This Year's Most Stupid Idea So far?

HardCoreProgrammer

Malthusian wrote: »

There would have been a lot wrong with it if your employer did matching employer contributions or, worst of all, you were eligible for a defined benefit pension scheme.

Quite possibly that didn't apply, but it applies to a lot more people now due to auto-enrolment.

It was not defined benefit. If I remember correctly, you sacrifice 5% of your salary and they pay in 7% of the reduced salary (i.e. 7% X 95% = 6.65% so they paid 1.65%).

My salary was about £25k then so about £400 "free money" per year. Now remind me how much house prices were going up per year in the early 2000s?

And people were telling me that I was an idiot for turning down "free money". Guess who is having the last laugh now?

jimi_man

HardCoreProgrammer wrote: »

It was not defined benefit. If I remember correctly, you sacrifice 5% of your salary and they pay in 7% of the reduced salary (i.e. 7% X 95% = 6.65% so they paid 1.65%).

My salary was about £25k then so about £400 "free money" per year. Now remind me how much house prices were going up per year in the early 2000s?

And people were telling me that I was an idiot for turning down "free money". Guess who is having the last laugh now?

I must confess that I'm struggling with your maths. Your 5% is £1250, but is salary sacrifice so less tax and NI, which means you only pay around £800.

They then pay contributions of 7% on the remainder (6.65% x £25,000) which is around £1660 a year. So in total, £2900 which cost you around £800. About £2100 of 'free money' and you only had to contribute £800 to get that.

I wouldn't have turned that down.

In fact I wouldn't have turned down £400 a year either. If someone said to me 'here's £400 or £2100' I'm not going to say 'no thanks, I'd rather pay my mortgage.

Unless you planned to sell your house and live off the proceeds then it's immaterial how much it goes up in value. It only has relevance at the beginning (your first house) or at the end when it's sold, often after the person dies. At all other times, the value is relative. Yes people can downsize but it never seems to generate as much money as they think it will.

ukdw

If the idea is restricted to just allowing the 25% PCLS built up so far to be released earlier than age 55 to use against house purchase price then I can see some merits in it.


I guess it depends on what people generally do with their PCLS's when they hit retirement - if they use them for income then yes there will be a slight reduction in post retirement income. If they use them to pay of their mortgages then the small part of the 25% lost would likely be offset by a smaller mortgage.


Seems like a better idea than a LISA to me - where rather than just losing 25% of your savings built up so far you would likely lose 100%.

Paul_Herring

If the idea is restricted to just allowing the 25% PCLS built up so far

The 100% built up for most will be insufficient for what they're talking about here.

kb92830

I cannot see why this is a stupid idea, I live in Switzerland and the concept works well, up to the age of 50 you can use your entire pension pot in one of two ways, after 50 you can only release what you have in the pot up until your 50th birthday:

• You can pledge your pension pot (effectively your pension scheme underwrites you deposit without you actually paying it)
• You can withdraw your pension pot to pay the deposit

This alleviates the need to find a hefty deposit but also reduces the overall debt of the individual, thus giving a higher disposable income available to reinvest.

Lots of people downsize in retirement so why not let them use the money upfront to purchase a house / property which they then sell later to fund their retirement

You could always argue with countries where capital growth on property can be high, this is a good model, yes, prices can fall but so can stock markets and investments

[Deleted User]

westv wrote: »

https://www.bbc.com/news/uk-politics-48506460


Trade part of your pension to get on the housing ladder.
I can't believe anybody would come up with such a plan.

This works well in other countries, e.g. Canada. Not exactly a new “idea” but there is nothing wrong with it. Basically this gives individuals a little bit more control over their money. And yes, some people will make mistakes and make a wrong choice at a bad time. That’s ok. What’s wrong with people deciding that they are house horny, want a family and would be prepared to retire a little later? Why should the government have complete control over when and how you spend your money?

https://www.rbcroyalbank.com/mortgages/rrsp-home-buyers-plan.html

Paul_Herring

but there is nothing wrong with it

Except artificially keeping house prices high.

[Deleted User]

Paul_Herring wrote: »

Except artificially keeping house prices high.

Define “artificially”.

ermine

HardCoreProgrammer wrote: »

And people were telling me that I was an idiot for turning down "free money". Guess who is having the last laugh now?

The last laugh is only determined when you cark it still solvent having had an acceptable lifestyle. The fat lady ain't sung with this one, and hopefully won't for a while yet.


Lots of older people living in too much house for their ability to manage and perhaps in need of more liquidity.