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

[DoINeedOne]

1 hour ago, Popuplights said:

Have you got another link that is not behind a firewall? This is very relevant to me as I am about to decide whether to take my pension now, or transfer to a SIPP

Just for the future with the telegraph

press the esc key on your keyword and hold before the page paywall loads to view the article without the paywall

or use a site like https://archive.ph  

 

[AWW]

...or if you're on a Mac or iphone, use Reader view.

[George Dawes]

2 hours ago, Hancock said:

Fears of a bombshell tax raid on pensions are spreading in the City with the Treasury understood to be considering radical cuts to tax relief.

Officials have signalled they are debating whether to slash higher-rate tax relief on pensions contributions in private meetings with industry, The Telegraph can reveal.

Whitehall sources have ruled out proposals for a pensions tax hike on March 23, dubbed "Tax Day" in Whitehall.

However it is thought reforms are being seriously considered that would be highly damaging to the finances of Middle England. 

About £40bn a year is spent on pension tax relief – a large proportion of which goes to public sector schemes. Any reform would save enormous sums for the Treasury at a time when the Chancellor Rishi Sunak is under huge pressure to raise cash to pay back the growing pandemic bill.

Experts said the plans would seriously damage millions of workers' retirement prospect and be "politically toxic when people realise what it means for them".

Pension savers would be hundreds of thousands of pounds worse off in retirement as they would suffer a steep reduction in the boost given to all money saved into pensions.

Tax relief is due at your marginal rate of income tax as an incentive to lock money away until your 55th birthday.

 

The Chancellor is said to have been considering limiting tax relief on pensions contributions to a flat rate of 20pc or 25pc for all workers since last November.

Moving to 25pc would put those on middle and higher incomes in the crosshairs for cuts while boosting the amount received by basic-rate taxpayers, all those earning less than £50,000 in the current tax year.

Those with both "defined benefit" pensions, as well as younger workers with "defined contribution" plans, would be hit.

Under a 25pc flat rate, a 35-year-old earning £60,000 paying 4pc of their salary into a pension could be £85,000 out of pocket by retirement age, according to analysis by AJ Bell, the stockbroker. To make up for the lost tax relief, they would have to contribute an extra £50 per month. 

AJ Bell founder Andy Bell said: “Removing higher-rate tax relief would be politically toxic when people realise what it means for them. The impact would be most painful for people in public sector defined benefit schemes and the sad truth is that this would include front line NHS and emergency services workers who have worked so hard to help the country through the Covid-19 pandemic.”

While reform would save the Government billions each year, it would seriously harm the nation's long-term personal finances.

Steven Cameron, of Aegon, another pension firm, said the reform would make a big dent in the future pension pots of higher and additional rate taxpayers unless they increased their contributions.

A higher, flat rate of relief would be in line with the Government’s "levelling up" agenda and could be sold politically as a way to make the system fairer, Mr Cameron suggested. 

Peter Glancy of Scottish Widows, the pension provider, said reform would be “horrendously difficult” to implement. Mr Glancy warned any change could add a layer of complexity to an already overly complicated tax system for pensions.

Former chancellor Gideon is thought to have come close to cutting relief in 2016 but u-turned at the last moment when confronted with a fierce rebellion from the Conservative back benches.

Romi Savova of PensionBee, a pensions firm, said that pensions tax relief would be an obvious tax grab. “This has long been talked about and the likelihood of it happening increases with time. It can’t stay as it is forever and it is easier to do during the crisis, politically speaking,” she said.

The Treasury declined to comment. It has previously said any announcements made on Tuesday would not have immediate fiscal implications. It is expected to publish a series of consultation papers giving various options for reform.

Absolutely no incentive to work harder or grow my business then, possibly a four day working day week may be the way forward rather than earning more and paying more in tax. 

[Chewing Grass]

3 minutes ago, George Dawes said:

Absolutely no incentive to work harder or grow my business then, possibly a four day working day week may be the way forward rather than earning more and paying more in tax. 

Been crunching the numbers, cut tax relief on pension contributions and for me it is pointless with 4 to 6 years to go to 62 pursuing mentally intense but tedious and stressful highly skilled engineering work in order to fill a big hole in the pot.

I will simply cut my hours as there is no point exceeding the higher rate tax threshold anymore.

It is pointless even from a spending point of view as there is nothing to do, nowhere to go, no need to replace my car and going on holiday is a PITA.

[Nomad]

I'm the same, been putting in 40k a year for the last 7 years, with this and IR35 rule changes it is time for me to work 6 months of the year and have 6 months off.

[AWW]

IR35 and loss of tax allowance between 100-125k means I'll be trying to get away with a 40 week working year.

As discussed a couple of pages ago, whether I'll be able to do this depends on whether my manager likes bums on seats or output.

[Harley]

3 hours ago, Hancock said:

Under a 25pc flat rate, a 35-year-old earning £60,000 paying 4pc of their salary into a pension could be £85,000 out of pocket by retirement age, according to analysis by AJ Bell, the stockbroker. To make up for the lost tax relief, they would have to contribute an extra £50 per month. 

AJ Bell founder Andy Bell said: “Removing higher-rate tax relief would be politically toxic when people realise what it means for them. The impact would be most painful for people in public sector defined benefit schemes and the sad truth is that this would include front line NHS and emergency services workers who have worked so hard to help the country through the Covid-19 pandemic.”

What a load of biased and pathetically argued BS.  Glad I'm protected from it with a paywall!  At a time of Covid expenditure (good or not doesn't matter) they say an extra £50 a month is terrible.  And that "let's not forget the nurses" BS - FFS!  And those on lower incomes who could be better off?  Clearly scraping the barrel for their own self interest.  They have just conceded the argument by writing such dribble.

[Chewing Grass]

5 minutes ago, AWW said:

IR35 and loss of tax allowance between 100-125k means I'll be trying to get away with a 40 week working year.

As discussed a couple of pages ago, whether I'll be able to do this depends on whether my manager likes bums on seats or output.

I officially have a zero hours contract which is not normal for the Company I'm working for and I've hardly ever done the 40 hours they want from other people and have made a point of varying it every week.

So my plan is as there is nowhere to go and nothing to do, from April I'm only going to clock 32-34 hours and book every friday off till September, if I get no feedback it will be the 'new normal'.

[Barnsey]

[ONC]

Just been reading a nice summary of this thread by BurntBread. Brings back memories of the path we have followed over the last few years.

it is over in the Dosbods  ‘investing and money’ section.,  the thread is called “ What I have learned from the Credit deflation thread”.   Normally not a section i visit, but thought it was worth another plug here.

 

 

 

[Noallegiance]

On 31/08/2019 at 13:45, DurhamBorn said:

 

I think most investors,and i mean most pension savers with workplace pensions etc are about to face massive problems.Those in "lifestyle" pensions who have moved assets to bonds will see massive hair cuts.

And this quote is from before CV19 effects.

@DurhamBorn- is there any indication from your fresh roadmap work that is starting to give an idea that moves you have previously anticipated will be any harder/quicker/worse given the ultimate black swan we're living in and the explosion of yet more money expansion?

Not that I want it to be worse, but my gut says the shit you saw 2 years ago has had copius amounts of fresh shit piled on top. Effects?

[DurhamBorn]

2 hours ago, George Dawes said:

Absolutely no incentive to work harder or grow my business then, possibly a four day working day week may be the way forward rather than earning more and paying more in tax. 

Its a zero working week for me now and will be for good mostly,i might do the odd 3 months,but never more than £12.5k in a year.My partner is next she isnt far off now at 50.Shes got a council final salary at 67 and needs two more years for full state pension.She could go now,but im having to wait to transfer a final salary pension for her as trustees have banged a 40% reduction on CETVs claiming covid  but under review.As soon as its 10% reduction il get it sorted.Without that she should be able to go in 3 years.Though she has said she would like to leave the council so as not to reduce her pension by going part time,then work 2 days a week somewhere else.

Im pushing my kids to pay down their mortgages quickly and they should all be mortgage free by around 33.That way if i peg it and they are mortgage free they can pack in work and draw £12.5k a year from my SIPP themselves whenever they want to retire.

 

[DurhamBorn]

2 minutes ago, Noallegiance said:

And this quote is from before CV19 effects.

@DurhamBorn- is there any indication from your fresh roadmap work that is starting to give an idea that moves you have previously anticipated will be any harder/quicker/worse given the ultimate black swan we're living in and the explosion of yet more money expansion?

Not that I want it to be worse, but my gut says the shit you saw 2 years ago has had copius amounts of fresh shit piled on top. Effects?

No,just the same.If it hadnt been covid it would of been something else,the money cycle was ending.Everything is going to plan,in fact its amazing how close things are to where we expected/hoped.The only difference is the massive bounce in most areas we bought has seen the profits i hoped for over the cycle delivered in a year.That in itself has created an interesting headache.

The only difference from covid is that it has pushed governments to an even bigger structural deficit and that will cause incredible problems in tax and spend going forward.Inflation and pulling back production is what will happen.

 

[DurhamBorn]

1 hour ago, PrincessDrac said:

Can anyone explain what IBTL is?

Why it's a safe haven? Why it's been falling for so long. Looks like it bottomed on Thursday around the time of this post?

Could it go lower?

Long dates US treasuries.

Its been rising since 1982 but has fallen lately because the market sees inflation and reflation.

Yes it could go lower.

[Harley]

I've just skim read @BurntBread thread "What I have learned from the "Credit deflation" thread".  A truly amazing piece of work.  Extremely well crafted and clearly required a considerabl effort to produce.  A huge thanks.  A valuable contribution and I will read properly and learn.  I shall henceforth think of you as the "Chronicler" of old as we take this journey.  All good endeavours need one!  This place is amazing, delightful, and special.

[Yadda yadda yadda]

9 hours ago, Barnsey said:

That is interesting. I would have expected the USA to be ahead due to their stimmy checks. However, I understand that the hospitality industry here is larger than just about anywhere else. Combined with a huge outward bound tourist industry then perhaps it makes sense. Both shut down so no spending there. Perhaps also a lower level of savings here usually so that could exaggerate the figures in comparison. The tweet says measured against 2019 savings whilst the graph states a percentage of annual disposable income.

Could this drive a more rapid rise in inflation here, when it is spent? I'd assumed the USA would have the faster spike in inflation but perhaps it will be here. Obviously internationally traded commodities will rise everywhere but we could also have currency effects if people are spending more on expensive foreign holidays.

[No One]

If they are so skint why don't they cut the triple lock bonkers scheme?

My Tax allowance as well as every other workers has been capped for 5 years so why not do the same for the pensioners, whatever happed to 2"we are all in this together" from Cameron's day?

Whilst they are at it, cut the foreign aid budget and save 1% of GDP, and cut military costs, because who is going to attack a nuclear armed nation?

Also, council pensions could do with a hair cut.

 

 

 

[Talking Monkey]

6 minutes ago, No One said:

If they are so skint why don't they cut the triple lock bonkers scheme?

My Tax allowance as well as every other workers has been capped for 5 years so why not do the same for the pensioners, whatever happed to 2"we are all in this together" from Cameron's day?

Whilst they are at it, cut the foreign aid budget and save 1% of GDP, and cut military costs, because who is going to attack a nuclear armed nation?

Also, council pensions could do with a hair cut.

 

 

 

That foreign aid at 1% needs to go, or at least greatly reduced, most of it is corrupted away by the receiving country. We are no longer that great nation with an immense surplus that we can afford such things. On the military I think current numbers in terms of personnel are ok, its the idiotic foreign adventures that need to be stopped. That itself would reduce the military spend. 

[Yadda yadda yadda]

Foreign aid budget has been cut. Although, searching for a link to evidence this, it appears that some busybody is trying to say it is illegal for the Government not to spend my money this way.

https://www.msn.com/en-gb/news/uknews/government-e2-80-99s-decision-to-cut-international-aid-budget-e2-80-98was-unlawful-e2-80-99/ar-BB1eNVjB

[Harley]

55 minutes ago, Talking Monkey said:

That foreign aid at 1% needs to go, or at least greatly reduced, most of it is corrupted away by the receiving country. We are no longer that great nation with an immense surplus that we can afford such things. On the military I think current numbers in terms of personnel are ok, its the idiotic foreign adventures that need to be stopped. That itself would reduce the military spend. 

They should first cut the areas which are beloved by those pushing us into this dystopian nightmare; that either support them or enable them to enact their peversions.  So yes, aid (luvie plus graft), the third sector, higher education, consultants, etc.

[feed]

I think it's important to remember that everything the state has been doing for the last 20 years has been fighting disinflation and trying to encourage velocity.  

It’s why the studies of the impact of immigration has always been the impact on monetary policy, not wages.  Immigration is a form of QE.  The NHS being inefficient and overspending.  An efficient NHS reducing costs would have been counterproductive.  The same with military spend.  

Imagine how much worse velocity would had been with an efficient, productive and cost reducing services in government. 

The question of course is, when do they unwind the policies that simulate velocity and by how much do they over cook it.  
 
 

[DurhamBorn]

2 minutes ago, Harley said:

They should first cut the areas which are beloved by those pushing us into this dystopian nightmare, that either support them or enable them to enact their peversions.  So yes, aid (luvie plus graft), the third sector, higher education, consultants, etc.

Exactly.The left cant win elections anymore as they have nothing in common with working people,they are actually the greatest enemy a working man has.So instead they worked their way into the public sector and like you say the so called third sector.They then divert funding to themselves and back again.My local Labour party are posting leaflets about nurses pay going up 1% etc,but no mention of the fact the council is fleecing nurses (and every other worker) by an extra 4% on council tax.The state has now so many that they are sucking all private capital their way.

The huge worry of course is governments cant stop them.Council tax is a huge threat to ordinary people.Our police precept went up 7%.Of course hardly any police,its for their pensions.They can sit at home on huge pensions while others toil away for peanuts.

[Harley]

Three weeks of financial abstinence so I probably should take a look!  Much rather be doing stuff outside but this is the weight we choose to carry.  Gonna take a bit of effort to get back on that bike though.  A quick look suggests things have done just fine without me!  The contrarian in me therefore says it maybe time to bring the pruning shears inside!

[Harley]

5 minutes ago, feed said:

I think it's important to remember that everything the state has been doing for the last 20 years has been fighting disinflation and trying to encourage velocity.  

It’s why the studies of the impact of immigration has always been the impact on monetary policy, not wages.  Immigration is a form of QE.  The NHS being inefficient and overspending.  An efficient NHS reducing costs would have been counterproductive.  The same with military spend.  

Imagine how much worse velocity would had been with an efficient, productive and cost reducing services in government. 

The question of course is, when do they unwind the policies that simulate velocity and by how much do they over cook it.  
 
 

A race to the bottom always ends up, well....at the bottom!  Create an environment for honest and fair success, which generally means less is more, and stand back.  They have/are doing the opposite with historically predictable results.

[feed]

10 minutes ago, Harley said:

A race to the bottom always ends up, well....at the bottom!  Create an environment for honest and fair success, which generally means less is more, and stand back.  They have/are doing the opposite with historically predictable results.

While it may be a race to the bottom.  There are 1.4Billion Chinese and 1.4Billion Indians at that bottom and there is nothing that says the 70M in this country have any right not to be along side them.  

Creating an environment for success isn't something they have all that much influence over. Cost/wage arbitrage exists and technological advancement has been deflationary.  At best they react and they react slowly.