Saturday 11 March 2017

Holding pattern musings

2017 so far is starting to feel like I’m in a bit of a holding pattern.  We’re starting to feel excited about the new adventures we are going to face in FIRE, I feel like a small part of me has already left my workplace yet I don’t want to go any further until my 2016 bonus is paid and a longer term incentive also appears.  Not long now.

While in that holding pattern I’ve just continued with my saving hard and investing wisely strategy which has my wealth this year already up £36,000 to £1,155,000.  More than enough to live the lives we want to live in FIRE.  There’s also been a few events and learnings over the period.  Let’s look at a few in brief.


Philip Hammond delivered his Spring Budget statement, which for people like myself, was just another chance to increase taxes.  Previously, from 06 April 2016 the dividend tax credit was abolished and a new tax free £5,000 dividend allowance was introduced to partially compensate.  Hammond has decided he wants some of that so from the 06 April 2018 will reduce the allowance to £2,000 ‘to address unfairness’.  Dividends above this level will be taxed at 7.5% if you’re on the basic rate, 32.5% if you’re on the higher rate and 38.1% if you’re on the additional rate.

If I stayed in my current grafting up state Hammond would have grabbed another £1,143 from my pocket.  But alas times are a changing.  We’ll be in the Med by late summer with that more and more looking like being Cyprus.  There I’ll use the Cyprus and UK Double Taxation Convention, the Cyprus non-domicile rules and the Cyprus tax laws to pay precisely £0 in tax.  Sorry Mr Hammond not on my watch...

They just can’t stop messing with Pensions

It now seems as though with every budget they intend to make pensions a play thing.  How anybody can try and plan for their futures with this going on is starting to become beyond me.  I really can’t blame people for just rolling their eyes to pensions and moving on.  Of course the current incumbent government loves this as it increases the tax take but long term it’s just so wrong.

In this budget speech Hammond decided to tackle the ‘abuse of foreign pension schemes’.  What he’s done (from the 09 March 2017) is introduce a 25% tax charge on anyone transferring to a qualifying recognised overseas pension scheme (QROPS) “unless, from the point of transfer, both the individual and the pension savings are in the same country, both are within the European Economic Area (EEA) or the QROPS is provided by the individual’s employer.”

This one doesn’t affect me as I wasn’t on planning on moving my private pensions anyway.  What it does though is almost push me over the edge re pension meddling.  As an early FIRE’ee continual government meddling could severely damage our life.  My thinking as I sit here today.  Right now I’m still able to access my private pension from age 55 although the government have showed their hand, but to my knowledge not yet made it law, that they’d like to increase that to 57 in 2028 after which it will remain 10 years below State Pension Age.  I’ll be 55 in 2027 so I’m still on for age 55.

We also currently have yet another pension’s consultation running which should have been submitted to the Secretary of State by now and which could be used for yet more pensions meddling, sorry another “State Pension age review”, which must be published before 07 May 2017.  I may just have dodged another bullet here as the interim report on page 13 states “The review is forward looking and takes note of the existing arrangements before April 2028 which are already law. However, any recommendations that will alter the legislated timetable pre-2028 would undermine the important principle of allowing significant notice for any State Pension age changes in the future.”

So it’s looking hopeful that I might just be able to access my private pension at age 55.  I also currently have £521,000 tucked away in SIPP’s so it’s a crucial topic for me.  Stay in the UK and I could pull all of this at age 55 but the tax would cripple me.  Move to Cyprus and it gets very interesting, albeit with the caveat the laws there could change as well.  There you get a choice when it comes to tax on pensions.  Option 1 allows you to just pay tax at personal tax rates which are 0% for the first EUR19,500 but which rise to 35% once you’re over EUR60,000.  So pull it all as soon as I can using option 1 in Cyprus and it would be crippling as well.  Option 2 though allows foreign pension income to be taxed at a flat rate of 5% on amounts over EUR3,420.  So I could get my whole private pension out of the clutches of the UK government on day 1 of private pension age for a 5% tax charge.  Certainly food for thought if the rules don’t change in subsequent years...

Check everything

When it comes to finances, bills and any sort of financial transaction I trust no one and check everything.  ‘Errors’ are made and for some reason in my experience they always seem to favour the corporation trying to extract money from me.  I’ve just seen it occur again.  A few months ago I changed energy suppliers to keep myself on the lowest cost tariff.  Subsequent to that and after the dust had settled I received a notification from my old supplier informing me that an error had been made and I still owed them £30.  Checking my meter reads and the amounts paid showed this to be completely wrong.  I challenged the bill and a few days later received a lame apology stating they had made a mistake.  All I could think of while reading it was how many other punters had received something similar and just paid up.  Check everything...

Challenge everything

While half asleep one morning I accidently put my cash-back credit card into the cashpoint instead of my debit card.  Kerching for the credit card company.  Let the cash advance fees and interest charges begin.  Rather than accept it I called within hours stating I wanted to pay off the cash advance immediately.  Computer obviously said no.  I stayed with it though and this morning have had them acknowledge I’d made a genuine mistake.  All fees and interest refunded...

As always DYOR


  1. And how long can the 25% tax free cash last? That must be a tempting target. Restrict it to the first, say, £250,000 of the pension pot and let it wither with inflation.

    On the subject of the State Pension age review this year, where they are thinking of adding on a year for anyone currently under 55, one Analyst said it would be a politically good move as there had been so little opposition to the last set of major increases, that there would be very little political damage from adding on an extra year now. Especially for the under 55s as those 55 and over would be more likely to be paying attention. If I could have punched him through my computer screen I would have!

    Hope you get all your ducks lined up! Sounds like there is a lot to try and take account of.

    1. Thanks for bringing up the TFLS. I'd almost forgotten about it as it won't be available to me when I emigrate.

      Re Age 55. Let me guess, whoever said increase it above 55 is either over 55 years of age or has plenty of money already.

  2. Considering the greedy & incompetent way in which both political parties have governed (Gordon Brown was by far the worst), moving abroad to a competitive tax jurisdiction seems like a fair solution.

  3. Totally agree with Anonymous! You can always have a change in tax jurisdiction. And about paying attention and an open eye on your taxes and bills can save a lot!

  4. Have you thought about offering advice as a service? I've started down my FIRE journey and have been saving hard. The investing wisely so far is simply putting money into tracker funds and sacrificing salary into the pension scheme.

    Things I need to do but find they keep getting pushed downward as I try to meet the other obligations in my life (family, etc):
    - Research a SIPP
    - Decided if I should consolidate all my pensions or if it is safer and cheaper to keep them all separate
    - If I consolidate, SIPP or managed?
    - Am I paying too much fees on current ISA (tddirect) and am I choosing the correct trackers?
    - Where should I be planning my retirement? Almost all my wealth is somehow tied up with the UK and therefore wihtin easy grasp of the governments tentacles.
    - In this respect, should I be looking to move some offshore?
    - Should I buy a property in my desired retirement location now in order to safeguard against future changes (eg. rise in prices)

    There is so much to know. With a bit of work it is obviously possible, you prove that, but I just don't seem to get round to learning what I need.

    I'd consider paying an adviser in order to help me understand it. You'd consider that a waste of money, but the reality for me seems to be that as I start to try and read up on this stuff, my mind boggles at the complexity and I give up. I'd prefer someone to just explain it all so that I could ask questions.

    1. I've thought about doing it a few times and this is where I've ended up:
      - I could go down the financial coaching (which isn't regulated) or financial adviser (which is regulated and requires qualifications) route. Some of what you mention would be in the former, some would be in the later and it's also a fine line if helping under the former.
      - On 2 occasions in the last 10 years I've seriously looked at becoming an adviser. On both occasions my investigations have led me to conclude that it ends up being more of a sales job than a job helping people with their finances.
      - On the coaching side I think of it this way. We live in a culture where it's always somebody elses fault. I would of course do my best for anybody but let's say I talk through something and it's wrong. Next minute I'm sued for something else or other. If I do nothing I'm FIRE'd in a few short months and if I help somebody I could end up not FIRE'd.

      I'd love nothing more than to help others and it's one of the reasons I stay at this blog. It's also probably very glass half empty but I also know what I've had to do to achieve my dream and I'm not willing to risk it now I have the golden ticket.

      Would value your view as reading it back to myself it comes across as pretty negative?

    2. Hi RIT,

      I think you've provided more than enough help over the years with the blog and now you are FIREd if you have any reservations about anything do not feel obligated to do it.

      I don't think I'd ever go down the coaching route like The Escape Artist and others have done not because of fear of getting sued but simply because I wouldn't ever think of paying for someone for advice that is freely available on the Internet so not sure I could charge someone else for the same , plus a healthy dose of the imposter syndrome :)
      Maybe one day I'll overcome these two things but not for the foreseeable at least.


  5. re: coaching, I would agree you have correctly identified the problem - very limited upside with unlimited downside. Why bother?

  6. What are your rebalancing bands?
    I did search but couldn't find them.

  7. I must be about a year or so older than you, and agree I(or we) should hit 55 before the government can realistically move the goalposts. With less than a decade to go its SIPP or employer scheme pension all the way over ISAs. And that 25% tax free lump sum will be coming out when I'm 55 to put into ISAs over time before they mess with it. Fingers crossed anyway.