Have 10% inflation and falling markets affected your drawdown plan?

SouthCoastBoy

 bostonerimus said:

My observation is that quite a few people answering have DB pensions, that begs the question of why more without DB's aren't answering...maybe it's too scary to think about, and that SP is a critical part of everyone's plan which makes the Hunt/Sunak Fiscal statement all the more nerve wracking.

I'm 100% dc and from my perspective I will most probably continue working rather than retire early. It was interesting reading comments of db increases on some pensions being restricted to 2.5% or 5%. That is not dissimilar to holding cash in current climate I am now getting over 4% on 12 month fixed term bonds

pensionpawn

marlot said:

bostonerimus said:

NedS said:

bostonerimus said:

My observation is that quite a few people answering have DB pensions, that begs the question of why more without DB's aren't answering...maybe it's too scary to think about, and that SP is a critical part of everyone's plan which makes the Hunt/Sunak Fiscal statement all the more nerve wracking.

I've been thinking about the triple lock, and what it may mean if they were to get rid of it. Which part of the triple lock would be ditched - link to earnings, minimum 2.5% or the link to inflation? I can understand if they may want to ditch either or the first two, but surely the link to inflation has to stay for the long term? They may want to ensure the SP does not continue to grow in real terms, but surely having a SP that will not keep up with inflation would be a big mistake? In a year when inflation is high, if they were to ditch the "triple lock" by ditching the first two, would anyone really care that much (rightly or wrongly) as the only thing anyone is thinking about right now is high inflation.

Dropping the inflation link for SP would make it easier to do the same for benefits, but I think that politically the two types of payments are linked, it would cause a massive backlash across the country and even within the Conservative Party if inflation linking was lost on either. As tax rises are going to be tough for Hunt/Sunak to do I really think they are in a tricky spot. Maybe we'll get some sort of time limited suspension? Long term the triple lock could be kept, but the SP age could be raised and benefits further restricted, what we need is "gwroth, gwroth, gwroth". I always though that slogan was so banal as to be meaningless, all modern economies depend on growth (for better or worse), it's how you get that growth that is the tricky thing.

As someone who had his University tuition paid by the state, I'm astonished that governments have got away with putting an extra 9% on young people's income tax.

Perhaps the fair way out would be to merge income tax and national insurance (and abolish student loan repayments)?  This would mean retired people would essentially pay NI on their pensions.

A hard one to sell though.

My withdrawal strategy for myself and my wife has always been to draw no more than our PA each, with my wife via UFPLS. That's a joint tax (and NI) free personal pension of just under £30k which is probably towards the top end (nationally, not this forum) of the scale of "pensioner" income. So although I can see the economics (no pun intended) of combining income tax and NI (as they now both have the same personal allowance) I wouldn't have thought it would raise enough extra "taxation" from pensioners to offset the huge backlash the Tories would experience at the next GE from the only remaining voter class that they can (normally) rely on!

arnoldy

As someone who had his University tuition paid by the state, I'm astonished that governments have got away with putting an extra 9% on young people's income tax.

Perhaps the fair way out would be to merge income tax and national insurance (and abolish student loan repayments)?  This would mean retired people would essentially pay NI on their pensions.

A hard one to sell though.

Too many people go to university to study "degrees" in non-subjects like Golf Studies or Cake Decoration. They never earn the threshold to pay the 9%. They should lower the threshold to the personal allowance £12,570. That would concentrate minds.

 

NedS

marlot said:

NedS said:

bostonerimus said:

NedS said:

bostonerimus said:

My observation is that quite a few people answering have DB pensions, that begs the question of why more without DB's aren't answering...maybe it's too scary to think about, and that SP is a critical part of everyone's plan which makes the Hunt/Sunak Fiscal statement all the more nerve wracking.

I've been thinking about the triple lock, and what it may mean if they were to get rid of it. Which part of the triple lock would be ditched - link to earnings, minimum 2.5% or the link to inflation? I can understand if they may want to ditch either or the first two, but surely the link to inflation has to stay for the long term? They may want to ensure the SP does not continue to grow in real terms, but surely having a SP that will not keep up with inflation would be a big mistake? In a year when inflation is high, if they were to ditch the "triple lock" by ditching the first two, would anyone really care that much (rightly or wrongly) as the only thing anyone is thinking about right now is high inflation.

Dropping the inflation link for SP would make it easier to do the same for benefits, but I think that politically the two types of payments are linked, it would cause a massive backlash across the country and even within the Conservative Party if inflation linking was lost on either. As tax rises are going to be tough for Hunt/Sunak to do I really think they are in a tricky spot. Maybe we'll get some sort of time limited suspension? Long term the triple lock could be kept, but the SP age could be raised and benefits further restricted, what we need is "gwroth, gwroth, gwroth". I always though that slogan was so banal as to be meaningless, all modern economies depend on growth (for better or worse), it's how you get that growth that is the tricky thing.

I think they could drop the link to earnings and minimum 2.5% increase (that's the bad new) on the basis that is it unsustainable in the long run, but hey, you still get your 10.1% CPI increase in April - and they would probably get away with that.

They may go with a lower link to earnings this year for work-related benefits, but retain the CPI link for disability benefits.

I can't see them raising income tax given the manifesto commitments upon which they were elected, but they could continue to freeze thresholds dragging more people into taxation through fiscal drag. But it's difficult to see how they can plug a £50bn spending gap. Pension reforms (40% tax relief) could be an option to raise some cash, but I'm not sure they could push that through for April 2023. I think we will be doing well to avoid a recession in the next 12 months, so any growth would be a huge win. Ultimately though, I fear a recession is the only thing that is going to get inflation back under control given the gulf between inflation and BoE interest rates, and an apparent unwillingness to raise them hard and fast.

There has to be something wrong with our system when someone on minimum wage needs tax credits.  Essentially we're subsidising large employers such as Tesco.

Absolutely agree, and I think the government understands that, hence the push over recent years to raise minimum wage by more than the rate of inflation, slowly pushing that burden back onto employers. Of course there were concerns that if they did that too quickly then it would jeopardise low paid jobs, but we have essentially become a country of low paid workers dependant upon state handouts - even more so since Covid. But it extends further up the pay scales too - I am no different - I earn £28k per year as a Civil Servant and am dependant upon handouts, yet the government consistently gives me a pay freeze or pay rises below inflation driving me further and further into dependency upon said handouts. I would much rather see my pay rise in line with inflation and not have to have my earnings topped up with state handouts.
 

MK62

bostonerimus said:

If I was doing something like a 4% index linked drawdown my nerve would have broken by now and I'd be looking to reduce my spending considerably, be spending from cash reserves and probably trying to use only dividends and interest payments from my investments to preserve capital.

I doubt there are many "DC pension only" recent retirees on here following such a vanilla "4% index linked drawdown" plan tbh......the potential for long term plan failure has been well discussed on here numerous times over the last few years...... current circumstances are a reminder of why that might be.

OldScientist

arnoldy said:

As someone who had his University tuition paid by the state, I'm astonished that governments have got away with putting an extra 9% on young people's income tax.

Perhaps the fair way out would be to merge income tax and national insurance (and abolish student loan repayments)?  This would mean retired people would essentially pay NI on their pensions.

A hard one to sell though.

Too many people go to university to study "degrees" in non-subjects like Golf Studies or Cake Decoration. They never earn the threshold to pay the 9%. They should lower the threshold to the personal allowance £12,570. That would concentrate minds.

 

Just for interest...

In 2016, golf courses contributed over £2 billion to the UK economy (on an economic activity of about £10billion, see https://www.karlmccartney.co.uk/news/value-golf-uk-economy) and bring in tourists. The median salary for a Golf Club manager (see https://www.payscale.com/research/UK/Job=Golf_Club_Manager/Salary) is just under £30k, so just over the loan repayment threshold.

As for cake decorating, as far as I can tell, there are no degrees in the UK, but certificates and diplomas do exist (the latter is a Level 3, 150 hour course). There's a market for bespoke decorated cakes (e.g. birthdays and weddings) and I would imagine some people taking the courses go into business for themselves (excellent entrepreneurship) or otherwise work in the catering trade.

pensionpawn

arnoldy said:

As someone who had his University tuition paid by the state, I'm astonished that governments have got away with putting an extra 9% on young people's income tax.

Perhaps the fair way out would be to merge income tax and national insurance (and abolish student loan repayments)?  This would mean retired people would essentially pay NI on their pensions.

A hard one to sell though.

Too many people go to university to study "degrees" in non-subjects like Golf Studies or Cake Decoration. They never earn the threshold to pay the 9%. They should lower the threshold to the personal allowance £12,570. That would concentrate minds.

 

Precisely. I studied Electrical & Electronic engineering in the 1980's. It was also the "thin sandwich" variant as I was sponsored (an undergraduate apprentice) so I studied Oct - Mar and worked Apr - Sep for 3 years with my 4th year entirely at university. Since graduating I believe that my level of income tax has repaid my "student" loans many times with interest. Blair conned so many young people into believing that any degree is worth studying and made all tax payers pay for them (when the loans are wiped out). Not all degrees are equal and some are worth more to society than others. However that's for another thread..

Albermarle

There has to be something wrong with our system when someone on minimum wage needs tax credits.  Essentially we're subsidising large employers such as Tesco.

In the current jobs market/shortage of workers,  supermarkets have had to increase their pay rates more than once and in general are paying more than the minimum wage. I presume (not sure) that this means less has to be paid out in tax credits.

Albermarle

SouthCoastBoy said:

 bostonerimus said:

My observation is that quite a few people answering have DB pensions, that begs the question of why more without DB's aren't answering...maybe it's too scary to think about, and that SP is a critical part of everyone's plan which makes the Hunt/Sunak Fiscal statement all the more nerve wracking.

I'm 100% dc and from my perspective I will most probably continue working rather than retire early. It was interesting reading comments of db increases on some pensions being restricted to 2.5% or 5%. That is not dissimilar to holding cash in current climate I am now getting over 4% on 12 month fixed term bonds

If I remember correctly you were anxious about retiring early even before this current situation developed, despite having built up a very large war chest. So I guess whatever the economic situation you will feel the same ?

QrizB

marlot said:

There has to be something wrong with our system when someone on minimum wage needs tax credits.  Essentially we're subsidising large employers such as Tesco.

A 22yo with no dependants can get by fine on minimum wage (and is unlikely to qualify for tax credits anyway). A 42yo with a family, less so. Tax credits mean the 42yo can be gainfully employed and not entirely dependent on benefits.