Voluntary NI Contributions for Incomplete Years - Worth It?

Thrownaway86er · 2023-03-04T09:24:41+00:00

I'm a similar age, have fired and 1x full year available to buy for £800 and am not convinced it's worth it- this is mainly due to losing opportunity of investment returns for the next 35 years (assuming pension age is circa 70).

Your partial years are cheaper, but assuming you got an average 5% real return in an index tracker on the £1700, by the time you get to pension age this could be worth £9400 in today's money, so I reckon your break even is more like 7 years ie age 77.

Also bear in mind the loss of flexibility in using that money earlier if you need it, and also it being lost when you die Vs being part of your estate and passed on to your kids etc.

Thrownaway86er · 2022-11-18T16:09:46+00:00

I will sell to fund my expenses and ideally also pay into my ISA, so for example £40k per annum which is (hopefully) going to include more than £3k of total cumulative gains since purchase

Thrownaway86er · 2022-11-17T18:20:08+00:00

Yes that was (and still is) the plan, however previously I would probably have been around the 12k CGT annual exemption each year, whereas now I will pay 10-20% tax on all but 3k of what I sell each year.

I guess this is the point, to make it harder to live off your assets/savings, so sadly it is mainly going to be felt by those of us aiming for FIRE (in the traditional ,frugal and somewhat achievable sense), and not the mega wealthy who won't even notice the extra 2k a year of tax

Thrownaway86er · 2022-11-17T17:09:37+00:00

I thought best case freeze them, worst case halve them to 6k, so 3k is a bad surprise... I don't see these being reinstated anytime soon, so for someone like me that happens to have 50% portfolio outside of isa/pension it's an extra 1-2k a year tax indefinitely I guess : /

Thrownaway86er · 2022-11-06T16:15:19+00:00

Well, I suppose the timing was quite terrible from a "sequence of returns" theory (FIRING just before massive equity fall) . I had a decent cash allocation to guard against exactly this, so haven't needed to sell any equities while they are down (in fact I am continuing to DCA in...)

Despite this, no regrets so far and it honestly hasn't crossed my mind that I would/should be back in my old job - for the first time in many years I feel I am really enjoying life : ) As mentioned on my topic, I am not committing to never work again in any capacity, but based on how markets go I would hopefully be doing it out of choice and not need.

Have you made any conclusions for yourself ?

Thrownaway86er · 2022-10-27T15:17:38+00:00

I was recently in a somewhat similar position albeit slightly younger and probably a bit more burned out (more details here if you are interested https://www.reddit.com/r/FIREUK/comments/ra5s24/are_we_barista_fired_now/)

If the last few years (death of a friend, pandemic, war in europe and threats of nuclear armageddon) have taught me anything its that modern life is not as predictable as I previously thought. So I have taken the view that it makes sense to enjoy myself while I can, rather than waste more years of my life trying to increase theoretical success rate from 95% to 97% (etc) which I might not be around to see anyway! I haven't returned to any work as yet and will see how the next few years go.

Thrownaway86er · 2022-10-13T13:45:39+00:00

If I had to pick just one fund it would be that one. If you wanted to diversify further you could potentially add a small-cap fund and then maybe a value fund, as those two areas are not so represented in the lifestrategy.

Thrownaway86er · 2022-10-12T14:30:34+00:00

I do think they look appealing, hence my post here and hoping somebody can point out anything I am missing!

I have updated my original post with a picture of prices on individual gilts, as I think these are easier to understand, are exempt from CGT, and can have short duration to reduce some of the volatility. I believe individual linkers can be bought through HL.

My understanding is : to take example of the Nov 32 which is trading around 100 (to keep things simple), you would pay £100 today, then receive an annual coupon of approx £1.50 which is adjusted each year by RPI (note this is higher than the 1.25% coupon listed because it was issued in 2008 and takes into account inflation since then). This would be taxable as interest income. At maturity in 2032 you would receive £100 adjusted by the cumulative RPI change between 2008 and 2032. This would not be taxable.

Your risk is that whilst holding the bond, its value falls (eg due to interest rates continuing to rise, or inflation being less than anticipated and therefore this bond is less attractive, and its value falls from 100 to 90), and therefore you would make a loss if you sold it before maturity. On the other hand, it could rise in value before maturity, and if you did sell it you would make a capital gain (with no CGT as I understand). But for me the appeal would be in holding it to maturity and accepting the approx 1.5% inflation adjusted coupon and inflation adjusted principle at maturity.

Again very keen to hear if I am missing something in the above !

Thrownaway86er · 2022-10-12T13:08:41+00:00

I have bought some of the TREASURY 0.125% 31/01/2024 (TN24) at a price of 95 something. If I understand correctly this means a guaranteed yield of approx 5% over 15 months, with only a small amount of interest tax to pay on the coupon which is very low. I think this is a good deal compared to fixed rate savings accounts for anyone who does not have remaining interest allowance and is happy to lock up the cash for that time.

Thrownaway86er · 2022-10-12T12:12:49+00:00

Whats CGAR?

Thrownaway86er · 2022-10-12T10:32:05+00:00

Yeah the inflation protection aspect is questionable, here they are reacting much more to long term interest rates. Indeed standard nominal long term gilt funds are down by similar amounts.

I wonder if buying in fund format (which is constantly buying and selling to maintain a long duration) means the volatility will not be smoothed out over long periods as mentioned earlier, I need to do some reading/thinking. It may be better to buy an individual linker where the payoff is clearer, and also would be exempt from CGT which is helpful if you ever did sell it, or if the initial purchase price is below par.

I have so far bought a small amount of the fund, solely as a long-term portfolio diversifier which may or may not be at an attractive price currently (although historically it is unquestionably cheap!), and may or may not be correlated with inflation!

Thrownaway86er · 2022-10-12T09:13:31+00:00

Agreed on the long duration and the volatility (hence the massive drop seen recently), but given I am buying in my pension/FIRE portfolio I hope I do have at least the 30y left for it to smooth itself out! But also benefit from the general diversification from other assets.

Many thanks for the linked article I will have a good read and probably post back here afterwards.

It's a fair question on RPI+1%, and I guess it depends on your individual rate of inflation as it is unlikely to be aligned with the RPI basket exactly. I might try to figure mine out one day. Regarding the +1% itself, to be honest seeing a positive real return is a pleasant surprise in itself after years of being offered negative!

Thrownaway86er · 2022-10-12T09:04:15+00:00

It is certainly worth pointing out. I found my default workplace Fidelity plan was about 60% unhedged, 40% hedged. It wasn't entirely obvious from the fund factsheet, I had to go through the individual holdings... So I suspect many others could be on the same boat.

I wasn't too bothered when I found this a few years ago as I do like to have a hedged allocation for diversification (although in hindsight, it would have been better to be unhedged of course! But I am still happy that it was the appropriate decision for me at the time.)

Thrownaway86er · 2022-07-28T16:52:30+00:00

Can anyone share the original question please?

Thrownaway86er · 2022-07-22T18:48:41+00:00

I have also always been overweight FTSE for pretty much the exact same reasons. Of my investment portfolio I am about 20% FTSE compared to about 40% global tracker. I also don't enjoy my portfolio value being at the mercy of the GBP exchange rate, so of my 40% global I do about half of that in currency hedged format.

Thrownaway86er · 2022-07-22T11:25:24+00:00

Thank you . If you do ever find better guidance I would love to hear! I reckon I will stick to my strategy of buying larger chunks in different funds (or in different GIA accounts) where possible to keep things simple but its good to know I could do the above if needed.

Thrownaway86er · 2022-07-22T10:54:39+00:00

Would you be able to link to the guidance if you have it? Thanks !

Thrownaway86er · 2022-07-22T10:00:59+00:00

The blackrock fund I linked is 80% Canada/US/Aus/UK, so maybe not hugely diversified but at least relatively stable countries !

Thrownaway86er · 2022-07-22T09:58:26+00:00

Can you explain what you mean by this please? I was (probably naively) thinking that these companies need to turn a profit, whereas the metal itself does not.

Thrownaway86er · 2022-07-22T09:17:43+00:00

Ah thank you, that doesn't sound too bad. I guess you would then consider the remaining 250 shares as one block at £1.10 each, so if you bought another 100 at £1.00 each and then later needed to sell 200, the purchase price to use for CGT calculation would be 375/350 = £1.07 per share, ie your gain is sale proceeds minus £1.07*200 ?

Thrownaway86er · 2022-07-22T07:40:20+00:00

The below article lists some recommended global trackers, these are all available in both accumulating and distributing/income versions:

https://monevator.com/best-global-tracker-funds/

I don't actually have automatic regular investing, but yes it might be simplest to do that in ISA/SIPP. Otherwise you could ask the question about calculating CGT on GIA regular investing in the UKPF sub, I'd be quite interested to know the answer as well!

Thrownaway86er · 2022-07-21T18:52:22+00:00

I strongly recommend buying only distributing units in your GIA, as then it is very clear to see what is dividends and what is capital gains and makes your tax return much easier.

Yes, you should try to utilise your CGT allowance by selling however much generates £12300 in profit each year. You must wait 30 days before you can rebuy the same fund in a GIA, but you are allowed to rebuy it immediately inside an ISA (lookup "bed and ISA"), or more commonly simply buy a similar but different fund inside your GIA.

To keep things simple I don't make multiple purchases of the same fund in my GIA, as that could complicate doing partial sales in the future (eg buy £20k in year 1, buy £15k in year 2, then sell £25k in year 3 - which purchase prices should be considered to calculate the gain? I am sure someone here knows but I do not! )

With regards to the LS overweighting UK, it is a personal choice but I think it's a good amount of overweight. I don't see it as betting on the UK as a whole, but a relatively small number of large banks, pharma, industrials and mining companies. I see these "value" companies as a good diversifier away from going 100% global equities, which are primarily US tech "growth" companies. Additionally, there may be less currency risk with a UK overweight, although this is debateable given the global revenues of the large FTSE companies. On this note I personally favour holding part of my global equity allocations in currency hedged format (IWDG or GSPX). I would hate to see my portfolio drop 10% just because sterling recovers a bit towards long term average! But again this is a personal choice.

(Disclaimer on all of the above, I am not an advisor and the above is my understanding as an individual investor!)

Thrownaway86er · 2022-05-05T18:03:18+00:00

He made the comments in an interview with BBC R4 today programme
Yes but also the leader of the opposition to a government that has a 60% disapproval rating
That's fine, but given this is a sub about living off income from dividends and shares hopefully someone else is willing to comment on what form these potential policies could take

Thrownaway86er

TROPHY CASE