New Home Owners And Snagging Forum
Investments => Cash ISAs and saving accounts => Topic started by: The Prophet on December 10, 2012, 09:44:52 am
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After Osborne's autumn statement on 5 December (in the middle of winter!) a pension fund of more than £1.25million will now be subject to additional tax.
But even with a pension pot this large a 65 year-old man would only get a taxable £45,000 a year (£35,000 net) at the dire annuity rates currently available.
It would take this man over 27 years to have the pension pot paid back to him and he would be nearly 93 before he broke even.
However, if he were allowed to invest his pension pot in a bank account instead of buying an annuity, he would receive around £37,000 a year (£30,000 net) based on an interest rate of 3%.
The original £1,25million would also still be available for him to draw on should rates fall and any balance left over would be added to his estate, providing pension for future generations and generating inheritance tax for the treasury.
At the moment the annuity which is normally used to buy government bonds (Gilts) results in a windfall for the annuity providers on death.
Another alternative would be to allow people to invest in a 'Pension ISA'.
This would not allow any withdrawals until say age 60.
Then the newly retired would be able to draw the interest as a pension with perhaps a capital withdrawal up to set percentage of the fund.
Under this scheme people would be allowed to save up to say £20,000 a year in the pension ISA and receive tax relief on their contributions.
Over say 30 years, the maximum fund contributions would be £600,000 with guaranteed growth from compounded tax-free interest at say 4% added to the pot as well.
The pension interest withdrawals on retirement would be tax-free; meaning a smaller overall pension pot would be required.
Under the present system, the insurance companies that provide pension annuities are the main beneficiaries.
The government is happy to turn a blind eye because they have a ready market for the ever-increasing national dept bond issues.
Who else would buy these?
So in essence every pension pot is used to directly finance the national debt through bonds bought to provide pension annuity income.
I say, let the people keep and control their own pension pots after retirement, not annuity providers.
It can be done, it would be better, but the government doesn't want anyone to know how the system works!
Even if the government started providing annuities it would cut out the middleman.
Then when the pensioner dies, at least some of the national debt would die with them as the bonds could be cancelled as no further interest would be payable.
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I always thought pensions were a bad idea.
Handing over all that money just for a life time payment that only represents the interest it earns.
You wouldn't give a large sum to a bank knowing you would never see it again and all you get in return is a lifetime interest payments fixed at 3.6%.