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.

Budget

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