Alison Average – Just an Ordinary British Girl
Let me introduce Alison, she was wondering where all of her money went on a monthly basis, we helped her by showing how her lifetime would look if she did nothing. Her lifetime spend and taxation is below.
Alison Average was twenty years of age on the 18th January 2016. Her working life will be 48 years. Assuming she continues working she can expect to get £115 per week from the State Pension Scheme, starting on the 18th January 2064.
Alison works in an average job for average pay of £26,500. This means that over a lifetime she will earn £1,272,000. It’s likely to be substantially more than that, inflation and job progression etc will help to boost her lifetime earnings. She should be pleased with that, a lifetime millionaire – only it’s paid in instalments.
Ordinary people like Alison don’t get to keep all of their income. Some of it will be taxed and other bits forced into pensions; she also has living costs to find, she is the same as you and I.
After Income Tax and National Insurance Alison gets around £1758 per month, however her gross pay is £2208.33 per month, which means £449 is deducted before she gets it. Over her working life she gives to the government via taxes £258,624.
She did not opt do a degree or she would have had to fund the costs of that, and could have had £50,000 in debt to repay.
Alison does not have the means to buy a house on her own she could not afford one. But she has found a flat which is ideal, but she has to travel into London – it’s not possible to find a flat within walking distance of her work. She will have a season ticket cost of £1600 per year, or £76,800 over her working life.
She decides to buy the flat at £145,000 with a mortgage via one of the major high street lenders, she borrows 95% (£130,000). Her mum helped out with the deposit.
Monthly cost assuming interest rates remain the same is £685 which means she will pay back around £205,000 over the life of the mortgage, and pay around £1,000 per annum in Council Tax over her remaining working life, if Alison lives to average age (81.5) she can expect this to total over £61,500.
As she is buying her own home, she will also have to find Stamp Duty. Assuming she only moves three times during her lifetime than she’ll have to find another £7500 or so (assuming she buys at current prices). Of course if she is lucky enough, saves and invests wisely then she could end up investing in property (one strategy that works) under the new rules for stamp duty she could be substantially more.
Her mum got her a car for her birthday, and she spends around £20 every week on fuel, visiting family and her boyfriend. Based on an average of £80 month (£960 per year), she has to pay Fuel Duty at 57.95p per litre, and of course VAT. Fuel Duty is £556.32 per year and VAT making up another £192 every year. Over Alison’s working life that makes around £36,000 in additional taxation.
Alison also drinks the odd glass of wine with her friends; she’s not sure but thinks it’s around the government guidelines which is two 750cl bottles per week, meaning the total Wine Duty cost is about £5.50 per week or £13,728 over her working life.
She does have some other expenses, and Alison spends around £300 per month on food and clothing. Most of which has VAT added. She’s not sure of her itemised spending but she thinks most of it has VAT added, so around £60 per month goes to the Treasury. £34,560 over her working life.
A few years ago she went on a very nice holiday and she put the cost of this on her credit card which leaves her with just half of the UK average debt of £4500. This is likely to be paid off over the next ten years or so if she doesn’t spend any more on it (based on average repayment times). The current interest rate on her card is 18.9% and if she makes the minimum payment she should clear the balance completely in around 31 years, and pay £6350 in interest.
There are some incidental taxes, and these should be considered. Her home and car insurance has insurance premium tax (IPT) added at 9.5%. Alison pays £900 for her car insurance and £400 for home contents, making £123.50 per year or £5928 over her working life.
Another incidental is the effect of VAT on home energy, as Alison is conservative user she only spends £104 per month on both, however the vat is £5.20 per month or £2995 over her working life, increasing to £3837 over her lifetime.
Consider another of Alison’s additional payments – her pension. It’s likely she will be poorer to the tune of about £100 per month by making a pension contribution, however based on the level of charges (assumed 2%) she could expect to lose around 20% of her fund every ten years.
Noting that if her pension fund ends up as nothing because of poor investment returns there is no recourse on the state or the company – she would have some comeback for just about every other consumer purchase, but very little for pension non performance.
Despite various searches around the Government portals like Money Advice Service and the Financial Conduct Authority, the Pension Advisory service it’s not possible to clearly clarify the impact of charges, those sites that should offer calculators don’t. If she opts for Pension Freedom her overall charges will increase substantially.
There are a number of things Alison Average can do to help with the amount of tax she pays, and by arranging her finances differently she could be saving many tens of thousands of pounds over her lifetime.
If Alison saves at least some of her money for her use rather than for everyone else to use – spent money is enjoyed by others and not by you; she could…
Take longer holidays, perhaps a month off every year in the middle of winter.
· Take mini breaks of a couple of months every couple of years, like a mini retirement.
· Not worry about the pressures of work.
Even if she manages to build up as little as two years salary, invested this will make a massive difference to her pre zimmer and post zimmer life.
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