Retail prices Index
firstly, the government must not pass any legislation, or allow, any company to alter the terms of pensions so that pensions can be linked to the Conumer Prices Index rather than the Retial Prices Index. If they do I will be very angry, and at last other serious commentators have understood what I understood as soon as it was announced. This must be dropped as a proposal, and the change to policy must be announced at the party conferences of the government of national unity, otherwise there will not be very much unity at all.
As for government bonds, which are trading at a premium to their redemption price I don't think that many fully understand the problem. Yes the income is there, the governments will probably not default, but there is a catch. Where a bond is above par, when it is redeemed, then the investor will lose their capital. Consider a bond trading at £115 for every £100 of bond, with an interest rate of 8% on the bond, with a rewdemption date of 2015.
Now then my lucky punters, you buy the bond, a hundred pounds, but it costs a hundred and fifteen pounds. For five years you get eight pounds, less tax of course, and then in 2015, you get from the government a huindred pounds, so you have lost fifteen pounds of your capital, gone, all gone. Furthermore, you can't get any relief from Capital Gains Tax on your 'investment' because gilts are exempt from CGT.
So, yes you have some income, yes your bonds are 'guaranteed' but you try this one and I wonder how long you will stay out of jail, especially with Quantitaive easing, and the effect on inflation, so that even the hundred pounds in five years time is not worth the same as the hundred pounds of bond you bought in the first place.
You have to ask yourself why the government does not link Index Linked Gilts to the CPI, rather than the CPI, maybe because they could see the lawyers just waiting for their days in court.
The government must announce that the changes to allow pension funds to change from RPI to CPI must not go forward. They really must not.
As for government bonds, which are trading at a premium to their redemption price I don't think that many fully understand the problem. Yes the income is there, the governments will probably not default, but there is a catch. Where a bond is above par, when it is redeemed, then the investor will lose their capital. Consider a bond trading at £115 for every £100 of bond, with an interest rate of 8% on the bond, with a rewdemption date of 2015.
Now then my lucky punters, you buy the bond, a hundred pounds, but it costs a hundred and fifteen pounds. For five years you get eight pounds, less tax of course, and then in 2015, you get from the government a huindred pounds, so you have lost fifteen pounds of your capital, gone, all gone. Furthermore, you can't get any relief from Capital Gains Tax on your 'investment' because gilts are exempt from CGT.
So, yes you have some income, yes your bonds are 'guaranteed' but you try this one and I wonder how long you will stay out of jail, especially with Quantitaive easing, and the effect on inflation, so that even the hundred pounds in five years time is not worth the same as the hundred pounds of bond you bought in the first place.
You have to ask yourself why the government does not link Index Linked Gilts to the CPI, rather than the CPI, maybe because they could see the lawyers just waiting for their days in court.
The government must announce that the changes to allow pension funds to change from RPI to CPI must not go forward. They really must not.
posted by Catch22 at 10:42 PM
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