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Credit deflation and the reflation cycle to come (part 2)


spunko

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Democorruptcy

BoE's Haldane sounds like that chap in Reginald Perrin who said "super" all the time. They are going to be super vigilant about inflation but also let it overshoot "temporarily", so no changes there! Super!

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Bank of England chief economist Andy Haldane warns over 'nasty' inflation that could send debt costs spiralling out of control

The Bank of England must have a 'laser focus' on inflation to stop Britain's debt costs spiralling out of control, its chief economist has said.

Andy Haldane has said that the vast amounts of Government spending and quantitative easing in the economy have made the Bank 'super-vigilant' about a possible rise in inflation.

The 53-year-old said: 'The last thing the world needs right now is a nasty inflation surprise.'

Bank of England chief economist Andy Haldane said the amounts of Government spending and quantitative easing has made the Bank 'super vigilant' about a possible rise in inflation

Britain is now extremely vulnerable to a rise in inflation as national debt rises over 100 per cent of GDP to its highest level since the early 1960s.

If the Bank increases interest rates to keep inflation down the cost of servicing that debt will rocket, threatening the UK's recovery. 

Haldane said the Bank would be prepared to allow inflation to overshoot its 2 per cent target temporarily, especially if it was as a result of temporary effects such as changes to VAT, oil prices or the exchange rate.

He said: 'We'd be super vigilant, with so much monetary stimulus and fiscal stimulus having been put in the system, that this doesn't show up in any more medium-term measures.

'What can even appear to be a temporary effect, if it affects expectations it could easily get locked in.

'We're not there at the moment, but it's definitely a risk we need to take care of.' The economist, who recently predicted that consumers would splurge £100billion of pandemic savings and boost the recovery, said he was confident about the economy in the second half of 2021 thanks to coronavirus vaccines.

Consumers have been happy to switch their spending from holidays, commuting and eating out to sofas, DIY kit and online streaming subscriptions.

An explosion of spending could push prices up, forcing central bankers to react fast.

The base rate has been at record lows ever since the financial crisis, hitting savers, but providing a boon to those with mortgages and debt.

Haldane added: 'If this year has taught us anything, it's that we need to be super-sensitive and super-responsive to the data.

'Is this more like the aftermath of a financial crisis – slow and steady – or is this more like the aftermath of the 1918 flu pandemic or a world war, which elicited a much faster release of pent-up demand?'

Figures from the Institute for Fiscal Studies show that middle-class families had, on average, an extra £350 a month in their bank accounts between March and September this year.

But the poorest households were £170 a month worse off as the pandemic led to redundancies in low-paid sectors such as hospitality and retail.

https://www.thisismoney.co.uk/money/markets/article-9083509/Bank-England-chief-economist-Andy-Haldane-warns-inflation.html?

 

 

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10 hours ago, DurhamBorn said:

Very true,but for myself there is zero chance il be working or paying anything into a pension from 55,iv structured things to take the £16,600 tax free from then.

Never say never ;-)

If you have been working of late (and paying some tax), you will have built up the ability to use your carry over to claim that tax back with the last 3 years  excess allowances. Once you do an UFPLS that chance goes.

I guess you will still want to make pension contributions of £2880 per year and claim the tax relief (even though you don't pay it).

But I am sure you know all that.

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15 hours ago, Democorruptcy said:

It's a minefield! What if you draw your pension down to avoid a bad pension rule and then they cap the tax free part of an ISA?

The government can of course change the rules any time they want. In terms of the tax free part of an ISA, the whole thing is tax free. I assume you mean that if you withdraw from an ISA the government then taxes you at your nominal rate?

Can't see that myself, double taxation! ISA's would become pointless. They could row back on the amount you can put in annually, shrinking the tax avoidance, but leaving the previous years intact. To my mind though ISA's are much less of a hanging fruit than pensions. All of my friends have Pensions, many significant sums. Not all of them have ISA's, and no where the same amounts as pensions. I'm the reverse!:)

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14 hours ago, The_Doc said:

Be aware that taking an UFPLS will trigger the MPAA (money purchase annual allowance) so you could only put a maximum of £4000 per year into a pension going forward. As you know, pension contributions are the most tax efficient vehicle, so it may be wise to keep that option open to the max.

If you crystallise portions, take the 25% tax free lump sum and leave the rest invested (i.e not actually drawn down), then you don't trigger the MPAA and you can still put an amount into a pension up to your earning limit for that year (or more if you use carry over).

I fell foul of this in 2015. At the time the MPAA was £10,000. The next year it got chopped to £4000! Bah>:(

I'm currently not a taxpayer, so I pay in £2880 which the government tops up to £3600.

I'm probably going to put another SIPP into drawdown at the end of this financial year, and take the 25% + up to tax exemption out, then reinvest into this years ISA allowance.

I'm not rich by any means, but I certainly don't want the socialist conservatives taking any more of my life savings!

11 hours ago, DurhamBorn said:

Very true,but for myself there is zero chance il be working or paying anything into a pension from 55,iv structured things to take the £16,600 tax free from then.

This is the route I'm on!

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Democorruptcy
6 minutes ago, NogintheNog said:

The government can of course change the rules any time they want. In terms of the tax free part of an ISA, the whole thing is tax free. I assume you mean that if you withdraw from an ISA the government then taxes you at your nominal rate?

Can't see that myself, double taxation! ISA's would become pointless. They could row back on the amount you can put in annually, shrinking the tax avoidance, but leaving the previous years intact. To my mind though ISA's are much less of a hanging fruit than pensions. All of my friends have Pensions, many significant sums. Not all of them have ISA's, and no where the same amounts as pensions. I'm the reverse!:)

I hope ISAs are higher hanging fruit than pensions. Though there are still things they could do. They could decide money taken from an ISA counts towards your personal allowance. Interest on savings (first £1k or £500 free) counts towards your personal allowance. You have already paid tax on the income you saved. Same with pensions so why not ISAs?

That would discourage people taking 25% pension lump sums to put them in ISAs. It would mean more money stays in lower hanging pension fruit. Limiting the total amount allowed in an ISA could be another possibility.

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39 minutes ago, Democorruptcy said:

You have already paid tax on the income you saved. Same with pensions so why not ISAs?

Not the same. Money saved into Pensions has not been *taxed, money saved into ISA's has been *taxed.

(*at current nominal tax rates)

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18 hours ago, DurhamBorn said:

Government doesnt need a wealth tax,it has the best one ever thought of,the ones always used,and the one about to be used again.Inflation.The only big thing on top will be merging NI and tax to whack pensioners and unearned income.For that reason im structured for £16,600 a year from SIPPs thats the magic tax free amount including 25% tax free element,the rest from ISAs.

I'm sure they'll be some fiddling around the edges, but ultimately this is the way that debt will be 'restructured'.

The proles are pretty dumb, and the government can blame it on Covid, Chinese, deflation. Everything but themselves! And the public will largely believe them!

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Democorruptcy
8 minutes ago, NogintheNog said:

Not the same. Money saved into Pensions has not been *taxed, money saved into ISA's has been *taxed.

(*at current nominal tax rates)

Sorry maybe didn't make it clear but I meant pension income also counts towards your personal allowance.

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1 hour ago, NogintheNog said:

I fell foul of this in 2015. At the time the MPAA was £10,000. The next year it got chopped to £4000! Bah>:(

I'm currently not a taxpayer, so I pay in £2880 which the government tops up to £3600.

I'm probably going to put another SIPP into drawdown at the end of this financial year, and take the 25% + up to tax exemption out, then reinvest into this years ISA allowance.

I'm not rich by any means, but I certainly don't want the socialist conservatives taking any more of my life savings!

This is the route I'm on!

Can you pay the £2880 into the same SIPP you are taking the  UFPLS from?

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1 hour ago, NogintheNog said:

The government can of course change the rules any time they want. In terms of the tax free part of an ISA, the whole thing is tax free. I assume you mean that if you withdraw from an ISA the government then taxes you at your nominal rate?

Can't see that myself, double taxation! ISA's would become pointless. They could row back on the amount you can put in annually, shrinking the tax avoidance, but leaving the previous years intact. To my mind though ISA's are much less of a hanging fruit than pensions. All of my friends have Pensions, many significant sums. Not all of them have ISA's, and no where the same amounts as pensions. I'm the reverse!:)

The CG and divis [un]earned within the isa have not yet been taxed though.

If a cap on total value in the ISA was applied making CG and divis above the cap taxable, it would limit but not eliminate their usefulness. For SS ISA the bigger issue with this is how you calculate value, if it's on current market price you have effectively forced a CG event and payment of tax which would be discretionary [advantage to choosing which year you realise a gain] outside the isa.

They may as well entitle this haha gotcha suckers if they do it. But the avg Joe is dumb enough not to understand it, media are shit and it would be completely consistent with how they sucked folk in to pension schemes and then screwed them over once it was as expensive to get out as to stay in.

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40 minutes ago, DurhamBorn said:

Can you pay the £2880 into the same SIPP you are taking the  UFPLS from?

Yep. When you take the UFPLS, you are essentially crystallising just part of it, leaving the rest as is. This will appears as separate "accounts" in HL or wherever you have it (one drawdown account and one uncrystallised SIPP). You can still add to £2880 each year to the uncrystallised SIPP.

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57 minutes ago, DurhamBorn said:

Can you pay the £2880 into the same SIPP you are taking the  UFPLS from?

That's what I'm doing. I pay in on the 6th April to get the free £720 as soon as possible, usually by beginning of May if I recall correctly, and take the lump sum out in March to leave it invested as long as possible. Also the SIPP provider takes tax off using some emergency rate that HMRC refunds when I do my self assessment so I like to keep the period that the government temporarily has some tax to as short a time as possible!

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38 minutes ago, Wheeler said:

That's what I'm doing. I pay in on the 6th April to get the free £720 as soon as possible, usually by beginning of May if I recall correctly, and take the lump sum out in March to leave it invested as long as possible. Also the SIPP provider takes tax off using some emergency rate that HMRC refunds when I do my self assessment so I like to keep the period that the government temporarily has some tax to as short a time as possible!

I think there is some form you can fill in as well if not on self ass to get the tax back.Pain in the arse really,but like you say if on self asses if you take the lump out in the March say £16600 then you can claim the tax back in the April so its nice and quick.Thats how i intend to take it out each year between 55 and 67,then the year before state pension go into full drawdown and take the 25% of the whole pot.Reason being from state pension age im only going to be taking just over £3k from my SIPP as i want that and state pension to be in tax allowance area.Il take my extra income from my ISA then that will of just taken a big boost from the 25%.Highly likely between 55 and 67 when im taking those lums from pension all ISA divid etc will be re--invested and nothing taken.

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3 hours ago, Democorruptcy said:

Sorry maybe didn't make it clear but I meant pension income also counts towards your personal allowance.

Gotcha. Yeah that is possible, they could go back on the tax free status of ISA's. However that would send out some very dangerous signals and I think there are other much more lucrative revenue streams available. Like inflation.

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3 hours ago, BWW said:

The CG and divis [un]earned within the isa have not yet been taxed though.

If a cap on total value in the ISA was applied making CG and divis above the cap taxable, it would limit but not eliminate their usefulness.

This would be quite a complicated revenue stream though for not much return. Do you think they have the HMRC resources to follow something like that through?

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2 hours ago, The_Doc said:
3 hours ago, DurhamBorn said:

Can you pay the £2880 into the same SIPP you are taking the  UFPLS from?

Yep. When you take the UFPLS, you are essentially crystallising just part of it, leaving the rest as is. This will appears as separate "accounts" in HL or wherever you have it (one drawdown account and one uncrystallised SIPP). You can still add to £2880 each year to the uncrystallised SIPP.

Looks like you can, and AJ Bell are saying the same.

Although back in 2015 when I took mine it was a small company pension with a travel company I worked for. If I took it I was then entitled to staff concessions for life (meaning a £45 return ticket to Spain for instance on standby!) So I took the whole lot and paid tax on the remaining 75%. However that year I hardly worked, so paid very little tax on it, and it was all re-invested fully into my ISA's.

Sadly the next year the MPAA dropped to £4000. Then the year after the travel company went bust = no concessions any more!:CryBaby:

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3 hours ago, Wheeler said:

That's what I'm doing. I pay in on the 6th April to get the free £720 as soon as possible, usually by beginning of May if I recall correctly, and take the lump sum out in March to leave it invested as long as possible. Also the SIPP provider takes tax off using some emergency rate that HMRC refunds when I do my self assessment so I like to keep the period that the government temporarily has some tax to as short a time as possible!

There is a way around this tax nightmare.

Chris Dando from Burfield Financial Planning says he’s advising his clients to take a small payment first and wait for the tax code to adjust before taking another one.

He told the Telegraph: “We are advising people to take a nominal payment. The first payment is taxed on an emergency basis as if it’s a regular payment. So, if we take an initial £100 or even £1 then HMRC will be aware and change the tax code accordingly.

“This ensures the correct tax code is used from the first proper payment. The only downside is that it slightly delays the process, as it may be another three or four weeks before the correct code is applied to future payments.

“So people who are desperate to get their money might be better off taking the money on an emergency basis and then claiming the rest back later.”

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The only coal-focused exchange-traded fund is closing at 12 years old, another sign of investors’ desire to withdraw from the industry.

The VanEck Vectors Coal ETF, which went public in January 2008 under the ticker KOL, stopped trading this month and will return investors’ money on Dec. 22. It had about $35 million in assets. At its height in 2011, the ETF had $908 million, said Ed Lopez, head of ETF Product at VanEck Associates.

The move comes as other investment companies withdraw from funding coal businesses.
In January, BlackRock said the firm’s actively managed funds would no longer hold shares of companies that derive more than 25% of revenues from thermal coal. It unveiled a major expansion of its sustainable-investing lineup.

This month, New York state’s $226 billion pension fund set itself the goal of reducing net emissions of greenhouse gases from its portfolio to zero by 2040. It said it is divesting from coal and tar sands and will next review fracking companies, major oil companies, fossil-fuel companies and oil-and- gas transportation and pipelines.

A number of big money managers have also set net-zero targets for their portfolios, as the Paris Agreement to curb the rise in global temperatures marks its fifth anniversary. In such an environment, it’s no surprise that coal’s fans are diminishing.

In a statement, VanEck said it “continuously monitors and evaluates its ETF offerings across a number of factors, including performance, liquidity, assets under management and investor interest, among others. The decision was made to liquidate the fund based on an analysis of these factors.”

VanEck has been adding green offerings in recent years, including the $240 million VanEck Vectors Low Carbon Energy ETF (ticker: SMOG) and the $50 million VanEck Vectors Green Bond ETF (GRNB).

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1 hour ago, The_Doc said:

There is a way around this tax nightmare.

Chris Dando from Burfield Financial Planning says he’s advising his clients to take a small payment first and wait for the tax code to adjust before taking another one.

He told the Telegraph: “We are advising people to take a nominal payment. The first payment is taxed on an emergency basis as if it’s a regular payment. So, if we take an initial £100 or even £1 then HMRC will be aware and change the tax code accordingly.

“This ensures the correct tax code is used from the first proper payment. The only downside is that it slightly delays the process, as it may be another three or four weeks before the correct code is applied to future payments.

“So people who are desperate to get their money might be better off taking the money on an emergency basis and then claiming the rest back later.”

I like that £1 option,though i hate sitting around waiting for HMRC and i wonder how would you know they had actually updated the tax code?,.The P55 form can be filled in online on the government gateway and the tax claimed back quite easily and quickly.The whole thing is a complete shambles of course.

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For those that are clueless like me about how worldwide  currency fluctuations/central banks work and how they affect the macro picture etc, I am currently reading `The Death of Money` by James Rickards and it seems to be helping me understand it, and gives a historical context. Will post full details and a review in `The Library` thread once I have finished it, but mentioned it just in case Father Christmas brings you book tokens! :-) :-) :-)

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ThoughtCriminal
3 hours ago, DoINeedOne said:

The only coal-focused exchange-traded fund is closing at 12 years old, another sign of investors’ desire to withdraw from the industry.

The VanEck Vectors Coal ETF, which went public in January 2008 under the ticker KOL, stopped trading this month and will return investors’ money on Dec. 22. It had about $35 million in assets. At its height in 2011, the ETF had $908 million, said Ed Lopez, head of ETF Product at VanEck Associates.

The move comes as other investment companies withdraw from funding coal businesses.
In January, BlackRock said the firm’s actively managed funds would no longer hold shares of companies that derive more than 25% of revenues from thermal coal. It unveiled a major expansion of its sustainable-investing lineup.

This month, New York state’s $226 billion pension fund set itself the goal of reducing net emissions of greenhouse gases from its portfolio to zero by 2040. It said it is divesting from coal and tar sands and will next review fracking companies, major oil companies, fossil-fuel companies and oil-and- gas transportation and pipelines.

A number of big money managers have also set net-zero targets for their portfolios, as the Paris Agreement to curb the rise in global temperatures marks its fifth anniversary. In such an environment, it’s no surprise that coal’s fans are diminishing.

In a statement, VanEck said it “continuously monitors and evaluates its ETF offerings across a number of factors, including performance, liquidity, assets under management and investor interest, among others. The decision was made to liquidate the fund based on an analysis of these factors.”

VanEck has been adding green offerings in recent years, including the $240 million VanEck Vectors Low Carbon Energy ETF (ticker: SMOG) and the $50 million VanEck Vectors Green Bond ETF (GRNB).

Meanwhile in China and the developing world..............

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2 hours ago, DurhamBorn said:

I like that £1 option,though i hate sitting around waiting for HMRC and i wonder how would you know they had actually updated the tax code?,.The P55 form can be filled in online on the government gateway and the tax claimed back quite easily and quickly.The whole thing is a complete shambles of course.

Your Tax Code is displayed when you logon to the gov gateway. How quickly that gets updated on the website is another matter. Or you could call them to confirm.

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Eureka moment...why compulsory workplace pensions?...traditionally financial repression (via -ve real rates) was via capping interest rates and so `stealing` from savers. Savers found ways to avoid this either by investing in hard assets I.e property  advent of online brokers/share buying or buying fewer govt bonds. To counter act this make it compulsory for pension companies to buy them, and so compulsory for the general public to buy them without realising....financial repression by stealth...brilliant idea!

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