possible, and don't look back. No matter what HMG say, the UK culture and taxation system is *deeply* anti-entrepreneur, and there are many other countries where you'll find you can get ahead far faster, in a culture where success is valued rather than been seen as slightly suspect and/or outright despised, and where the rewards that come from hard work won't be wrenched from your grasp at every opportunity.

densol_2

Im a new millionaire lol as I never thought about pension

I have a net worth of £590,000 - this was achieved mainly through property investments and pushing myself to the limit. Some ways cant be used now like interest only mortgages, self certify mortgages and Northern Rock max LTV - risky when I look back now.

Ive just been awarded ( monday ) an injury pension worth £90 k a year for life - its been actuarially valied at £2.4 million