I have the privilege of having my interests represented by a a Tory MP. Dirty job, but someone has to do it, eh? So despite not being a card-carrying member of the Conservative Party I have microscopically more control over the future directions that if you have a non-Tory MP. I thought I’d have a word, via theyworkforyou. It’s largely futile, but hey 😉
Dear Tory MP,
I’m going to keep this short and sweet.
Please do NOT aid and abet the serial liar and moral vacuum otherwise known as Boris Johnson to return to trashing the future of the UK to appease his childhood dream to be King.
He was bad enough the first time round, bringing the government and politics into disrepute because of a congenital inability to tell the truth.
A Britain weakened by Tory incompetence and psychodrama does not need to drink of that poisoned well again.
Rishi Sunak, despite being rich as Croesus, does at least seem to have a working calculator and some track record of competence. Please support him as the next Tory PM.
Yours sincerely,
A snarling stoat
I don’t have anything against Penny Mordaunt, well, apart from abetting the existing regime. But the time for more untried whack-jobs has passed. What this country really doesn’t need is TWO kings. We’ve already got one King. He at least seems to have some idea of when to STFU. That’s not a high bar, but let’s remember the Hippocratic Oath
“primum non nocere,”
First, Do No Harm. It’s not a bad place to start. Tories aren’t going to give up power any time soon. This is a Sully Sullenberger moment. It’s not about where you want to land. That option’s gone. It’s about where you don’t want to end up.
No more Bozza. You’ve done enough damage for one life, mate.
It’s a futile nudge, but worth a go 😉
Simple Living In Somerset 
I think that will probably swing it in Sunak’s favour – good work.
I had in the past thought the PM role was pretty poorly paid for the general responsibility and stress levels, but on finding out today that they get an extra 115k in perpetuity after they’ve been booted out, maybe not so bad after all?
Can Weenie throw her hat in the ring as a paid up member? She’d get my vote..
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I fear that looking at the trendlines on the odds tracker, the fight is lost 😦
The Second Coming is nigh
> an extra 115k in perpetuity
Not a bad rate of return for taking 45 days of shit, eh? About 3.2M if purchase as an annuity @ 3.5%, so that’s 73 kilosods a day. Nice work if you can get it
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By that rationale I must be the best, which is gratifying under the circumstances..
Infernal world! and thou, profoundest Hell,
Receive thy new possessor, one who brings
A mind not to be changed by place or time.
…
Here we may reign secure, and in my choice
To reign is worth ambition, though in Hell,—
Better to reign in Hell than serve in Heaven.
I don’t know whether the various Tory PMs agree or not?
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Poor old Milton was writing on the assumption that the reign was for a Hell already extant. He rather missed the trick of turning a once green and pleasant land into one, saving the general pesky problem of having to go there or even to die first.
My vote most talented Hell-creatrix has to be Suella Braverman. Though looking at the way Privilege Style has bottled from their job of flying boat arrivals to Rwanda her stock is not currently in the ascendant. No point in listening to the captain about he future of the ship. Just look at what the rats are doing.
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Now that explains the £8m net worth question – £5m ex PM annuity, £1-2m MP pensions and £1-2m good luck –
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Can I just put it out there that I won’t be voting for Boris. Will go for Rishi, like I should have done last time…
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I’ve literally just pressed send on my first ever letter to my MP along the same lines, having moved from a LibDem seat. After hearing all these Johnson apologists MPs on the news saying their constituents were begging them to being him back. Sending it stopped me shouting at the TV anyway.
We possibly now have neighbouring MPs as we’ve finally managed to follow you to the South West and are happily settling in wet and windy (today at least) Dorset.
BTW I do appreciate all your hard work in these blogs and they’ve been very inspiring over the last few years on my escape from the rat race.
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Always good to hear of fellow escapees over/under the wire. A rather fine county for winter ales, ISTR. I enjoyed eating/drinking at the Plush in Piddletrenthide, and spend a few short Winter breaks in Cerne Abbas. Though I fear I am getting soft as I get older, no longer hard enough to take the Winter Solstice cold in my campervan in the Giant’s car park after a skinful 😉
Then of course there’s the coast, and the lobster.
And look on the bright side. Saved your TV, and they’re expensive in these straitened times 😉
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As my father used to say “the last person to enter parliament with honest intentions was Guy Fawkes”.
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Oh dear…. Return of the Messiah, or more like return of the Mess, and that’s being kind.
No point writing to my Tory MP as past history shows he never listens to his constituents anyway. Plus I think he will see BJ as his only hope of re-election, as in our area of North West vast majority are Labour MPs.
If BJ secures more than a 100 MP votes he is bound to be voted in by his Tory membership groupies.
“A people that elect corrupt politicians, imposters, thieves and traitors are not victims… but accomplices”
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Agreed – Suella de Ville and Priti (pointless) Patel serve to remind us that being a hopelessly bigoted racist isn’t the sole preserve of British white people. Everyone is good at it. It’s baked into our DNA and overcoming it is an effortful and continuous activity.
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An embarrassment of no talents…..
I can see why the short post, not many printable words to describe the current situation adequately.
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I’ll leave that to the Channel 4 newsreader, who summarized Steve Baker in one pithy phrase. It’s a sorry pass when telling lies gets you a second bite of the cherry and telling the truth demands a grovelling apology and the identified orifice didn’t even have the grace to laugh it off, to wit
Case proven, m’lud, the charge was correct. The C4 guy did not think he was on air. I’ve heard a lot worse in my time at BBC TV 😉
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Usual Tory hypocrisy – Braverman aside (who had ulterior motive), when was the last time a Tory broke the Ministerial Code and resigned? Being kicked out is even less likely.
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I always hated both Labour and Tory activists (not the MPs) for their rigid ideological convictions. I just want politicians to solve problems but the activists utterly despise intellectual curiosity. They already know the correct answer to everything. Who needs to debate? All answers are already known.
The logical conclusion to this evolutionary path is that their idealogical rigidity would eventually transform into religious cultism. The MP’s purity to the faith valued over any receptiveness to evidence or data. The activists and members of the Tory party reached that point with Brexit, leaving the rump of more reasonable Tory MPs stuck in a cleft stick. Be sensible and suffer the wrath of the jihadists for whom hard Brexit, cultural warfare, and hating net zero are key to their religious doctrine. Or join the cultists, keep your seat but drive the country over a cliff. Sensible (May), populist (Boris) and fanatic (Truss) all tried and failed. They are out of options.
I’m reminded of a quote from Dune
“When religion and politics travel in the same cart, the riders believe nothing can stand in their way. Their movements become headlong – faster and faster and faster. They put aside all thoughts of obstacles and forget the precipice does not show itself to the man in a blind rush until it’s too late.”
Say hello to the cliff edge.
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At least Truss battle-tested one of the dead ends and it failed under the load. I fear there be others, shough it’s hard to discern which batshit scheme is the next to be loaded into the chamber…
The main hope is that there is not enough common cause in the crew, should Bozza Be Brought Back. I kind of hate myself for even writing that alliteration
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All sewers lead to Boris, this must be the UK’s answer to a cakeist’s democracy, whatever the vote (that’s if voters get a choice and can be bothered to get out of bed) most of the country’s resources go to the tiny ruling clique and it’s austerity for the rest. So much for the wisdom of the crowd, as much use as wisdom teeth, just a painful reminder that NHS dentistry is a receding memory for ever more of the population. Onwards and backwards to feudalism, just keep clicking on the Boris tab.
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Events (macro) seem to be moving ahead under their own impetus .After years of living beyond our means (probably worldwide) the financial cupboard is bare and exposed further by Covid followed by an ongoing war
To ask any politician to solve this is asking the impossible
Tweaking round the edges until everybody realises that we are going to be much poorer going forward and that the decline will continue till the books are balanced and trust is restored is probably all a politician can realistically do
Choose the politician that suits you for the above scenario
I don’t think it will make much difference sadly
xxd09
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Agreed, but the least-worst case scenario needs no civil unrest and disruption to economic activity and history has reliably proved that for that to happen, the rulers must be intelligent, courageous and have integrity so the masses will cooperate. This can’t happen though, if they are so convinced by their entitlement that they can’t control their addiction to corruption even if they wanted to. They are still looting at a minute to midnight, while the the country teeters on the edge of the abyss and the options for average people oscillate between catching a falling knife or £.
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I live in an SNP seat and don’t need to remind the member that Boris is bad.
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Not entirely buying that line-the Brits and Americans (since the Civil War) have settled their differences by evolution rather than bloody revolution
This unfortunately has not been the case elsewhere.Our European cousins out of the same evolutionary box as us have descended into savagery relatively often and recently
Other parts of the world even more so-Putin etc
I often think this gives the Anglos a different outlook on life
If your country and people have not been overrun since 1066 -the Americans never -you view the world in a different way
Hopefully our deep depths of common sense and willingness to compromise with each other will win out as it always has on previous occasions
No doubt politicians of more probity and ability will emerge from the woodwork as the current cast of comedians exit stage left(and right!)
xxd09
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If your post was in reply to my last one, then for clarity, I wasn’t saying there will be a violent revolt in the UK, people here are too passive, I meant civil unrest more in terms of never-ending strikes, work-to-rule and protests if they aren’t all made illegal in time. Peaceful non-cooperation at most.
But as far as decent leadership appearing in good time, I think the system is too well optimised to exclude even the risk of that. My whole life, I have lived in a Tory one-party state, though for 13 of those years they were called New Labour, even as they carried out policies that changed nothing significant. Thatcher’s greatest achievement always was Tony Bliar. In those decades, Britain has inexorably declined, with the individual nominal leaders of the day only determining the speed from great power to middle-ranking country and now an even smaller and more irrelevant little Britain.
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FI, totally correct. People here are too passive. MPs have it all their own way. Can’t even sack the f****rs. Jailed, they get their pay. Needs to be a massive reset of the status quo. They are meant to be working for us.
Better end this now, I feel a soapbox moment coming on.
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I think jails should be means tested – if it’s ok to care homes to be means tested….
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Makes you want to cry for your country, I often wonder what it would take for people to fight back, what do you have to take away from them, what’s the last straw? Their children and unborn grandchildren’s futures have already been stolen, we may well not die in dignity, yet they still believe shuffling the deck and pitting out another card to rule us all from the same pack can change anything. This is why the golden-born see us as sheeple, not even the same species, because most of the population sit around waiting to be told what to do as if our brains cannot work alone, yet it is us who physically work and make everything happen daily, while they play games and horsesh*t-trade in versailles-on-Thames, but bank most wealth.
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Why don’t you leave/emigrate? Leave the ‘leavers’ and Tories to their shambles?
Australia has a new government, amazing scenery, decent economy and koalas? Just a suggestion?
But you’ve got anywhere in Europe to consider? Fly back to the UK to visit? Vote with your feet? XZ, you’d have to be eminently mobile with your skills? Same with those who’ve retired and are FI?
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> you’ve got anywhere in Europe to consider?
One of the common grouses of remainers was that Brexit removed just this option.
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I’ve wanted to see the back of Boris ever since he started genuflecting to The Science over Covid, and deciding that the population was having a fit of hysteria that he shouldn’t attempt to calm.
In other words, scientists/public health bureaucrats/NHS doctors proved themselves to be anti-intellectual arseholes, and the electorate proved itself to be infantile, and Boris went along with it all. Pathetic!
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Just so as we can qualify the depth of this specific rabbit-hole, are you saying that this happened on a movie set rather than a London hospital?
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All you have to do is tell me how all the lockdown/school closure nonsense saved a single life. By God it’s probably cost quite a few.
Probably the only good advice we were given was don’t shake hands and be sure to wash your hands regularly. That advice, of course, was from pre-Covid times. All the Covid-specific stuff proved to be complete balls or worse.
And the tale ain’t over yet. Now the evil bastards want to force jabs on children.
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@Ermine, looks like the Truss Kwazy gang’s ethically unregulated clinical trial on the country’s people, namely foisting an Ann Rand utopian experiment on us (without so much as an advisory referendum to provide a figleaf of legitimacy a la brexit) failed. Sadly it only because between them they didn’t have 2 braincells to rub together and get a spark, executed competently, it probably would’ve worked. This sorry incident shows who really runs the country though, the billionaire funders behind the ‘think tanks’ who ‘helped’ formulate their mini-budget clusterfk-grenade.
And lest some think these dire perceptions of the UK’s socio-economic state are just hysteria, this brief and brutally clear analysis may interest you:
https://www.nakedcapitalism.com/2022/10/in-just-44-days-liz-truss-has-made-the-uk-immeasurably-worse.html
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> without so much as an advisory referendum to provide a figleaf of legitimacy a la brexit
I disagree. Brexit was the legitimising referendum. There is some argument that the Britannia Unchained shock doctrine would have worked in more able hands – seems Crazy Kwazy wasn’t quite as insane as Liability Liz in that he tried to pull back on some of the crazy optics like the 45p tax change. Though he still gets the Prize Pillock award for refusing to show his working.
But that’s what Brexiters voted for. To those who don’t like the results, well, tough luck. Voting has consequences. The blighters that deserve sympathy are those that didn’t vote for it, taking increasingly shrill abuse when it turns out that The Cake Is a Lie and the search for the guilty starts.
How did Brexit Bankrupt Britain? Slowly at first, then all of a sudden.
What’s nice about it is that it’s all shown up under incontrovertibly Tory rule, and selecting for max Brexity purity in charge. They really can’t blame Remainers for buggering it all up any more, since they put their best people onto the job.
I can actually imagine some ways of making it work, and the EU has problems of its own. But you don’t Make Brexit Work by choosing endless poncey sovereignty hills to die on. Most people in Britain just can’t afford that sort of sovereignty, and the rate the ERG crew are going they will buy sovereignty at the price of autarky. We’d had the autarky experiment run for 50 years in North Korea. If you want other people to help you make your world better, or borrow money from them to fuel your consmumption or investment, sometimes you have to compromise with them. Jacob Rees-Mogg asked Daily Express readers to identify some benefits of Brexit. The best they could do was abolish PAT testing and make their vacuum cleaners use more power because they are short fo sucking force in their life.
Guys, you really didn’t need to make such a hash of this 😉 Ah well, viva la 52%. Hope you like the pig in a poke you bought.
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Timing is everything.
Two years ago if the Tories has produced the same budget it would not have created the same market impact. It would still have been totally tone deaf but in a world of deflation, with rates at zero and world demand to buy govt bonds, you would have easily got away with it. Sunak essentially did. We could have happily issued tens of billions more Gilts at a yield of basically zero. In fact why didn’t we issue more? It was free cash. The UK has the longest duration bond market out there. There is no rollover risk.
Of course it’s different if inflation is high, interest rates are rising and global bond markets are in was of their worst routs in recorded history. Most problematic, the UK has a 7-8% current account deficit. There is a word beginnning with B that might explain the rapid collapse in our already dire export position. Fiscal expansion to deliberately stoke increased domestic consumption into an already huge current account deficit with the BoE trying to reign in demand? It’s the sort of thing that triggers a currency crisis and would cause term premia on government bonds to explode. Nobody would be dumb enough to try that surely? Just a sec …
Over on the Monevator blog, TI wants to hit me with a wealth tax to help fund the UK’s problems. Frankly, no chance I’m paying one red cent extra for the 52% and their racist/misogynisic/Luddite f**king fantasies. It would seem fairer for the 52% to pay for the losses of the 48%. In USD ideally, not the Great British Peso (GBP)!
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haha, I will settle for gold in compo from the 52% 😉
Somewhere in the works I have a post on what I see in the medium term and wealth taxes is one of them. I would hope that ISAs are grandfathered but I have too much GIA, and I could see that 20k allowance dropping, so I have only another 40/60k before that likely event horizon. I am possibly more exposed in that I have little SIPP but much ISA, and I would expect ISAs to be red-dotted before SIPPs. I can’t do anything about that now because of the money purchase annual allowance limit.
Britain is unusual among European countries in not having explicit wealth taxes – OK IHT but being child-free I don’t have a dog in that race, and CGT but you can usually chose the time and place of battle. But I can see that coming down the pike at some point. I am probably not a terrifically tall poppy in that respect, but someone will have to pay for the results of the delusions of grandeur
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> I would hope that ISAs are grandfathered but I have too much GIA, and I could see that 20k allowance dropping, so I have only another 40/60k before that likely event horizon.
Not sure I follow what you are getting at. For example, do you fear the ISA allowance drying up completely in the next two to three years, or …
Quite a few articles over the last couple of days have been suggesting that Hunt will extend the freeze on allowances [beyond the end dates originally set by Sunak] as part of his tax raising strategy!
IMO, revising HR tax refunds in pensions has better optics than attacking ISA’s; could you please say a few words why you:
> expect ISA’s to be red-dotted before SIPPs
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If Rish! or Penny Mordaunt gets it, let’s say for the sake of argument the Tories manage to stabilise the ship for another two years. The next election is due Jan 2025 I think, so let us assume that incoming government can’t get the ISA limits changed by April 6th. So that is 60k I could get under the hood.
The ISA allowance is an obvious target. I have been fortunate enough to be able to max my ISA contributions pretty much every year, firstly from earnings at The Firm, then from savings and earnings, then through my TFLS and discharging my AVCs through a SIPP inder the personal allowance for a few years. In the early years the allowance was of the order of 7k, it was lifted to 15k in 2014 and I recall at the time thinking bloody hell, that will be a push. I was able to carry on after making a wedge in some unsavoury shorting activity of the Covid suckout, I have gotten ahead a little bit this year. I have added this excess to a GIA because I have no more ISA space, though I am selling down the gold in the ISA because it earns no income, and buying it in the GIA, bcause I can pick and choose the time of battle with capgains if any. Even swapping SGLP for ishares gold will do it.
Let’s not beat about the bush. 20k is a lot of money for most people in the UK to put into savings. Someone with that sort of money sticks out, so I would expect the ISA allowance to be lowered, on a fairness ticket that it favours the better-off, and some bugger has to pay more taxes, as Lord King said, the rich (ie 45% taxpayers) are not numerous enough to do all the heavy lifting.
I would find it hard to repudiate the fairness angle. People feel better about people saving for their DC pesions, thogh the 40% tax allowance will probably be a target. This is not a problem for me. I have low SIPP savings, because I flattened mine over time to shunt into the ISA, so I only build up 3600 a year. So I would imagine the 20% SIPP allowance will stand, but it’s not useful to me. I am a BR taxpayer already, so my only win from churning through a SIPP is 6% odd (due to the TFLS)
So that’s why I think the ISA allowance will fall. I also need to look out for basic rate rising, because perhaps I should then liquidate my SIPP and pay 20% tax on it, rather than 25% in 2026, perhaps.
I would expect ISAs to be red-dotted because they are a richer person’s plaything. For most normal people a SIPP is the way to go – free money, ringfenced from bankruptcy and Universal Credit capital embargos.
I can’t really argue with the fairness logic – it’s also subject to the Al Capone doctrine – why rob banks? because that’s where the money is. I would say any 40%ers paying into their SIPPs really do want to put the pedal to the metal in the next couple of years.
If Bozza gets in, well, God knows. I don’t see him stabilising the ship, and he is a divisive character which could sink it sooner. Even wingnuts like the formerly correctly identified c**t have identified Bozza as a risk, and when the swivel-eyed loons start to think he’s too much then no good can come of it. Rats know when the ship is in peril.
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Thanks for your thoughts.
Seems Bozza will not stand – after all why face the possible ignominy of losing if you can keep your powder dry for another day – God help us all! As you say, perhaps Rishi can stabilise the ship.
OK, perhaps a reduction in ISA limits may be on the cards – but usually the inputs are taxed money – so IMO the fairness angle is somewhat blunted. Personally, I suspect a lifetime ISA limit (a la SIPP lifetime allowance) would/could be stealthier, which seems to be the exchequers favoured route these days.
Given a lot of the thrust is about the optics, after revising HR tax refunds in pensions, IMO a reduction in the annual CGT allowance would then play better. People (and not necessarily very rich people) seem to love cash ISA’s so the likely backlash from there should not be ignored!
Personally, I think ISAs are far from the top of the list, but on that list they may well be. I’d carefully watch your GIA; but whilst markets continue to tank there should be no immediate issue!
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The idea of the red dot on ISAs for raising tax is a worry. I wonder if they will even look at taxing S&S ISAs above a capped amount or hit those in preference to cash ISAs? Ironic as usually it was pensions we had to worry about governments messing with but we’re in more hostile financial territory now.
Like you I have a few years of GIA stuff to Bed&ISA then look at taking out of the DC pension / SIPP accounts and putting the spare cash into an ISA. Might even be worth starting a cash ISA if rates go up on those instead of holding these dodgy bonds now! I suppose just stick with the plan and max it out optimally until anything changes. It seems to be easier to take income from an ISA compared to a SIPP account in terms of paperwork, tax etc – hopefully that won’t change.
I’m envious of my other half who has a nice teachers DB pension with none of these worries (she did earn it).
Looks like Johnson has declared himself out but we can’t really be sure until Monday PM given the possibility of stupid stunts (I nearly typed the something else there..).
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Bill,
IMO another worry (beyond current shenanigans around leveraged LDI) for DB schemes – that might incidentally raise a few quid for the exchequer – would be changing the LTA multiple from its current value of 20. IIRC, at some time it was 25.
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While ISAs are clearly vulnerable, killing them completely only would save around £2-3bn/annum. Meanwhile, tax benefits from pensions (to both employers and employess) cost over £40bn/annum. Pensions are just so much more juicy to play with. I agree though that giving me the better part of £60k/annum (2 adults and 2 kids) to stash away in ISAs is pretty obscene tax avoidance. But tax avoidance services is one of the few things we still export ….
The right wealth tax is probably a LVT. Hard to avoid and undermines land banking and rentierism which is a plague on the UK.
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@ZX thanks for that, didn’t realise ISAs were such small fry in temrs of foregone revenue. That means major change (lifetime amounts etc) are less likely, though tinkering with annual amounts is probably still easy.
Although the headline revenue lost to pensions is 20 times higher, there’s some argument that this saves eventual benefit payments like Pension credit etc. I could see the higher rate tax allowance being removed, this was my largest fear when saving into the AVCs via salary sacrifice back in the day, though it never happened and still hasn’t.
Mervyn King’s warning was chilling however. I either pay more tax or I pay for private healthcare in the medium term, there seems not real way out of there. You don’t get owt for nowt.
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> That means major change (lifetime amounts etc) are less likely, though tinkering with annual amounts is probably still easy.
Probably true.
However, the former approach [lifetime amounts etc] might encourage people to spend more (or even spend just some of their ISA assets) rather than save less into ISA’s.
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> However, the former approach [lifetime amounts etc] might encourage people to spend more (or even spend just some of their ISA assets) rather than save less into ISA’s.
I am not clever enough to discern whether that woud be A Good Thing although a gut feel is that high inflation doesn’t need more people adding demand.
Having said that I have added demand of late. I spent an excessive amount of money on a secondhand power supply to make a minor improvement to my hifi, and recently bought a reissued vinyl album of my favourite singer to revisit my youth a bit, which means I have to spend another slightly unreasonable amount of money to get someone to overhaul my old record deck. And I am probably going to hate hearing anything on record after 30 years of untroubled background noise. But I get a lovely 12″ picture and a memory of the joyful ritual of long ago, so what the hell.
I will also probably pay someone to haul the gas fridge out of my camper van and bend the thermocouple the gnat’s clock closer to the flame so it works right, rather than doing this myself, swearing and getting scraped knuckes. I should do it myself, I have the capability and engineering skills. But compared to dropping it off, taking my ebike out the back and into the Mendips and then coming back for an overpriced latte and a wallet ligher two or three hundred pounds, well, sod it.
But none of this adds up to a signficiant part of an ISA, or even of what I spent on renewables investments to be able to afford £6k power bills which are coming back to us in April, or the wood burner to give us some resilience. So sod it. I have lived within my means, and I will pay the credit card bill in full as it falls due, even if it’s a little but stupid. Compared to having pets you can’t afford, which seems to be increasingly a thing these days, it’s a minor excess.
So yeah, even I feel the push of spend more, rather than get it taxed away, and I’m not even a particularly tall poppy measured by income.
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As I think we may have discussed before, it just seems increasingly the case that a lot of [early] retirees are happily living within their means whilst continuing to grow their Pots. Whilst at a household level this is clearly a nice place to be, I am not sure of the overall impact; especially, if no dependent offspring are involved.
Just a thought!
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> it just seems increasingly the case that a lot of [early] retirees are happily living within their means whilst continuing to grow their Pots.
The trouble here is determine what is living within one’s means? Obviously paying off the credit card as it falls due and your bills as they are due is the narrow Micawber sense of the term. That works well enough when you are working, but when the engines of human capital that balanced one’s consumption of other’s work spin down and I rely on my stored claim on future human effort then the signal is weaker.
Is continuing to invest in an ISA rational? I have invested in people and projects that pleased me but don’t return a monetary return, because I’d rather see the smile on their face while I am alive rather than after I am gone, and I have been able to go big enough to make a material difference to quality of life in some cases. I probably should do more random consumerism rather than just invest against future decline.
But tail risks also increase. I did not expect to have to buy health insurance (or pay as I go, depending) when I left work in 2012. I am amazed that I still have a NHS dentist, that option expired in Suffolk after the GFC. The increase in energy costs, though I was aware of it in general at a high/peak oil level, weren’t so obvious. At least I have the option to invest specifically against those.
I guess it’s all part of the existential conundrum. How best to live, and all that… But I would say the balance of some tail life risks is shifting towards the individual more and more. That is congruent with the general story of secular Western decline mentioned by others, of course, there is less to go round and we have been living beyond our means collectively for decades. What’s a fellow to do, eh?
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The classic dilemma: running out of means vs running out of life. And, depending on your personality, circumstances, etc it is always possible to argue either side.
Tricky, but so is life generally!
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Looks like your letter worked…..!
Feels like g/f there’s very little difference between a Sunak / Starmer administration. Both will support higher state spending, higher taxation. Both following the European social democratic model but we seem to have worse public services!
I do think from here we’re going to have stability though. A slow recantment of the last five years and a tentative move to rebuild relations with the EU. The economics will demand it.
One the main consequences of the doomed Truss administration is that no one in their right mind is going now to try and reduce the tax burden. There is absolutely no reason to do so – either electorally or from a markets perspective. So that 45% is here to stay (con) or increase to 50% (Lab).
On that basis I agree that the tax burden will increase on way or the other and whilst it’s precisely hard to predict how it feels likely it will fall on the minority given their limited impact on the voting box. Either high earners or wealth. Lots of ways it can occur. Pensions / Dividend tax on unwrapped funds / Reducing ISA allowance etc etc.
But as ZX said, the only goose left to be really cooked is pension tax relief. Otherwise the rest is just sound bites (private school VAT for ex) to soften the blow that the tax rate for basic rate payers will need to go up through fiscal drag.
So yeah pretty negative. As an additional rate tax payer, my taxes are increasingly supporting universal credit claimants and pensioners. No criticism on large swathes of the population but it’s hardly motivational. Universal Credit is a trap for keeping people poor in some instances – what’s the point in working more if you give it all up in lost benefits.
It’s all been very predictable over the last 15 years. Now we’re here, for the first time, I’m giving very serious consideration to checking out.
Much harder to reach FIRE from a standing start than 30 years ago. I have conversations with buddies who live in Germany / US and they clearly have a higher standard of living than here. Acknowledging that every country has its own set of issues.
Whilst the masses are likely stuck, my particular human capital is (i think) still pretty mobile. It won’t be easy but I am of the opinion that capital is far more mobile than it was 30 years ago – think digital visas etc for the young and company sponsored visas for the high flyers. I and the family also lucky enough to retain an EU passport.
For example, friend – lives in south england, runs a highly successful head hunting business, recruiting US people into US companies – IT consultancy – doesn’t matter if he’s in the UK, Portugal etc. Could he have done that 20 years ago – nope. Now doesn’t matter where he’s based. What keeps him here – friends, family of course. But after a while you think, maybe I fancy an adventure…Maybe I quite like 15% tax over a decade, maybe I’m fed up of been told I’ve got broad shoulders!
The other options is just to FIRE soon, sit back, hope the govt doesn’t tax too much of the my pile, hope markets don’t collapse and let other people pick up the tax burden. They can’t tax free time as people always say!
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@SF
IMO, if you (& yours) really do fancy a bit of a sojourn overseas do it, otherwise you will forever regret not doing it! If you want to bail forever that is another proposition.
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Haha – Bozza is a serial liar. His chance to bork it bumptiously isn’t over until 14:01 BST, it could be a classic feint. Liars gonna Lie….
It’s a tough call, eh? The UK has no explicit wealth tax, unlike many EU countries, which favours FIRE sorts. And you do get used to the foibles of a place, and geopolitically a minor island and the prevailing winds not over a landmass has some comforts for retirement.
But the increasing bonkers nature of discourse and the beaten up nature of public services is a big negative. And for higher earners perhaps eating a different tax regime is attactive, indeed if you can live with the peripatetic lifestyle keeping moving could minimise exposure further. I hear there are some nice Russian yachts going for a song 😉
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Something delicious about this panegyric to Boris 2.0 in the torygraph that they apparently pulled
Truly stirring stuff from Nadhim Zahawi. Bozza could still be up for the top prize, another half-hour to go. Go, Bozza, Go. Your sycophants will not rest from their daily toil antil you plough the Ship of State into the deck at full throttle. It may already be in coffin corner. What’s missing is the fact the Bozza is the architect of nearly all of these problems he is the solution to
The psychotic delusion is strong in this one…
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Re: Zahawi’s arse wiping tribute to his master, the Blonde Blob, it seems that if you can’t polish a turd, he reckons he could try rolling it in glitter instead
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Yeah. Now I am more that happy to acknowledge that in this specific case I was overly harsh to Bozza, and he was in fact a man of his word in the narrow sense of the term. It’s taken him less than half an hour to send out his orcs to undermine the new fellow, because Hell Hath No Fury than a Bozza spurned.
Character is Destiny. The Fat Lady ain’t sung yet, and we are still lashed to the carcass of the Tory Party Doom Loop. Poor old Rish! may be able to slow the fall, but he can’t restart the failed engines until he throws off the stinking carcass of Boris Johnson’s childhood dreams of being King. Freud would have a field day with this one…
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Taking out the politics this is a simple math problem we spend more than we earn currently and we want to spend even more. Which rather narrows the options can borrow it, print it, reverse course, spend less (AKA austerity), grow the pie or tax more (and shrink the pie). Did I miss anything? For the truly wealthy tax is optional so higher rate taxes always seemed to me a really good way of getting less. Printing it, well notethe current inflation we have that what happens when you print money, QE? Austerity, there’s a vote winner. The market won’t even support borrowing to grow the pie it sure as hell isn’t going to play ball with borrowing for handouts. We seem rather screwed.
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Well, I didn’t see Bozza dropping out of this round of horse-trading between the various billionaire donors deciding on the next ‘face of the Tory party’, but we have our answer now, this episode’s announcer of their wants is Sunak, representing Goldman Sachs. What could be a more democratic demonstration of total sovereignty than direct rule by the global squid, corporate capture in plain sight. I bet on savage austerity ‘to balance the books’, because ‘there is no alternative’ and a legacy of a bank in every community, albeit foodbanks as opposed to an exact namesake, but still ironic.
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OOI, how do you see the possible reduction/demise of ISA limits with the decision to draw a [possibly reduced] TFLS from a DB scheme?
My point being that whilst it may be nice to initially receive tax free money, it is even better if you can find a method that [ideally permanently] maintains this status.
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BTW, we discussed this decision [TFLS from a DB scheme] at some length previously at:
https://simplelivingsomerset.wordpress.com/2020/11/27/early-retirement-isnt-boring-brexit-and-covid-are/
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Straws in the wind, eh?
> What would really be required to deflate away your DB pension is a run of many [several] years where inflation exceeded [significantly] the indexation cap. This has not happened since around the early 80’s.
Gulp.
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Indeed!
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May also be worth looking at chatter around my “deep dive” comments to this post of yours:
https://simplelivingsomerset.wordpress.com/2022/05/16/fear-and-loathing-in-the-markets-again/
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> how do you see the possible reduction/demise of ISA limits with the decision to draw a [possibly reduced] TFLS from a DB scheme?
I’d consider having done that as a deffo win 😉 The aim of that was to invest it, I didn’t spend it on lobster or fine wine in the main, and it’s now in the ISA.
It’s quite unusual in the UK for taxation to be retrospective, there’s usually the option to grandfather previous amounts. Despite all the mithering about the LTA limits, I believe that LTA protection was a thing which is why the self-assessment forms are quite so bonkers, with additional downloadable sections for this historical exemption or that. If they could hold off for a few years, I could shovel more of the GIA in there, and I could eat the LTA sort of prohibition “take the grandfathered limit but you ain’t allowed to put any more into ISAs if you do, buster” angle.
Even if that doesn’t work out, using the GIA purely for gold holdings would be one way of shifting things about. I am still not a bonds sort of guy due to the DB pension, which seems to have dodged a bullet this year.
I don’t see Labour being outrageously communist unless Corbyn and Momentum seize the controls again, although Rebecca Long-Bailey concerns me. Sure, taxes will probably rise to 25p in the £, but this isn’t as atypical as wingnuts keep hollering. When I started work in the early 1980s I paid a higher rate of income tax on a much higher proportion of my salary in Mrs Thatcher’s regime than the grizzled mustelid that cleared the workforce 30 years later in 2012 – eg see this Resolution Foundation screed, fig 19. Yes, it did hack me off the way that New Labour snowed parents with money at the expense of everyone else, but that was nowhere near as poisonous as Trussonomics IMO.
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I can see your logic if you have already squirreled the PCLS away into your ISA’s.
If you were having to make the decision [PCLS from a DB scheme] today, would you see it any differently?
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It does rather depend on any inflation link cap, and how you feel about the risks of the sponsoring employer/pension fund. But to my mind the logic is more compelling, not less. Why?
Britain clearly has issues, and the tax burden will be higher and broader in future than recent history. Inflation will probably be higher – I am already 5% poorer because of that in income terms. There is some argument that the top end of the earning capacity is more, rather than less, mobile, a la SF, which also points towards a broader tax base, although the talk of high earners leaving doesn’t always match reality in degree. That means It’s More Likely To Be You, even if you are a modest earner as a retiree. There’s also the vexed question of the no NI on pensions anomaly, which would increase your marginal tax rate from 20% to 32% ISTR. If you are a 40% tax ratepayer then I don’t really have much to say, though the PCLS -> ISA logic would be stronger anyway.
The pendulum and Overton window is probably swinging to the left, in the end there’s only so much public opinion that money can buy.
So therefore, fill your boots in the dog-days of this Tory administration if you have any money. We do not know the specific talents of our current PM, though at least he has been tested under fire unlike the last delusional twit. On the upside, he seems more intelligent that the last one, less inherently deceitful and morally bankrupt than the populist before her, and he can add up. On the downside, he is far removed from the common weal, clearly stinking rich, and subject to the occasional tin ear. He is in charge of a party that has no real idea of what it stands for, hard to picture the Venn diagram of the ERG, the NRG, the One Nation, whatever label you attach to Kemi Badenoch and Suella Braverman, neither of which seem totally sui generis. I suspect the diagram is more of islands than of overlapping circles.
So the pilot of the Good airliner Britannia has got a major fight in the passenger cabin, a brawl that has only become an uneasy truce because they though the sucker was going down immediately. There’s still a lot of alchol, and they all think they are in possession of the One True Way. He’s got a lot of lead in the hold – all the people who, tragically, can’t add more value to the economy than they consume. This ranges from all the pensioners that the wingnuts and BU moaned about, to all the folk who are on minimum wage, because, not to beat about the bush, minimum wage is not enough to live on in the UK.
The previous pilot blew out one of the engines, and the one before that made a wildly overrated claim of how far the fuel was going to last to the PAX. I’s say Rish! is past the point of no return on a lot of those destinations, and one of them in particular was a mythical island anyway. TBH if he can avoid a crash landing the fellow deserves a medal, why the hell he didn’t piss off to America and spend some of his zillions eating popcorn while the Trussterfuck went down beats me. What is it with these driven nutcases, it much be the heady intoxication of power that makes them eschew the Good Life for scent of battle.
So the time to try and retain capital was two years ago, and if not then, the next two years tops because when this sucker hits the drink it will become a slave galley – many more of the PAX who were enjoying the booze will get to pull the oars.
Oh yeah. And valuations are a damn sight lower than they were. Obviously if this is the end-stage Decline And Fall then that’s not much help, and you may as well party like it’s inter-war Berlin. But while I can’t entirely see the green shoots that Monevator is flagging, and it is perfectly possible that valuations are falling because the cost of capital and interest rates are going up 25% in real terms, but OTOH history so far has favoured the optimists.
This sucker’s going down. It’s not about where you want to end up. The choices you have now are more about where you don’t want to end up, IMO. Income and consumption are easy to tax and can’t really be displaced easily, so they will be taxed more IMO. The markets didn’t really giveashit about the 45% tax rate in Trussonomics, but they thought the 19% change was bad.
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A very interesting answer, thanks.
I thought your hit vs RPI (to Dec 21) was 2.5%. However, who knows what RPI will be by Dec 22.
FWIW, RPI overstates inflation – but a hit is a hit, and as you say with your DB scheme any such indexation hits are cumulative, unless [I suspect] were deflation to rear its head.
> rather depend on any inflation link cap, and how you feel about the risks of the sponsoring employer/pension fund
I agree.
In my case my options are now largely driven by what route (revaluation vs indexation) may offer less bad inflation protection. April 2023 being a key date – as this is when what I have previously called my “revaluation credits” run out.
Do you know if your scheme took a hit with the recent leveraged LDI debacle?
> the vexed question of the no NI on pensions anomaly
Had not occurred to me – so thanks for highlighting. And you are quite correct that it would be a biggie! I am not sure how likely this might be – but I can imagine it would cause a big back lash!
> So the time to try and retain capital was two years ago, and if not then, the next two years tops because when this sucker hits the drink it will become a slave galley …
It will probably take me at least two years to finish flattening my DC scheme (to ISA) at ideally no more than BR. So perhaps, adding some PCLS cash to that queue may not be overly wise. OTOH were DB income to be taxed at 32%, or perhaps somewhat more realistically something nearer 25% then …..
I agree with your assessment about DBs and bonds and thus only have bonds as part of lifestrategy funds.
Re valuations: I’m just not sure if I am brave enough to press buy yet, and consequently I am still holding quite a bit of cash.
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> your hit vs RPI (to Dec 21) was 2.5%
It was. I was lazily taking 5% off the current 10% RPI and had forgotten the hit I have already eaten. Gee, thanks Liz
On valuations, I’ve seen that movie before. It feels absolutely horrible, you buy and it goes down the toilet again, and you buy some more. I did finally bottle on IUKP after it was 20% down. I know it was only 5k in a string of purchases but nevertheless. I think the Execution guy had something. If you are going to be active, and I am, then at some point you have to take over. And I don’t like property in general. If it falls another 20%, OTOH, I may buy more. It never feels good
But my networth isn’t down so much this year, in lesser British shitcoins, natch. Too much gold, too much cash, and foreign assets which are flattered by the Pound’s descent into oblivion. Americans holding AU are spitting bricks, but it’s not so bad for me. Now what I should have been holding is USD. Ah well.
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For info, RPI (Sept 22) was 12.6%; CPI was 10.1%. Personally, I prefer CPIH. But what’s in a name?
For info, we managed to secure a two-year gas/electric fix that runs until Aug 2023; so probably our inflation is somewhat less than the headline figures. However, assuming energy prices stay high for the foreseeable, this will only be temporary relief.
I recognise your net worth scenario – although having said that if you had told me this when I set out on this journey some six years ago, I would have NEVER believed such an outcome was possible!
Re: valuations – time will tell.
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> RPI (Sept 22) was 12.6%
haha – not absolutely sure I really wanted to know that 😉 I think it’s the Dec version that matters for me. But, TBH, this is not something I have control over. It is what it is, now the die ahs been cast. Appreciated you still have tradeoffs to make!
BTW, The Firm’s pension fund did managed to hit the recent LDI debacle. There are specific, non-replicable and technical reasons why I fear the PPF less than otherwise would be the case.
> I would have NEVER believed such an outcome was possible
Yeah. My fearful former self thought that the low-water mark would be had many years ago. I think MMM said be an optimist 😉 I didn’t believe him at the time, but so far he and that Monevator fellow have been right. I would, of course, love to claim it as skill and hot hands, but in reality there’s more luck than skill. I have so far played a weak hand relatively OK, but there for the grace of God and all that. As the song goes, “If I must fall from high, Let my fall be slow”
And there be challenge ahead, to surrender slowly into the low water mark of the suckout yet to come. More Sullenberg than Icarus, but who got to walk away from the wreckage, eh?
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> BTW, The Firm’s pension fund did managed to hit the recent LDI debacle.
I did see some pretty eye-watering figures in the press recently.
IMO we are nowhere near the end of the leveraged LDI saga.
>More Sullenberg than Icarus
Sully is a hero although IIRC the authorities initially tried to hang him out to dry.
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What I find most interesting from the 60-odd comments here is the quite sudden coming into daylight of the overt and more or less unanimous recognition that the UK and its economy is a busted flush. Until now there has been a widespread conspiracy of silence.
This is also now reflected (apart from the usual suspects) in the various media. It’s as if Truss’s thankfully short-lived episode of economic and reputational vandalism has finally brought it home to many who were previously oblivious that the years since 2016 have been years of great and probably irreversible damage to the economy, and that where it has left us now is far from a good position to initiate any kind of recovery. What seems more likely is falling further behind and further damage. I also smell fear in the air. People now realise that public services and welfare of all types are going to be very hard hit; the country will become measurably poorer and more second world.
The elephant in the room of course is Brexit, and the refusal by millions to acknowledge what this incredibly foolish choice has done, and what needs to be done to arrest the decline. Until this happens it will continue to be full steam ahead for the abyss.
I find it all incredibly sad. One stupid decision was all it took.
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Most people would rather die than admit they made a mistake, the bigger the mistake, the stronger the resolve to keep digging until they go for broke. The boneheaded if in the majority can then easily intimidate the rest into keeping quiet or even saying things are fine, this exercise has been a disturbing lesson in how easy it is to deteriorate into Lord of the Flies. It’s been a lonely 6 years for we who saw it coming and couldn’t even say it loud.
If I were a Celt now, I would go all in for independence before my country were further ruined, so you’d at least have a chance at turning things round. The greatest fear of ‘can we afford it’ should now be removed, because it is becoming ever more apparent that the real question is ‘can we afford not to’. I would aim for a social democracy in the Scandinavian model as soon as possible, whether in the EU or not, the most urgent issue being to unshackle from the dead-man-walking (dis-united kingdom) before it becomes a corpse. I have seen poorer countries that are happier because they have more equality and quality of life in general, because when all is said and done, if you have no strong human connections, life is not worth living.
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It’s easy to get bearish because the country keeps shooting itself in the foot.
Nonetheless, I’ve worked in emerging markets for over two decades and I’ve seen countries go from being basket cases to well functioning economies in a decade (I’ve also seen some of them throw it all away the next decade). The UK has emerging market like characteristics (twin deficit problem) but it isn’t as bad as an emerging market (despite what journos have been saying recently). The UK went to the IMF in the mid 70s, yet was functioning very well by the end of the 80s.
It just requires the population to make the right/hard choices, rather than constantly kick the can and blame everyone but themselves.
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I admit I often lean more to the negative, a regrettable trait I seem to have inherited from my father who was a full-on Job, so I do take your point and appreciate your making it, and for balancing things up a bit.
I came of age in the ’70s, lived through all the economic dramas of the decade – devaluation, inflation, sick man of Europe, IMF, but I never really felt that the country was played out in the way I do now. We still had a lot of capital of all kinds back then, North Sea oil coming on line, the Big Bang, we had the family silver we could (and did) sell off, a big manufacturing sector, early membership of the EEC even which played a major part in dragging us off the bottom.
I agree with your conclusion, but it does raise the question as to whether the contemporary Brits are up to the challenge. I’d guess the demographics will be less in our favour now, older and a lot more deadweight (a point made above by ermine), more of the Brits seem more leaden somehow, less sharp, more poorly educated, entitled and complacent. And I’m not convinced that the rather hallucinatory hopes of the Brexiters (global Britain, etc) can ever replace the trading relationship we had with the EU (45% of our exports / trade + another 25% via EU trade agreements negotiated with third countries iirc?) which leads inexorably to a crossroads: dump Brexit or get poorer.
I hope we regain our collective sanity and do the former.
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Thanks Al Cam and Ermine for comments.
My first step was to have a proper heart to heart with the significantly better other and ask if I find a great opportunity outside the Uk which makes financial sense are we agreeable to which the answer was yes.
If such an option were to come about I think it would be a ten year adventure,.which would comfortably lead me into retirement. Were it to be the US for example the children could by then all have green cards giving them the right to work in the Uk, Europe and US, which is pretty advantageous. Notwithstanding the challenges of living in the US I acknowledge. Ditto Western Europe of which there are some quite juicy tax incentives bizarrely. I’m less keen on the Middle East or Asia at my stage and Australia is a bit far away from the in-laws. But would definitely look at Middle East in my early twenties.
Per Magnus Muir I’m also pretty bearish on the UK but I too have also noticed for the first time these last few weeks an acknowledgement amongst the media and friends, colleagues that there is a major problem. One pathway over the next two years is continued greater acknowledgement that there is a real problem and public discussion how to resolve. My thoughts are the option to raise taxes on wealth is met with favour at the next election as it avoids hard choices. That doesn’t deal with the problem. At that point there is finally some willingness to confront the issue. And I also think the ship can be turned around or leaks plugged. Think a) NHS insurance aka France and Germany b) closer trading ties with the EU c) Programme to build mini nuclear power stations ./ offshore wind power d) free university for stem subjects e) targeted immigration for the elite of mobile capital f) high density housing in cities to alleviate housing pressures g) infrastructure build out h) raising state pension age quicker I) serious investment in education. There’s lots that can be done, which you no doubt all realise being smarter than I but just no appetite due to the hard choices. I can see that changing over the next couple of decades or so as more areas slip into relative poverty.
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> Notwithstanding the challenges of living in the US
Terrible scenery. All those wide open spaces. Tiresome can-do culture 🙂
You’ll have a blast. Sure, the US has its problems and there are places to avoid. It’s big enough. Same with the other places, just in different ways.
Wealth taxes have been considered in the UK. I think the reason it hasn’t happened is because it is run by the aristocracy. Looking at the various proposals I would be subject to it under some conditions, I am sure others in the FI/RE space would too. In general order from centre to roughly Jeremy Corbyn
UK Parliament paper
LSE Wealth Tax commission report
Tax Justice UK
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Planning for a ten year long ‘adventure’ sounds both fun and challenging.
FWIW, I had spells working overseas (albeit for my then employer) and in all cases they lasted longer than originally foreseen; in one case more than three times longer – although the longest was, in total, about four or so years. I was younger than I believe you are when I did these. In any case, good and bad things happened, but as I am sure you discerned from my comment above, I found the experiences to be overall positive. In one posting, there were others (of varying ages and all with very different family set ups e.g. singletons, newly married, some with new babies, much older with kids at school/uni ) also posted overseas on the same project – and most, but not all, I believe would also recommend it.
FWIW do not carry a ‘why did I not …’ regret into later life. I have seen that scenario up close and IMO it can be corrosive and/or destructive.
ie if you can find something you fancy doing and the family are on truly board IMO JFDI!!
BTW, I would say the same even if things were super rosy here too.
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@SF
This blog may be of some interest to you: https://www.iretiredyoung.net/blank
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> It’s quite unusual in the UK for taxation to be retrospective, …
This clause has been playing on my mind, but I was not sure why. Clarity came earlier today when I remembered that IMO this was precisely what happened (albeit possibly unintentionally and certainly not highlighted) when HMG introduced the new state pension in 2016. Perhaps this is not the best place to discuss this topic, but I suspect it may be worthy of some chatter in due course.
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> when HMG introduced the new state pension in 2016
Hmm. Sure, I’ll give you the technical point on a retrospective change. Do you regard this as adversely retrospective, however? I can’t remember the details, but they gave me unexpected opportunities. I believe even with this post I sold the State Pension short. This is because I was not contracted out for 1/3 of my working life, and somehow I get some extra bung for SERPs to compensate me for them having canned it. ISTR those who cleared SP age before TY 2016/7 retained the old system as a whole.
So yes, the changes were retrospective, but the SERPs accrual was grandfathered. And I got to get more for the rest, because of the positive changes of the new system. That’s unlike the case, say, where you preserve your LTA in return for getting debarred for ever after into getting tax relief on future contributions.
There are other retrospective changes – arguably the rising SP age is a retrospective change, inasmuch as the 20-something young Ermine starting work expected to draw a SP at 65 rather than 67. And the WASPI crew who had their fingers in their ears for 10 years before suddenly ‘realising’ life had changed would definitely be on that viewpoint.
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Yup, those who reached SP age prior to 2016/17 retained the old system.
IMO, the SERPS accrual was penalised via the “contracted out deduction” rather than truly grandfathered. IMO nobody (including HMG) can satisfactorily actually explain this deduction and even today IIRC all state pension forecasts are still labelled as “illustrative” (or similar) to IMO provide HMG with wiggle room.
In essence, the UK state pension system was revised from 2016 when the Basic and Additional State Pensions were replaced with a flat rate State Pension. And whilst the overall impression [intentionally?] left with the UK public is that members of the post 2016 scheme would get a higher pension, this is far from the whole story. The overall changes were said to be fiscally neutral – so for the majority of people to apparently gain a higher pension there must be a broadly equivalent amount of reductions too. And indeed there were. Some examples of the reductions include:
a) changes apply retrospectively, and not just from 2016, for members of the post 2016 scheme;
b) deferral rate reduced from 10%PA to 5.8%PA;
c) survivor benefit eliminated;
d) married persons benefits eliminated; and
e) a “contracted out deduction” was introduced
The upshot of which is that the changes did not provide for a blanket x% reduction in the level of benefits overall but were rather specifically targeted. And, if my own experience is anything to go by, were particularly disadvantageous to anyone who had tried to optimize their state pension under the rules prior to 2016.
In short, I was left needing to pay in more to receive less state pension. I am far from alone although I suspect most folks just do not realise this is the situation.
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To clarify, COPE deductions on pension forecasts are described as an estimate; and this has been the case since 2017!
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Re “straws in the wind” above, from your referenced 2016 state pension post:
> For sure, the government may repudiate the State Pension, tax the crap out of it, the buccaneering Brexiteers may destroy the value of the pound so much that a pound buys you half a peanut in 20 years or there may be a war of all against all.
Double gulp!!
BTW, I am not suggesting that the 2016 SP is poor value; but in some scenarios it is definitely worse than the predecessor system. This fact was not highlighted and may even have been deliberately glossed over. Personally, I am amazed that six years down the line there has still been no push back.
HMG possibly set a dangerous precedent when they introduced the 2016 legislation as up until then all changes to pensions I had experienced were not retrospective and only applied from the date of the change(s). In a single act, the 2016 changes effectively ripped up forty plus years of rules. The only justification being that the old system was too complex – well at least HMG could explain the old system if you asked and were sufficiently patient!
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> the SERPS accrual was penalised via the “contracted out deduction” rather than truly grandfathered.
I can see that, I was left needing to add more years than I had anticipated. I can’t moan too much as they were at the £150 p.a. Class II rate, but for a full-time earner that is more of a hit. On the other hand, when I started work I think you needed 40 years NI for a full SP. I was cheered when that dropped to 30 years in 2010, because I was never going to make 40 years, I’d still be a little short if I retired at The Firm’s NRA, but did think it couldn’t last 😉
So maybe I was suckered by the sleight-of-hand. And the rise in SPA did half-inch ten grand from my lifetime accrual. Should I be fortunate enough to live long enough to collect it, that is!
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Your recollections on the years required basically agree with mine. I think it was 44 rather than 40, albeit you got a credit (FoC) for each of age 16, 17, & 18 if you were still in full time education.
>And the rise in SPA did half-inch ten grand from my lifetime accrual
If I understand your calculation correctly it will be twenty grand for me
Class II is an absolute bargain; the voluntary class II vs class III is astonishing, at:
£3.15 a week for Class 2; £15.85 a week for Class 3. This begs the question: is there a wheeze to becoming eligible for making voluntary class 2 as opposed to voluntary class 3 contributions?
The one thing I am most surprised by is that nobody seems to have blinked an eye at the complete elimination of survivor benefits. That is, when you die your 2016 SP dies [in its entirety] with you!
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> is there a wheeze to becoming eligible for making voluntary class 2 as opposed to voluntary class 3 contributions?
Yeah. Declare yourself self-employed 😉 I let the cat out of the bag in that post
You don’t actually have to make any money to be self-employed, indeed you can make a loss. As it was I was doing some CAD work and before then some accountancy for the farm when I accrued my Class IIs, so it was respectable money, though not enough to live on. For part of the period I was paying PAYE on the pension but I simply filled in the stuff from the P60 as directed.
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Thanks.
I have been holding off (a la Steve Webb advice) and may struggle to find “a way to look self-employed” and thus might have to go the class 3 route.
Or, heaven forbid, I may fancy taking a real job again before I reach SPA!
Also, if the HR tax boundary were to remain frozen for the foreseeable, I may choose to [partially] decline out of principle anyway. I am x.y years short but this requires you to buy x+1 voluntary years to get a full new SP.
Time will tell – but thanks again.
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> may struggle to find “a way to look self-employed” and thus might have to go the class 3 route.
Seriously, the bar is very low. One year I only made £50 renting out some PA gear. I’ve never actually declared zero or a loss, though that’s perfectly within the rules. Self-employed status seems to be the biggest tax gift going, as long as you can face doing self-assessment. I probably still have to for CGT and share disposals reasons anyway. If I am going to go through all that administrative shite I am going to damn well sweat the asset.
Then there is the matter of the £1000 HMRC trading allowance. You can declare/claim that on SA as an alternative to claiming expenses, as a mustelid selling mind where I make money I don’t tend to have lots of capex, so that’s dandy.
I always get in early and leave HMRC to do the calculation, on the grounds that I am not clever enough to get that right, and they ought to know. Taxcalc sees to be able to replicate it, nowadays. Between the trading allowance and the Class II contribution rates, self-employed status is a gift even if you have PAYE income, JFDI. There’s a link to TFS’ guide in this post somewhere.
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Thanks for the follow up.
I will dig further especially as I already have to do SA for other reasons anyway!
I noticed in your 2015 article you mentioned being one year short of 35 qualifying years. I guess this was before you were converted to the new [2016] SP. Do you recall how many years short you were once the 2016 conversion occurred?
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If I understood your post
https://simplelivingsomerset.wordpress.com/2016/10/19/investing-in-the-state-pension/ correctly, then something like 3.3 years is the answer to me previous question – does that seem correct?
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> then something like 3.3 years is the answer to me previous question – does that seem correct?
Like pretty much everything to do with the change to the SP a closed-form analytical solution was either not possible or I was not privy to the information. I believe that the reason it was possible for me to increase my SP entitlement with extra years was not so much that I was short of years in and of itself. It was that I could make up for some of the malus applied because of the contracted out period using extra years. It could alternatively be because I have S2P because I was contracted in for the first 6 years (= a fifth) of my working life. But to be honest, I am damned if I have any idea of why that worked. I simply looked at the value of the annuity I was buying and figured I was prepared to sport £150 a year on it. If TPTB turn round and say sod that, then I can wear the loss.
Being an ermine of very simple mind in this respect, I chose an empirical solution. I observed the result on Check Your State Pension forecast. There’s a great big green box which tells you what you get, and below that some waffle.
In my case that waffle says
I added years up until that box started saying you cannot improve your forecast any more. For me the NI record says
Three of those years were when I was at university. I am grateful to my younger self who way back when decided to pay two weeks NI, between when I came off unemployment benefit and started work in February, so just before the TY
Now there’s an argument as to whether it was a misallocation of capital for a young inpecunious 20-something Ermine to shell out two weeks of NI payments to save the grizzled older Ermine £150, but hey, I’ll raise him a glass.
For some odd reason, I have NI full years from employment when I did an MSc for a year in the late 1980s, presumably I was earning enough to get over the LEL, and because the university year is October to October there was time enough to earn a reasonable screw in the old job April to Oct and then in the new job Oct to April
The remainder of those years when I didn’t contribute enough were when the shell-shocked Ermine crawled from the twisted wreckage of my career in TYE 2014 and 2015, and more recently, TYE 2018 for some reason, and then TYE 2022ff due to the cynical mustelid policy of I got enough of this now.
As to why I needed 39 years, search me, guv, no idea. Numerical methods are intellectually odious, but they save brain hurt. Good enough for me 😉
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> Like pretty much everything to do with the change to the SP a closed-form analytical solution was either not possible or I was not privy to the information.
I agree. However I am pretty sure the problem can at least be bounded – see my chat below with DavidV. I await his reply with interest, as the more brain power we apply the nearer we should get to better understanding at least the form of the algorithm used.
Another technique worth using is a form of ‘people power’ by comparison of various peoples results and their NI records to cut-over. From reading your descriptions of your NI record above and in your other related posts, our deductions seem very similar. As I said above, at cutover I suspect your deduction was 3.3 years and mine was 3.6 years. At that time, I think I had slightly more qualifying years than you (35 vs 34) and possibly less contracted in years than you had. Under the old scheme only 30 years were required to get the basic state pension starting value, so I got nothing (vs you) for having more qualifying years but probably lost out a bit more due to differences in our contracted in history. That’s my current theory anyway – and if nothing else at least we now know at least two people with not vastly different NI records, got not dissimilar new SP starting values. They could of course both be wrong – but there seems to be no way of actually knowing – which, IMO, is a total disgrace!
For info, my reading of DavidV’s NI record is that at cut-over a) it was longer and b) he had considerably more contracted in years than either of us. Thus, he got the max plus a ‘protected payment’ too. But, that is just my reading of how he described his circumstances and his approximate age.
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Hmm. I think you and Al Cam are overly harsh on the retrospective nature of changes made to the SP in 2016.
For background I reached SPA on my 65th birthday in December 2018, so am in the New SP. I also contributed to a defined benefit pension scheme from 1977 to 2003, but unusually this scheme was not contracted out of SERPS/S2P, so I paid the full-rate NI contributions. However, from 1987 onwards it was possible to opt-out of SERPS into an ‘Appropriate Personal Pension’ (APP), which I and most others (foolishly) did. Each year a rebate of part of my NI contributions was automatically paid by DWP into my APP. There were originally restrictions about having to use this APP to buy an inflation-linked annuity at SPA, but these were removed before 2016 when SERPS/S2P ended. I actually opted back into S2P around 2005. So, in summary I had around 10 years SERPS accrual before the ability to opt-out was introduced and a further 10 years or so after I opted back in.
When I claimed the SP in 2018 two calculations were performed – using the old system and the new system. As I had a good number of years of SERPS/S2P, the old system gave me the higher pension. I am actually paid the New SP plus a ‘protected payment’ to bring the total to the old system amount. I am actually better off than under the old system as the protected payment (as with Additional Pension for pre-2016 retirees) can only rise with CPI, but the basic pension, whether old or new, can rise by the triple-lock if this survives. So the post-2016 rules potentially give me better protection on a higher basic amount.
The contracted-out deduction is a source of confusion as DWP seem to avoid calculating SERPS/S2P entitlement simply on number of years opted-in and salary during those years. Instead, they calculate an entitlement for every year NI is paid and then apply a deduction for years opted out. Although it is difficult to be sure, all my SP forecasts before and after 2016, led me to believe that the deduction was no more (and possibly less) than the fair amount for not accruing SERPS during my contracted-out years when I received the NI rebate to my APP.
A final benefit the 2016 SP changes gave me was freedom to use all the opt-out NI rebates to my APP under the usual post-2016 pension rules rather than the original constraints. (BTW this is no way compensates for the daft decision to opt out in the first place!)
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DavidV,
IMO the changes are completely retrospective for the vast majority of members of the post 2016 scheme as I described above. But I do agree your case is different. Apologies for not being entirely clear on this point. Having said that, the fact that as you describe above the two calcs were performed was IMO clearly to mollify people very close to SPA at the cut-over date to the new SP and ensured that they did not immediately appear to lose out. As it happens, I do know of at least one other case similar to yours.
Whether you are a winner or a loser overall is largely a separate thing; the 2016 changes were said (by HMG) to be financially/actuarially neutral – so inevitably there will be a mixture of winners, losers, and some neutrals too, I guess. Also, strictly speaking this calculation cannot usually be performed entirely in advance, based on just the starting value of an individuals SP.
Incidentally, by far the most vocal group to date about the 2016 SP changes has been people who hit SPA before 2016 with just a Basic Pension! However, IMO their complaint may actually be misguided as it is largely based on just the difference between old SP (Basic Pension ONLY) and new SP weekly payments.
In any case, it is very nice to hear from somebody who actually has a ‘protected payment’ that has presumably been paid without any issues. Do you know how your ‘protected payment’ relates to what your AP accruals were? Also, worth remembering that any excess years you had in the Basic Pension counted for absolutely nothing in calculating your starting value for the new SP. This cost me money as I foolishly made up a partial year to a qualifying year that in the final calculation of the starting value for SP brought my absolutely nothing. Incidentally I paid for the shortfall in that year using class 3 voluntary contributions.
FYI, I originally joined my DB scheme (which I now understand was contracted out) in around 1985 and was never offered any options re opting in, out, or anything else along those lines. I just paid what was required by the scheme for the pension described as being on offer. Therein lies another tale, but not for today. The said scheme contracted back in some twenty plus years later. At no point did anybody explain that your state pension may subsequently be reduced through some opaque calculation related to having been contracted out.
What do you make of the changes to eliminate survivor benefits in the new SP? I ask as under some circumstances this could ultimately be the determinant of whether you really are a winner under the new SP.
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@Al Cam I hope this appears in a sensible order in the thread. I find it confusing to know which reply button to use, especially as your latest comment did not have one! To pick up on a few of your points:
Clearly, as you state, if the change was intended to be cost neutral there will be winners and losers, and arguably more losers than winners.
I think those with most cause to be aggrieved are those who retired before April 2016 with just the basic SP, i.e. they did not earn enough to accrue SERPS/S2P, although over the years measures were taken to benefit low earners in building up a S2P entitlement. Higher earners in contracted-out occupational schemes are quite likely to receive just the basic state pension regardless of whether they reached SPA before or for a few years after April 2016 because of the contracted-out deduction. But for all those pre-2016 years they were paying reduced NI contributions, and their occupational pension scheme had to provide the GMP. Whether that GMP is sufficient to compensate for the S2P foregone is a different question, but is similar to whether my voluntary contracting-out while in a contracted-in scheme was worthwhile (it wasn’t). So my subjective conclusion is that for low earners the 2016 changes were beneficial, and for moderate to high earners neutral (because of the contracted-out deduction or protected payment).
I accept that changes in survivor benefits may alter this assessment. I do not know much about them as, being single, I took little interest in this aspect! I also agree that the various changes in the number of qualifying years needed has been confusing and I sympathise with your unnecessary purchase of extra years with voluntary NI contributions.
There was also a presentational issue with the 2016 changes as it was promoted as a level-rate pension for all. There was insufficient publicity that members of contracted-in occupational schemes (they did not have to be defined-benefit) would pay for their years of reduced NI contributions with a contracted-out deduction that would likely take them back to the old basic state pension.
I suspect most of the future cost-saving for the government with the new system will be the ending of S2P accruals. As defined benefit occupational schemes close, fewer occupational schemes would have been contracted-out and more people would have been accruing S2P without the changes. And now everyone is paying NI at the full rate.
You ask how my protected payment relates to my Additional Pension accruals. Of course, it is impossible to be absolutely sure as DWP do not provide a breakdown of their calculations, but I have no reason to suspect its accuracy. When DWP publication NP46 was still being updated I attempted to calculate my accrued AP myself. It was not far off what my SP forecast showed at the time. Subsequent SP forecasts showed a steady increase in AP up to early 2016. I believe further forecasts were unobtainable after 2016 until I claimed in 2018. My award of new pension plus protected payment was modestly higher than the last forecast of basic pension plus AP. I think I checked the difference with the applicable inflation-linked increments at the time.
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Sorry, in para. 5 above ‘contracted-in’ should read ‘contracted-out’. Also in the final paragraph, the difference between my last SP forecast and my final award would have been subject to one more year (2015-16) of S2P/AP accrual as well as inflation increments, so near-impossible to check exactly.
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@Al Cam I have just been checking back through this thread to see if I missed any of your points. I noticed that in your second comment on this topic you assert that in 2016 ‘e) a “contracted out deduction” was introduced’. This is a misconception. There was always a contracted-out deduction ever since SERPS/S2P started in the late seventies. Otherwise members of contracted-out occupational schemes paying reduced NI contributions would have received as much Additional Pension as those paying full NI contributions. Hence my observation above that many moderate to high earners in contracted-out occupational schemes are likely to receive the old basic state pension regardless of whether they reached SPA before or after 2016.
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DavidV,
This last comment is interesting and needs a bit more discussion I feel. AFAICT, I never received any AP for the years I was contracted out, so I am not exactly sure what are you getting at. I only received AP for the years when I was contracted in.
To apparently base the new SP on the assumption that everybody was contracted in (irrespective of how much NI they actually paid) and then deduct a seemingly random amount based on all the years you were contracted out (but not give you credit for all the years you contributed for the starting value) seems a very odd way to go about doing things IMO.
A simple scenario for you to consider (with no AP to keep things even simpler):
Mr & Mrs A – only Mrs A works; so Mr A has no SP in his own name.
Under the old scheme on retirement Mrs A would be paid the basic state pension plus the married persons allowance. Incidentally, this is greater than the new SP without any ‘protected payment’.
Mr A would inherit 50% of this if Mrs A dies first.
Under new scheme Mrs A will be paid the new SP minus some seemingly random amount unless she makes more contributions. Mr A will inherit none of this if Mrs A dies first.
In what way are Mr & Mrs A not losing out?
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David,
AFAICT, GMP is a whole other saga – and IIRC it is still rumbling on through the courts too. FWIW, I can only see one likely outcome; some further random claw back at a to be determined date in the future. Is it any wonder people today have little trust in pensions/HMG/etc.
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@Al Cam It does indeed seem strange to calculate Additional Pension on the assumption that everyone is contracted in and then make a deduction for years contracted out, but apart from a period of five years (1997-2002) it was in fact the case! (In my last comment I was wrong about the ‘always’.)
Here is an extract from DWP Guide NP46 August 2008 ‘A detailed guide to State Pensions for advisers and others’, page 38. This is the last version that was made publicly available. I did subsequently find it on the National Archives website but I’ve just searched there and it does not appear now.
“Contracting out of the additional State Pension scheme
Since 1978 it has been possible for employees to opt out of the additional State
Pension scheme. This is called ‘contracting out’ and means their additional
State Pension will be reduced.
The effect on the additional State Pension
From 6 April 1978 to 5 April 1997 (SERPS)
Any additional State Pension earned through SERPS from 6 April 1978 to 5 April 1997
is reduced (which could be to a nil amount) if the person was contracted out at any
time during this period.
From 6 April 1997 until 5 April 2002 (SERPS)
SERPS is not paid for any week a person was contracted out.
From 6 April 2002 (State Second Pension)
The State Second Pension is reduced (which could be to a nil amount) if a person
is contracted out.”
I can find no distinction in NP46 between being contracted out by NI rebates to an APP (as in my case) or by membership of a contracted-out occupational scheme thereby qualifying for reduced NI contributions. The reference to 1978 confirms this, as contracting out to an APP did not become possible until 1987.
I have no argument with your Mr and Mrs A example but, as a single person, these changes did not affect me. I did concede in my last long comment that this would alter the assessment of beneficiaries and losers post-2016.
I don’t quite follow your comment on receiving no credit for all the years you contributed. Are you saying that your SP forecast shows no uplift from the basic state pension (old rules) for the years that you were contracted in?
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DavidV
Thanks for the extract from the no longer available 2008 DWP guide. Do you have any idea why it has been withdrawn – if nothing else it is of historical interest?
Whilst I now appreciate that my simple Mr & Mrs A scenario does not directly impact you, I assure you it is real. I just wonder how many folks have not twigged yet! I foresee trouble ahead as the spouses of recently deceased new SP recipients slowly realise this. And frankly I am astonished that six years down the line so little has been made of this potentially catastrophic retrospective change to the rules.
Re my last point, all I was trying to say (rather clumsily) is that IMO it should not be possible for an individual to buy extra years that provide no benefits yet at the same time have all their contracted out years count against them! Sounds a bit like all years are equal but some are more equal than others to very much misquote Eric Arthur Blair!
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DavidV,
Thinking a bit more about the chatter above, I reckon we can bound the numbers a bit and at least get some sanity checks of the DWP calculations.
I reckon that the max deduction applied to somebody who had already fully qualified for the full basic pension under the old system was about 8.2 years.
[Calculated as the difference between full new SP starting value and full old system basic pension divided by new SP accruals rate]. Such a person would need to make 9 more years NI contributions to get a full new SP. This would only apply to somebody who had been contracted out 100% of the time. On the other hand, if they were always contracted in then no deduction would apply.
Furthermore, from above I estimate your NI record (qualifying years only) to be about 50% contracted out; and you ended up with a ‘protected payment’. My NI record is shorter and (on the same basis) about 75% contracted out. For info, at conversion I ended up with a deduction of a tad under 4 years. Which then dropped by precisely one year after I paid NI in 2016/17. I have paid no more NI since then.
Does this seem reasonable to you?
I ask as:
a) you mentioned doing some [I assume somewhat similar] calcs above for your situation; and
b) I find the COPE estimate provided by HMG (which is quoted in £’s per week) practically useless
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@ Al Cam Your estimate of my NI record is pretty well spot on! I actually have 46 ‘qualifying years’ including education credits etc., but as SERPS did not begin until 1978 only 38 of those years (1978 to 2016 when SERPS/S2P ended) are pertinent to this discussion. Of those, I was contracted out for 20 years. In fact, a few pence of my protected pension are probably made up of Graduated Retirement Benefits which pre-dated SERPS.
NP46 used to be updated every year or two and I have PDF versions back to 2002. I have a hard copy somewhere that may pre-date this. The beauty of this document is that it actually explains how to calculate the Additional Pension (it is not straightforward!) although you also have to dig elsewhere for historic data such a LELs and UELs and earnings revaluation factors. I have no idea why they stopped publishing it. The cynic in me would say that too many people like us were using it to challenge DWP calculations!
I did my AP estimate using this document rather than your approach. I have found my spreadsheet and I did the calculation up to 2016, so NP46 was still useful even though it was issued in 2008.
Like you, I did not find the COPE amount very useful, except that if I added it to my actual total award it was not too far off the figure I had read somewhere as being the absolute theoretical maximum one could accrue under the old system. I could not hope to attain this maximum as my salary did not reach the NI Upper Accrual Limit for my whole career!
I seem to recall Steve Webb being active in cautioning people about making voluntary NI contributions prior to the introduction of the new system in 2016, but I agree the government publicity on this at the time was woefully lacking. If you are still under SPA is there merit for you in now making some further voluntary contributions, especially if can follow ermine’s example and arrange to be self-employed for a while?
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@Al Cam I just did a Google search for NP46 rather than on gov.uk or the National Archives and found this:
Click to access np46-guide-to-state-pensions.pdf
Enjoy!
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DavidV,
Thanks for the replies.
I have a letter from the pension service dated 2010 explaining (in gory detail) how my AP was calculated to that point. The letter is seven pages long and uses a lot of the TLA’s and other terms you mentioned! So, for now at least, I will pass on digging too deeply into NP46.
I think my scoping exercise is in the correct ball-park for the maximum deduction. I think it is also clear from cases like yours (with ‘protected payments’) that whilst the minimum deduction must, at least in theory, be zero (for a person who was always contracted in but earned zero AP I guess) there is credit given for any AP earned up to the cut-over point too. The only question that remains then is the form of this AP credit curve/line/etc and how it is overlaid onto the deduction line.
As I discussed above with Ermine, his deduction at cut-over and mine are really rather similar; which may be re-assuring.
I am still under my SP NRA and will time any further voluntary NI payments accordingly.
Hopefully these could be via class2 assuming it continues for a few years yet.
Thanks again for your help.
I still worry about Mr & Mrs A though!
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@Al Cam I’m not sure it is helpful to hold the concept of AP accruals and contracted-out deductions in the mind at the same time. Remember that AP accrual only applies to calculations under the old system, while contracted-out deductions were carried over to the new system also. Admittedly, in the old system the contracted-out deductions were applied against a conceptual AP accrual. In practice, one can regard the old system as being the Basic SP enhanced by the AP only for the years contracted in, as you always regarded it anyway. For the new system we only have to consider contracted-out deductions.
In a nutshell the old system builds on the Basic SP with AP accruals while the new system reduces the New SP with contracted-out deductions. IMHO it does not help to think of the accruals and deductions in the same calculation as the base amounts are different.
AFAIK a calculation is still performed under both systems against the NI record as of 2016. The higher amount is the starting amount. If this exceeds the New SP level (in 2016), which can only occur under the old system, then a protected payment is also paid, as in my case. No further increases, other than inflation, can be gained between 2016 and SPA. If the starting amount is less than the New SP (again 2016) there is the opportunity to increase the pension up to the full New SP level, but not beyond, by further years of NI contributions up to SPA, as you are contemplating.
In your example it is quite plausible that a person always contracted-in will receive exactly the New SP with no deduction. It does not require zero AP, only that the accrued AP does not bring the Basic SP up to the level of the New SP. Then, provided that person has the requisite number of NI contribution years, the new rules will win and the starting amount is the New SP at the full level. This will also be the final amount as it cannot be improved upon except by inflation increments.
Although the amount of contracted-out deduction in the new system is rather opaque, I think it is reasonable as a first-order estimate to regard it as roughly the same magnitude deduction from New SP for each contracted-out year as the amount of AP accrual on Basic SP in the old system for each contracted-in year. After all, in the old system the deduction for contracted-out years was applied against the conceptual AP accrual to provide a net zero accrual (apart from cases at the margin – low earners etc.).
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DavidV,
Having had a good root through my records I found a pucka state pension statement from mid 2013, which says it gives my qualifying years and accrued AP to tax year ending 5 April 2013. Armed with this latter key piece of info [re my AP] and a little bit more jiggering of other available stuff [primarily related to rate of annual AP accruals] I was able to estimate (and sort of cross-check too) what my starting value at cut-over to the new SP should be. This estimate is very similar to the figure that the on-line HMG system gave me back then, i.e. a deduction of about 3.6 years. I guess this is good news, insofar as I can basically now re-create the result from HMG’s calculation.
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DavidV,
Thanks for your comment time stamped at 11:47.
I agree with you that ‘mixing drinks’ is rarely a good idea.
The starting amount calc that I have re-produced is using the old system route. I strongly suspect this route would give the higher answer in my case. I do however then express the answer in extra years to pay under the new system to get the full new SP. I do this as this just seems to make more sense to me and removes inflation from £-note based calculations.
Thanks again.
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Finally, based on my last calculation and other info in the chatter above, I would estimate that your ‘protected payment’ at cut-over to the new SP scheme was in the region of £5 to £10. Is that in the ballpark?
Interestingly, I recently received a CETV for my DB scheme and that included a statement on the total GMP at ‘age 65 male, age 60 female’. From looking at previous CETV’s this GMP value does not change year to year, unlike the CETV, which has significantly dropped (c. 20%) vs last years – but that is a whole other story. In my case such a static GMP makes sense as I know that my GMP calculation uses fixed escalation/revaluation. Interestingly though:
a) my COPE value also does not change year to year; and
b) my GMP at ‘age 65 male, age 60 female’ value on the CETV is spookily similar (<0.2% difference) to 52 times my quoted COPE value
This may of course just be a coincidence, but I thought it worthy of comment.
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> a deduction of about 3.6 years
You’re working hard for this 😉 You need 4 complete years of NICs, and if you started work at 1985 after graduating or later then you are late 50s or so. If we take a handwaving assumption that the £207 p.a. annuity bought for each year in this post is still there or thereabouts then you can buy an inflation-linked annuity of ~£750 p.a. for roughly £655 (class II at £3.15 * 52 *4). Let us assume that in 10 years time basic rate tax is back to Thatcher era levels of 25%, so functionally that annuity is worth £550 p.a. I have just asked those nice chaps at Aviva what an annuity would be for a fellow a few years younger than me and the rate is 3.8%, for an annuity escalating at 3% p.a. which is a slightly sick joke at the mo. flattering the annuity by not scaling for basic rate tax means your SP uplift of £550 p.a. would cost you £14500 on the open market for a worse product. You, sir, get that at a terrific discount of 95%.
Take their bloody arm off. Also bear in mind that a younger ermine was scared of the talk of Osborne canning Class II contributions back in 2012. We already know Sunak is sore about the self-employed from the Covid area, and the UK public finances are in more difficult straits than 10 years ago. Even Class III NICs at three times the price of Class II are a steal, and this area is a pretty obvious target for increases. Personally in your position I’d at least half split the NICs purchase, Steve Webb notwithstanding. I took some of the same line, not purchasing NICs in TYE 2014 and 2015 and got away with it, but there be thunder on the horizon now. JFDI IMO 😉
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@Ermine,
I fully understand all your arguments.
But, as is usually the case, there is a bit more to the story.
Currently my gap is 2.6 years, as I paid enough NI in 2016/17.
So just three years to make up.
And, more importantly, these can now be purchased anytime too (albeit currently only using class 3) e.g. select the cheapest, up to three, from 17/18, 18/19, 19/20, 20/21, etc.
OOI, do you happen to know how many tax years you can legitimately backdate a self-employed declaration, as this would be the optimal way to use the class 2 rate!
However, having previously voluntary made up one partial year to a qualifying year (with class 3 voluntary contributions) which then brought my absolutely nothing on conversion to the 2016 system leaves me wary. For example, I have a bit over six years until my SPA and were I to take any form of paid employment in that period then any NI I pay would count for nothing towards the SP if I make up the three years now. To date, I have actually turned down a few unsolicited offers, but never say never!
Also, I have been focussed on building the maximum possible contribution record for the OH – as the Mr & Mrs A scenario I outlined above kind of applies; and that I am really rather sore about. Resolving this as best as we can has been complex, time consuming, and quite costly as I am sure you can imagine! It did however bring some entirely unanticipated benefits during COVID – so thanks Sunak is all I will say!
Fiscal drag is becoming an imminent threat and I am running out of options to manage this too. Taking less than full SP may seem like a drastic step – but at least it is an option.
Another threat you mention is a significant increase in the cost of voluntary contributions. However, these are usually signalled somewhat in advance, and I believe I have this covered by being able to purchase my missing years at very short notice – see above re 17/18, 18/19, etc.
Splitting the three years (two now and one later or vice versa) is definitely worthy of some consideration and if I can swing class 2, then any hit would be very minor in the overall scheme of things. So, you are 100% correct – I am completely over-thinking this! But I/we have had our fingers burned more than once in this particular arena and that leaves a mark.
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> OOI, do you happen to know how many tax years you can legitimately backdate a self-employed declaration, as this would be the optimal way to use the class 2 rate!
HMRC says
which implies to me you are just out of time to register as sole trader for TYE 5 April 2021. OTOH you have nearly a year from now to decide whether you were a sole trader last year (ie TY 2021/2022). There’s more HMRC cruft here.
You can unregister for sole trader in the tax year after you have stopped making any money/losses. I haven’t unregistered this year although I am done with NICs and haven’t earned ‘owt this TY. No idea if I can claim the trading allowance since I have misc income from other odds and sods as well as pension. Since I get HMRC to do the calculation I will simply fill in the information in the right places and leave them to decide.
If you’re already filling in a SA form then the admin of being sole trader is probably worth the effort for saving a differential of 660 sods p.a.
I do take the point about previous retrospective changes, but since you are already in the stock market it’s not like you are in the widows and orphans risk category. The 95% annuity discount looks a decent bet for £150 a year. Or maybe I am looking at this as a mustelid wild child and need to book a cruise to Monte Carlo and whack it all on red
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@Ermine:
I have dug a bit more into this and it seems any fine is “.. up to 100% of the tax owing “. Thus, [to my eyes at least] this means if you owe them zero tax you could backdate further?
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> Thus, [to my eyes at least] this means if you owe them zero tax you could backdate further?
You Tarzan, me pussycat! I don’t doubt your logic, but I do doubt the wisdom of walking up to the 600lb gorilla and poking it with a stick 😉 You are not so close to SPA that you need that, if you are filling in SA anyway you can take your time, unless they pull the plug on Class II.
But I salute the sheer chutzpah and sheer titanium cojones!
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I hear you!
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OOI, it seems that class 2 is implemented in the on-line HMRC system via something called your ‘business’ tax account. I think this is additional to your regular ‘personal’ SA tax account.
Does this mean two separate SA forms need completion or are some additional pages added to the usual SA return to capture the required self-employed [business] information?
I ask because completing one SA form is onerous enough; two would be painful!
BTW, I think within this assumed structure (separate tax a/c’s) possibly lies the answer to your implied Q above re the ‘trading allowance’ – that is the ‘trading allowance’ only applies to the ‘business’ tax account. This is just my opinion, hence the exceptionally heavy use of caveats.
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> Does this mean two separate SA forms need completion or are some additional pages added to the usual SA return to capture the required self-employed [business] information?
No. You will most likely be a sole trader. The existing SA100 form has a section 2 that says
You are unlikely to be above the VAT registration threshold (£85k turnover back in the day) so you can use SA103S which you can inspect here and the associated guff is here
If you go the limited company route then yes, you have a separate tax return and a separate Companies House return as well, I have done this sort of thing in the past but those days are behind me. You would be wise to have an accountant to guide you through setting that up and hte implications, but you would be even wiser to avoid that fight unless you have specific reasons (BTL, wanting to take contracting income as dividends not income) for doing so. Your SA103S is an addition to the SA100. If you go online it gets populated automatically, I use Taxcalc and that also populates it automatically.
I believe the SA103S invokes the trading allowance automatically if you tick the box to not claim actuals. I leave that to HMRC and Taxcalc to compute. You are more of a details fellow and may be able to say if it is a useful addition of £1000 to your income tax liability. I have never bothered trying to deconstruct the calculation – as long as they have the right information on time then it’s all right leaving me and the result is whatever it is 😉
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Thanks a lot, very helpful.
I think this means that if I wish to be SE [as a very low paid ‘sole trader’] in 21/22 and also submit my data as part of my usual SA return, then I really need to get onto SE registration sooner rather than later – as the deadline for the normal SA return [online] for 21/22 is end of Jan 2023. This is somewhat sooner than “Register by 5 October in your business’s second tax year” which I reckon would be 5 October 2023.
Thanks again.
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@Ermine:
PS if you had bought TYE 2014 and/or 2015 I am nearly 100% sure that they would have brought you absolutely NOTHING on conversion to the new SP!
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> they would have brought you absolutely NOTHING on conversion to the new SP!
I believe that was flagged quite intensely at the time, and may indeed be the reason that I didn’t take up those years. It’s a long time ago!
> Whilst I now appreciate that my simple Mr & Mrs A scenario does not directly impact you, I assure you it is real. I just wonder how many folks have not twigged yet! I foresee trouble ahead as the spouses of recently deceased new SP recipients slowly realise this. And frankly I am astonished that six years down the line so little has been made of this potentially catastrophic retrospective change to the rules.
This surprises me, and it seems that my mother was shat on by that due to this entitlement not being flagged up by DWP (and she and I were totally unaware of it’s existence). My mother was a SAHM and had zero SP entitlement, she had some disabled income from DWP and an adequate screw from the half of my Dad’s DB pension, from back in the day when blue-collar workers had DB pensions.
My dad cashed in his chips before 2016 and indeed retired back in the 1980s so I presume he pretty definitely had the old SP. My mother is also gone now so the information is water under the bridge, but it’s a bit sad to think she was sold short in her later years.
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> I believe that was flagged quite intensely at the time, and may indeed be the reason that I didn’t take up those years. It’s a long time ago!
Whatever the reason, you did absolutely the right thing in not purchasing them!
I misunderstood and thought that 35 Q years was the max target, in fact it was 30 years under the old system. I made up one partial year (using class 3) to get to 35 – which was a complete mistake and total waste of money. What I still do not really understand is why the ‘system’ did not say something like – hey sucker what are you playing at dork!! In fact, all the relevant official letters, etc carry the equivalent of a caveat emptor clause – which is another reason I am so wary.
> This surprises me, and it ….
That is truly tragic, and I am sorry for your Mum and your Dad too.
Yet another example of the flaws in the SP ‘system’.
My story is about my [some might say misguided] attempt to optimise vs the ‘system’ without due regard for somebody coming along and tearing up all the rules. The fact that the rules were not always applied (apparently like in your Mums case) is something altogether more worrying, but seemingly not that unusual either!
The amount of yardage dedicated on US PF blogs attesting to the benefits of delaying social security always makes me smile [wryly] as I have never seen any mention of what might happen if somehow the rules were changed a la the UK 2016 SP! I had a long private chat with a well-respected retired US actuary about this and his take ultimately boils down to his belief that such a thing could/would never happen in the US. Well, I never thought the US would elect Trump, or that the UK would vote for Bxxxxx, or that DB funds would be daft enough to heavily invest in leveraged LDI products!
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I sure that there were no changes to survivor benefits in 2016 for anyone already receiving SP then, whether the pension was in their own right or inherited. My mother was also a SAHM and continued to receive her full pension, plus some inherited SERPS and Graduated Retirement Benefits from my father, unchanged until she died in 2019.
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@DavidV,
> I sure that there were no changes to survivor benefits in 2016 for anyone already receiving SP then, whether the pension was in their own right or inherited.
FWIW, I totally agree with you.
The changes only apply to people in the new SP scheme i.e. those that reach SPA post 2016. If as @Ermine suggests his Mum missed out (after his Dad passed) and possibly both his Mum & Dad too, then IMO something may have gone horribly wrong somewhere.
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For the record, Dad collected his State Pension fine. But it ceased on reporting the death. I don’t think my parents had any concept of inheriting SP either. I was therefore somewhat surprised when Al Cam cited this as an adverse retrospective change of the new SP.
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@ermine A possible difference between our mothers’ cases if that my mother was already above SPA when my father died. When my father retired in 1981 he received a married person’s pension. When my mother reached SPA (60 in those days) my father’s pension reduced to the single pension (plus his SERPS and GRB) while my mother started receiving her own pension, mainly based on my father’s NI record as my mother worked for only a very short time after they married. I don’t think the total between them increased – it was just the way the pensions were paid.
When my father died in 1995 I’m sure my mother inherited the SERPS and GRB automatically and started to receive the full single pension as well. I was heavily involved in helping my mother with my father’s estate and I don’t recall having to make any special claim on DWP other than normal reporting of the death.
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Sorry I may have been unclear in my comment above. I meant to say that anyone already receiving SP in 2016, in their own right or as a survivor, would have seen no change in their pension. This was the case for my mother, and I would have assumed for ermine’s mother also. Anyone widow(er)ed after 2016 may well have been disadvantaged by the changes.
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DavidV,
Your last sentence that beings ‘Anyone widow(er)ed after …’ bothers me slightly.
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@Al Cam I don’t know that to be the case, I was merely covering myself in case the 2016 rules do penalise these cases, having rather ignored the topic of survivor benefits in my earlier comments. All I know for certain is that my father died in 1995 (so my mother was widowed well before 2016) but my mother did not die until 2019 (after 2016) and she was not affected.
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> Anyone widow(er)ed after 2016 may well have been disadvantaged by the changes.
There seems to have been a process of protected rights against that adverse change. For people that knew about it in the first place 😦
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@Ermine:
Do you know if your Dad received a married persons pension when he reached his state pension age? If he did not, then this could, at least to my mind, be a possible root cause explanation.
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> Dad received a married persons pension
I don’t think so, I think it was a bog-standard State Pension. Though a Married Person’s pension is yet another aspect of the SP I was unaware of. He reached SP in mid-late 1980s.
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@Ermine:
> I don’t think so, I think it was a bog-standard State Pension.
I am far from a SP expert, but to my eyes that could be the root cause explanation.
And, in such a scenario, both your parents seemingly missed out.
Is there any way you could check this out, or perhaps you prefer to leave that water [under the bridge] undisturbed?
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> Is there any way you could check this out, or perhaps you prefer to leave that water [under the bridge] undisturbed?
It is what it is, nothing’s going to go back in time and help her now, RIP. My mother had enough problems towards the end of her life, mostly infirmity and disability, again traceable to childhood diseases. A lack of money was not her primary problem. It was remarkable that she got into her 80s with that health background.
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OK.
The old SP was generally acknowledged to be rather complex and, in some peoples view, riddled with somewhat archaic assumptions. This is often used as justification for the changes introduced by the new SP. However, IMO the new one is not too clear either and it is still a relative pup too!
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I think the problem is more fundamental than that. In IT it used to be called maintenance degradation, now technical debt. Basically a shiny new IT system is born, say in the 1960s. Time passes, and bugs are fixed, and sometimes they have to adapt it to unforeseen circumstances, like the year 2000 happening, or decimalisation.
All this tinkering corrupts the clean lines of the original design with a bazillion quick fixes for special cases. Which both slows the system down having to check for all these exceptions, and introduces arcane bugs that only show up in some edge cases. In the end no bugger can work out what’s what and you have to throw the entire janky and just about working system out and start with a new system, designed by some starry-eyed young pups who will not make the same mistakes as the old crew. No Sir. They don’t make the same mistakes. They make entirely brand-new mistakes all of their own era, prejudices and foibles, and so the wheel turns again.
The tax system, and things like the SP and benefits systems seem to have the same sort of pathologies. There’s always someone that hollers ‘snot fair, what about me’, and some special rule is carved out just for them. Which then allows some other fellow with money to pay lawyers an opportunity to game the system.
It’s evident in the online SA form. My tax position is relatively simple, but all along the way you are prompted by ‘if you have this special case, download this part of the form’. God knows what it was like doing it by paper where you had to send off for all this cruft.
The problem’s writ large throughout society really. We constructed t’internet ever since the 1990s one piece at a time. I am not sure it would be possible to black start it after a planet wide power outage caused by a Carrington event. Joseph Tainter’s “The Collapse of Complex Societies” shows that complexity in and of itself causes problems.
So the new SP will age in the same general way, just fail in different ways due to different reasons.
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Agree.
As my OH is rather fond of saying: PFY’s (pimply faced youffs!) have a lot to answer for.
But perhaps it was ever thus. Back in the day I seem to recall each temporary set-back was followed by a period of overall improvement. And it was not the continuous chaos we seem to be currently stuck in!
Listen to us – GOF’s (grumpy old farts!).
BTW, seems we both got out of the same side of our respective beds this morning, see my comment to: https://the7circles.uk/5-steps-to-better-pensions/
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@Al Cam I would imagine that for anyone who has been contracted out for a number of years, the old system would produce the higher starting amount at 2016. In the old system I believe the Basic SP is a floor for anyone with the requisite number of qualifying years, whereas in the new system I don’t think there is any limit to how low the contracted-out deduction can take the total. Certainly my new system amount in one of my forecasts produced a result well below the Basic SP.
Once you have established your starting amount as the higher of these two figures. it makes perfect sense to express the shortfall from the full New SP in terms of years as you have done. After all, this is how you can make up the difference either by working or buying voluntary contibutions.
I don’t know much about GMPs as contracting out by NI rebates to an APP, as in my case, does not have such a concept. However, the COPE estimate is always accompanied by a statement that this is the amount they assume will be paid by your other pension arrangement. In the case of a contracted-out occupational scheme such as yours, DWP are in a position to enforce a GMP that will match the contacted-out deduction (aka the COPE estimate) when they approve the scheme. Therefore, I’m not surprised your two figures match.
I had no such guarantee. At the time of first contracting out, assumed annuity rates and fund growth rates were much higher than turned out to be the case! In the end I achieved a fund that could just about match the AP foregone if I assume a WR a shade under 4% escalating with inflation (Bengen-style). Not worth it trading all that risk for the certainty of a higher SP.
Talking of which, I’m slightly embarrassed to admit that my protected payment already is many times more than you estimated for me! I can’t really explain why this may have exceeded your assumptions so significantly. It is certainly the case that AP accruals were higher in the earlier years which you are probably too young to have benefited from. I am certain that there was no mistake on DWP’s part as my spreadsheet calculations using NP46 consistently produced a figure marginally higher than DWP’s forecasts. I account for the difference by the fact that I used annual salary amounts in my calculations. Unlike income tax, NI is a monthly/weekly affair. There would have been occasions such as when salary increases were paid late and backdated. This would have caused some months to spike and hit an AP accrual limit for that month. Over time this would slightly reduce my AP accrual compared to a smoother payment profile.
Re COPE values, mine increased very slightly over the years it was mentioned, but this was possibly just inflation revaluations.
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DavidV,
No need to be even slightly embarrassed.
It is good to know there really were winners and not just a handful of pyrrhic victors, for want of a better phrase.
All I did was assume an average AP accrual rate and multiply it by 20; then add that to the Basic State pension (at cut-over) and then subtract the new SP full rate (at cut-over) to estimate your ‘protected payment’. Clearly the average AP accrual rate I used was in error. Having said that, the multiplication by 20 would seemingly exaggerate this, ie £1 out on the average accruals rate would lead to a £20 difference in the ‘protected payment’.
The average AP accrual rate I assumed was informed by:
a) my pucka state pension statement from mid 2013, that states the minimum then was £1.75/week/year;
b) the average AP accrual rate I think I had over the years from 2007/08
The value I ended up using IIRC was around £2.25/week/year; and this was really just a finger in the air value.
I was aware that AP accrual rates declined somewhat over the years – and that may well explain the difference, especially when multiplied by 20!
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Apologies – you only got just about what you were told you would get under the old system; so about neutral really!
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Indeed. My only slight win is that, if the triple lock survives, this is applied to the higher New SP portion of my total pension rather than the Basic SP. On the other hand, the ending of AP accrual in 2016 lost me one more year of accrual before I left work in mid-2017, had the old system continued.
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@DavidV
Yup, I was a bit too trigger happy when I hit the original “post comment” button. My bad!
> I can’t really explain why this may have exceeded your assumptions so significantly.
Did my explanation above help clear this up?
I only ask as I have a residual concern that I be missing something.
Thanks.
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@Al Cam Unpicking my NP46 calculations, it seems that averaged over my first contracted-in period 1978-87 I was accruing AP at £4.86/week/year when revalued to 2016 levels. The accrual rate steadily rose over this period, presumably as my salary increased. For the second contracted-in period 2006-16 the average accrual was £3.35/week/year when revalued to 2016 levels. Over this period the accrual rate steadily worsened as various NI thresholds were changed and I was able to make SMART DC pension contributions from 2013, I think. My total contracted-in time was 19 years (9 + 10) and not 20 as I stated earlier.
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@DavidV
Thanks very much.
So, using my ready reckoner approach with (9 +10) a ‘protected payment’ of the order of £40, assuming [full] Basic SP of 119.30 and new SP [full] rate of 155.65.
The additional information (period averages and trends within each period) is also very informative. For info, I worked out that my AP accrual for 15/16 was about £3 in nominals – which may (or may not) be what you describe as 2016 levels, depending on your precise year boundary definition.
For info:
My DB contributions stopped in 10/11; from 08/09 they were salary sacrificed, but not before then when I was contracted out.
From 11/12 I made [salary sacrificed] core DC contributions.
By 15/16 I was also doing AVC’s to my DC – unfortunately, the AVC’s were not salary sacrificed.
As is often the case, the devil really is in the details!
Thanks again.
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> and new SP [full] rate of 155.65
So do I infer from this that the £30 difference with mine of 185.15 is the effect of what’s left of SERPs less the malus of contracting out, or is that simply the result of inflation since 2016?
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Effect of triple lock ONLY since 2016.
Triple lock is largest of: inflation as measured by CPI, average wages, and an underpin of 2.5%PA.
By my fag packet calculation CPI alone would have taken 155.60 to around 175 (using Sep 21 & Sep 2015 CPI indices). Maybe I should actually use Sep 2014 – but, as it happens, Sep 14 & Sep 15 indices were very similar.
Simple example of triple lock impact: Sep 2020 CPI (for use in April 2021) was 0.5%, but triple lock has a minimum of 2.5%, so SP increased by at least 2.5%. Cannot at the moment see what average wages index was for 2021 indexation but IIRC it was either numerically largely negative or largely positive (as people stopped/returned to work due to Covid) and for the year alone [apparently!] that average wages growth was largely positive the triple lock became a double lock ignoring wages growth. Hope you get the gist?
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@ermine If your current SP forecast is showing a pension of £185.15, you have reached the full level of the New SP as this is its value for 2022-23. You have almost certainly achieved this by the old rules calculation performed in 2016 adding your accrued SERPS for time outside The Firm’s pension scheme to the Basic SP to give you a starting value in 2016 somewhere below the New SP. (Your time in The Firm’s pension scheme would have only affected the new rules calculation, and the result would likely have been much lower than the old rules result, probably even less than Basic SP. The old rules therefore prevail.) You have then reached the full value New SP with your 2016-onwards Class 2 NI contributions. As I’m sure you know from what your forecast says, you are unable to improve on this any further (other than by deferring claiming your SP when you reach SPA).
@Al Cam Pretty well spot on! I knew I had given you enough information to work it out. My NP46 calculations for 2016 actually estimated a total pension of £196.90, so a protected payment of £41.25. But as I noted earlier, my calculations slightly overstate my entitlement compared to what DWP calculate. My DWP SP forecast in 2016, taking account of my NI record to 5/4/16, gave a total of £194.62, so a protected payment of £38.97. CPI escalation (no triple lock on protected payments) has brought that up to £43.75 in the current year.
When I talk about 2016 levels I am referring to the revaluations of certain values that are part of the NP46 calculations. The revaluations are by increases in average earnings, but the basis changed over the years, as explained on page 32 of the document. The revaluations to 2008 are included in the last edition of NP46, but if you want to calculate up to later years you need to look elsewhere for the data. I’ve looked on my computer hard drive and it turns out that ‘elsewhere’ was UK Statutory Instrument 2016 No. 205 ‘The Social Security Revaluation of Earnings Factors Order 2016’. Each year’s AP accrual is revalued by these factors to the final year you perform the calculation for. So my average accruals that I gave in my last comment have all been revalued to 2016 by the factors in SI 205 (2016).
From memory, since Dec 2018 when I started receiving SP, all triple lock increases have been CPI or 2.5%. Of course this year triple lock was suspended and I received CPI (at Sep 2021 value).
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@DavidV,
Thanks again.
I am glad I got there as up until now I was never really content that my staring value from DWP at cutover was in the right ballpark. I am now, as I can basically work it out!
CPI only revaluation [of your ‘protected payment’] agrees with what I advised @Ermine CPI only revaluation would have done to the max new state pension value from cutover to today – which is also good.
Thanks for the explanation of [your] 2016 levels – in which HMG use yet another revaluing algorithm!
Finally, the value of the current max new SP (vs the value at cutover) is a good illustration of the positive impact of the triple lock vs CPI alone to date; explicitly £185 pw rather than £175 pw.
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@Ermine,
BTW, your AP at cutover was around £22.
I estimated this by subtracting 119 (full Basic SP at cutover, see above) from the 141 you mention in https://simplelivingsomerset.wordpress.com/2016/10/19/investing-in-the-state-pension/.
NB the 141 figure may include one years revaluation, based on the date of your post (but I cannot be entirely sure from the details provided in your post). In this case your AP at cutover would be of the order of a quid smaller (CPI Sep 2015 was -0.1%, but do not forget the triple lock 2.5% underpin).
Hope this is of some help to you?
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I think this thread confirmed that numerical methods were the right approach for me 😉 Plus of course, the magnificent power of Class II. I did manage to sell the concept of buying a full SP to one ex-colleague, who elected to spend ~£5k on Class III contributions rather than going the self-employed route. He ended up with a shortfall which may have been greater because he was a lifer at The Firm so he didn’t have the contracted in period I had; his working life was more or less the same length as mine.
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And, if DavidV’s journey is typical, earlier years AP were definitely better VFM than the later ones!
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@Al Cam I missed the opportunity above to compare my 2015-16 accrual with your estimated £3. My calculated value (NP46) was £3.07 so virtually identical, particularly as DWP would probably have calculated it slightly lower.
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Spooky!
On a slightly more serious note, what I described above as a form of ‘people power’ is IMO a very useful technique in a situation like this.
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As to being “overly harsh on the retrospective nature of changes made to the SP in 2016” I now see exactly where you are coming from but my overall summary that “in short, I was left needing to pay in more to receive less state pension” stands.
If anything, our extensive chatter above leaves me more worried about all the Mr & Mrs A’s!
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@Al Cam
I assess your balance sheet for the 2016 changes as follows:
Losses
a) Your wife has lost survivor benefits (I am assuming you have a longer NI record than her)
b) You paid to complete an NI contribution year before 2016 for no benefit (depending on when you did this, there may have been information in the public domain that would have allowed you to assess this as of no benefit)
c) You lost the opportunity to accrue one more year AP after 2016 worth approximately £3/week
Gains
i) Your one year of NI contributions after 2016 has gained you approximately £5.29 a week (cf. £3 lost in c.)
ii) If triple lock survives, you will benefit from this on your whole SP and not just the Basic SP (AP was only escalated by CPI)
ii) You can now achieve a higher SP than under the old system (up to the level of the New SP) by buying an inflation-linked (we hope!) annuity from HMG on advantageous terms (voluntary NI contributions)
Have I missed anything?
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Yes, the married persons pension (MPP).
We have built my OH’s NI record since around 2016 – she was born overseas and moved to the UK much later in life. AFAICT, this is the only way to get her some SP under the new system. By her SP NRA we will hopefully have got her to around what she previously would have got as survivor benefit, but IIRC that is <MPP additional payment. It is hard to be sure as different escalations, etc are involved. With the benefit of hindsight, we maybe should have done this earlier but when I first looked at this in any detail (a good few years before 2016) it was not strictly necessary, and I figured that the MPP/survivor benefit would be sufficient for our/her needs. This is what I referred to above as: "my [some might say misguided] attempt to optimise vs the ‘system’ without due regard for somebody coming along and tearing up all the rules".
Incidentally, this was when I first learned about the MPP – so @Ermine is not alone in not knowing about it.
In and of itself, in most scenarios SP is hard to beat. Inevitably however, there were/are edge cases where the calculus is not so straightforward.
As I see it, if the OH lives long enough and I die sufficiently long before her then our new SP approach might, on balance, pay off, but ….
I was aware of the impact of the new SP on our planning and able to pay the costs of the necessary re-planning – not everybody is!
I am not bitter about this experience but am now even more wary about the largely unpublished consequences of HMG's frequent changes.
Lastly, I have only outlined the essential details of the scenario above.
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@Al Cam
OK, clearly you have researched this in some detail and I am somewhat out of my depth on this particular topic. I don’t and have never disputed that this aspect of the 2016 changes has had a financial impact on you both. Point (a) in my assessment of your ‘balance sheet’.
I do think we have been talking at cross-purposes regarding some terminology. When I have spoken of Married Persons Pension I am referring to the increased pension that married men (I think only men) used to receive to reflect that many women did not work outside the home and had little or no NI record of their own. When my father retired at age 65 in 1981, my mother was only 56 and my father received the larger Married Persons Pension. When my mother reached the SP age of 60 in 1985, my father’s pension dropped to the single rate (plus AP and GRB) and my mother, who had little NI record of her own, received a smaller pension in her own name equal to the reduction in my father’s pension. There was no net change in overall household pension, I believe. In none of my mentions of Married Persons Pension have I been referring to survivor benefits.
When my father died in 1995 my mother then received the full single pension (presumably mostly based on my father’s NI record) plus a part of his AP and GRB. These were her survivor benefits.
So you can see with my understanding of the terminology, and my understanding that Married Persons Pension ended long before 2016, I was slightly confused/surprised that it was ever anything that you or your wife could have benefitted from. I can only assume that your mention of MPP was some other aspect of the old pension system that I was unaware of. None of this changes my acceptance that survivor benefits were degraded in 2016 and have impacted you both. I also fully understand that you may not want to go into any further detail on your personal situation.
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@Al Cam
A little more reading in a government paper and I now understand that married persons pension has also been used to describe what was formally a Class B pension, i.e. one based on a spouse’s NI record. I now see that this would have been clearly applicable to your situation had it not ended for anyone reaching SPA after 2016.
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DavidV,
As I said earlier “the old SP was generally acknowledged to be rather complex and, in some peoples view, riddled with somewhat archaic assumptions”. Nevertheless, the rules were the rules. Well at least until 2016 they were, when some of them were torn up completely.
To be entirely fair to HMG, IMO there was some sort of [partial] mitigation available if you could: a) recognise it and work it out*,
b) were eligible, and
c) had sufficient means and/or time to fund it.
IIRC this was done by being able to [temporarily] retrospectively buy NI all the way back to 2006, thus creating the minimum ten years NI record for the new SP. The usual buyback limit being six years.
Another thing worth mentioning is that we are discussing this now – some six years down the line – where, amongst other things, useful publications (eg Steve Webb doc @Ermine mentions above or possibly in a linked post) exist and people have had a chance to absorb the new system. I was doing all of this at the time having seen my carefully considered plan possibly holed below the water line. The key word being “possibly” as IMO it was far from clear what was really going on with the new SP system at that time. IIRC, the new SP system was ultimately introduced a year ahead of schedule too; and this clearly had unseen consequences, see e.g * below.
Do I take it you now concur with my summary that even putting aside survivor benefits: “in short, I was left needing to pay in more to receive less state pension”?
* I say this as pretty much all the DWP staff I spoke to were, to put it politely, totally out of their depth with the new SP system.
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@Al Cam
Yes indeed. I now fully appreciate that as well as loss of survivor benefits, the 2016 changes have also denied your wife the Class B pension based on your contributions that she could have expected while you are both still alive. Apologies for being rather slow on the uptake that this was a major part of what you were referring to.
I also concur that it was more difficult to understand all this in the run up to 2016, when even those aware that there were downsides to the new system were more focussed on topics such as contracted-out deductions.
Anyway it has been an interesting discussion but I feel I must also apologise to @ermine that my initial challenge of your assertion has resulted in such an extensive volume of somewhat off-topic comments on his blog post!
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DavidV,
I also learned quite a lot of things through this chatter – which IMO is good.
Maybe @Ermine has picked up a few things too?
For example, the term Class B is new to me, but I wonder if you might mean Category B? In any case, I knew neither term before, and it might have helped me explain things more clearly if I had used an appropriate formal term.
I suspect our scenario may be a bit of an edge case, but I cannot believe it is unique. Hence my concerns about other Mr & Mrs A’s, some of whom may be in for a rather rude awakening in due course.
In my experience introducing new systems is always complicated. FWIW, I had not entirely dissimilar experiences with drawdown – but that really is for another day.
Thanks very much for your help and patience.
And I trust @Ermine will forgive us?
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@Al Cam
Yes, sorry I meant Category B. Not something I was really aware of, but I saw the term when I kept going back to my trusty NP46 in our earlier discussions. Only when I did a search for ‘married persons pension’ today, just before making my last comment, and found a link to a random government explanatory paper did I link the two. I had earlier been fixated in my mind on what my father had described as his married persons pension.
Anyway, apologies to you again for my misunderstanding and to @ermine for our hijacking of his comments thread.
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> and to @ermine for our hijacking of his comments thread.
You’re welcome, knock yourselves out, guys. It’s relevant to UK personal finance 😉
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May just have to give Bozza some credit, see: https://www.bbc.co.uk/news/uk-politics-63503932
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Hmm, obviously it gives rise to the question ‘can you trust Graham Brady, and the Tory Party machine in general’ but let’s give them the benefit of the doubt.
Talking of which, looks like my MP did support Sunak. He wrote back, despite probably concluding that mustelids are a lost cause in terms of chasing votes, which speaks for him I guess
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Nice one!
Not sure he understands the DB pension fund problem.
IMO it is nothing to do with LDI per se but rather to do with a complete apparent failure of the trustees to understand, and almost certainly their advisors to highlight, the risk associated with the leverage they took on!
But go on, MP’s like TLA’s and soundbites, advisors seek out fees, and everybody else apparently believes in the tooth fairy and Santa Claus too! Unbelievable.
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Yeah, and funny how it’s all the Americans’ fault now. Didn’t we, er, Take Back Control a little while back? Obviously we discovered Taking Back Control ain’t all that when you want to use Other People’s Money to Take Back Control.
Still, particularly if we are to take the possibility as true that the moral vacuum otherwise known as Bozza could have won the ballot of old scrotes of the Tory party and MPs managed to rugby tackle the idea to the ground, then the fellow did as requested so a hat tip is in order.
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Yup, it’s always somebody else’s fault!
Just like kids, it all sounds a bit like “a big boy made me do it!” Until 2016 the EU was a good analogy for the big boy; but now a new scapegoat is required. Choosing the US seems particularly dumb IMO, but sleepy Joe [Biden] did let his guard down re Lizzie Lettuce, so perhaps the logic (ahem?) probably went along the lines of let’s carp back at them. Utter madness.
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And then there is this take on things too:
https://uk.yahoo.com/news/boris-johnson-quit-pm-race-080015528.html
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The original Observer article is here. The Grauniad are no lovers of Bozza, so MRDA
In the end the whole thing is a known unknown. Lying unprincipled liar lies again about this being a matter of principle rather than affording Lulu Lytle’s gold wallpaper in his new gaff. Could be, but the wanted signal has disappeared so far into the noise. The why is lost to the fog of lies. What matters is at the moment Bozza’s Not Back.
If he can piss off and get stupid twerps to pay £50k a seat to hear him ramble on about how bloody great he is and how desperately misunderstood by those ungrateful punks {choose any or all from voters, MPs, whole world} then so be it. He’s done enough damage to so many people’s futures by being a vainglorious incompetent twit with his childhood trauma making him want to be King that at the moment shunting the runaway train onto a siding is the win. Let’s hope it doesn’t rejoin the main line at some stage.
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@Ermine, sorry to interrupt your Bozo-bashing, I love it as much as the next empath, but wondered if you know about this? It looks too good to be true:
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If you want a different look, you could always try a kachelofen. These have been around for about 500 years, but IIRC the forebears date back into pre-history!
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That’s what I initially thought of when I saw that 😉 Their idea does look a step up from both log burners and indeed ceramic stoves which have the thermal mass but not the apparent separation of the hotter running heat source and radiating area this idea has. Whether you can make the process safe in civilian hands is a different question. I’ve seen biomass fuelled domestic boilers which had some of the same philosophy, using forced-air blowers and sensors.
On a slightly different tack I was intrigued that there’s a fracas in Scotland about councils removing coal fires from council houses. The resilience angle I can understand, but the concept of an open coal fire being cheaper to run than, admittedly the dog-end of electric heating, storage heaters, I found amazing, an open coal fire being about the most inefficient way you could try and heat anything!
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Another thing I have noticed that may be useful to share:
a) once registered as SE you remain registered until you deregister,
b) DavidV explains that NI is a weekly/monthly ‘thing’ as opposed to income tax which is annual, and
c) Your NI contributions record for the [qualifying] year (when you voluntarily paid in a few quid) some way back in time clearly shows this weekly ‘thing’. IIRC, it is made up from multiple parts, specifically: NI deductions, credits, and a couple of weeks of voluntary contributions.
Thus, hybrid qualifying years are possible, which could, for example, be part class 2 and part class 3.
And I assume therefore that in order to be able to pay for a full year of NI at class 2 rates you must be registered as self-employed (SE) for the whole tax year,
I assume this means that on registering for SE any date you enter in box 5 of form SA103 could be important. It is probably used to determine the number of weeks your entitled to class 2 for that tax year.
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> NI is a weekly/monthly ‘thing’ as opposed to income tax which is annual
Yep, sorry, I should have highlighted that on the SE option, my bad. Naturally I cynically started my SE registration the weekend before the relevant April 6th, and when I unregistered in TYE 2018 I unregistered the weekend after April 6th 2017. I’m sure you could time it exactly April 6th to April 5th but I didn’t want to get had by edge cases.
When I bought the couple of weeks years ago I seem to recall it was part of the whole coming off UB40 thing, but it was an awful long time ago.
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