Controversial Opinion?

[Wattsisname]

It's all about risk

The actuary friends of mine explain it like this:

When a finance looks at a car, they don't have a guess what the price is in 3 years, they have a spread of prices - say a £50k car has a 25% chance of being worth in 3 years £25k, a 50% chance of being woth £28k and a 25% chance of being £30k

On a lease they'll set the payments based nearer the middle - so say 28k, knock a bit of for admin, add interest etc and that sets the price. They win some, they lose some but on average they think know what the car whould be worth.

With PCP, because there is no upside to them if the car is worth more at the end, they set the prices at the lowest end, or 25k. If in the future its at the worst end, they've covered themselves, if it works out in the middle of their range, the person witht he PCP feels great and has a bit of equity and if its much better then the PCP buyer is even happier, but the company providing the PCP doesn't really car about the upside, they generally don;t get any of it, they just need to guard against what the worst case for them is.

So... leases generally have a higher prediction on the future value of the car than PCP for their calculations. which means generally you pay more for a PCP than a lease to cover the difference in future value expectations. What you pay extra is includes the difference between the worst expected future value and a more average one and what is likely to be the equity in the car at the end,

There is no magic bullet here. PCP is great if depreciation turns out to be less than they the expected, if ts pretty much as expected you're in a fairly neutral position but have the hassle of having to buy the car from them or somehow recycle the equity in the car into another deal, and if depreciation is worse than expected you're no different.

Company schemes are complicated differently because of the way VAT works

Take a quick example
Tesla website - M3 RWD
Personal Lease = £4k + 48 * 567 = £29,500
PCP = £7k + 48 * 538 = £32.800

In 4 years would you be happy if you had £3k equity in the car (ie its value was £3k more than the balloon payment)? You've paid £3.3k more to get there so you'd actually be neutral (give or take a few hundred) . If depreciation was bad, you give the car back but you've still paid that £3.3k extra in the monthly payments, if the depreciation was low, then you've made what ever the extra value was, less the £3.3k you've paid extra over the 4 years. You are taking the risk on the 3k with PCP.

Is it going to be a hassle buying the at PCP end? More of a hassle than handing back a leased car and starting again from scratch?
These are genuine questions for clarification rather than an attempt to take issue with your explanation.
I love owning cars but did not particularly enjoy the purchasing process until the Tesla; hassle free buying and financing through Tesla.

 

[Utumno]

Is it going to be a hassle buying the at PCP end?

You just wire money to the finance company to settle the balloon payment.

More of a hassle than handing back a leased car and starting again from scratch?

Less of a hassle, in my book as all you have to do is a bank transfer. Handing back a leased car and starting from scratch involves moving metal about, which is infinitely more hassle than moving money about in my experience.

 

[Wattsisname]

You just wire money to the finance company to settle the balloon payment.



Less of a hassle, in my book as all you have to do is a bank transfer. Handing back a leased car and starting from scratch involves moving metal about, which is infinitely more hassle than moving money about in my experience.

Just as I thought/hoped.

 

[GeorgeSymonds]

The problem with handing back the lease car is you usually need to have got the replacement car organised, and as we've seen on here, delivery dates can shift around at late notice. The easiest way is a part ex, you simply drive in with the old car and drive away with the new, but thats typically also the most expensive way of doing it.

They all have different pro's and con's

 

[Tony Hoyle]

That's partly why I ended up with the Y - part ex price Tesla were giving me for upgrade just couldn't be matched anywhere.. I ended up paying less per month for a more expensive car. Normally dealers will try to shaft you on that kind of stuff but Tesla went the other way.

 

[gangzoom]

Hi all.

Coming to the end of my 3 year lease with Zen and I can’t say I’ve been pleased with leasing.

Haven’t had any issues with Zen directly, (apart from them wanting to put my monthly payment up 40% for a 12 month extension) but I just don’t see what the attraction is over a PCP!

It’s just renting a car at the end of the day, you’ve got no equity at all, nothing and then you’ve got to lump up 1000’s more in another deposit. Am I missing something?

Love to hear what other people’s thoughts and experiences are?

I’m not sure what’s controversial about what you have summed up.

I’ve never had any interest in leasing for the simple reason you are essentially paying for long term rental car - unlike PCP/HP.

The worst is probably NHS salary sacrifice ‘deals’. If the impact of NHS SS were explained to people properly and the NHS schemes open to the public I suspect it would worthy to be considered as the next ‘miss selling’ scandal.

 

[Bootneckshuffl]

I’m not sure what’s controversial about what you have summed up.

I’ve never had any interest in leasing for the simple reason you are essentially paying for long term rental car - unlike PCP/HP.

The worst is probably NHS salary sacrifice ‘deals’. If the impact of NHS SS were explained to people properly and the NHS schemes open to the public I suspect it would worthy to be considered as the next ‘miss selling’ scandal.

Spot on mate

 

[MrT3]

The worst is probably NHS salary sacrifice ‘deals’. If the impact of NHS SS were explained to people properly and the NHS schemes open to the public I suspect it would worthy to be considered as the next ‘miss selling’ scandal.

What is different about NHS ss compared to private sector ss deals? The tax savings mean you cannot get close to the monthly payments with any other type of financing.

 

[gangzoom]

What is different about NHS ss compared to private sector ss deals? The tax savings mean you cannot get close to the monthly payments with any other type of financing.

You loss a proportion of your NHS pension contributions for both employee and employer.

The NHS pension final value is directly linked to your contributions, so you are essentially scarficing some value from one of best pensions (if not the best) around, for short gain on a rental car.

Financially its makes no sense.

 

[DJP31]

The NHS pension final value is directly linked to your contributions

Is it? I thought the NHS pension was linked to salary, not quite final salary anymore but career average earnings. Neither of these are directly linked to the contributions, which is the big attraction of "defined benefit" pensions. Are you saying the pension entitlement is based on the post salary sacrifice salary, as opposed to the pre sacrificed salary?

 

[Bouba]

When you buy a car...you hope by the end of your ownership it is still just like new. With a lease..the car HAS to be just like new

 

[gangzoom]

Are you saying the pension entitlement is based on the post salary sacrifice salary, as opposed to the pre sacrificed salary?

Linke to POST sacrifice salary, it saves the Trust ££££ in NI, but costs employees ££££ in pension revenues.

Don't forget the NHS pension pay out grows at a GURRANTED 1.5%+inflation, so currently my pension pot is growing at 11.5% roughly with zero risk. So giving any amount of that up for a rental car for me seems like utter financial madness.

 

[MadManMark]

I’d be paying 62% tax if I was taking my salary sacrifice lease cost as income. I could sacrifice it into my pension but until recently there were lifetime allowance issues - There still might be if we have a change of government next year. Will have to evaluate the situation when the current lease runs out in September 2024. No right answer on salary sacrifice - this lease has worked for me but it is very specific to your individual financial circumstances.

 

[Wattsisname]

I’m not sure what’s controversial about what you have summed

Mmmm! Taking issue with the OP's judgement of what is/ isn't controversial
could lead to a kickoff.
Seriously though, my decision to take the Tesla PCP was Zen.

 

[Bootneckshuffl]

Mmmm! Taking issue with the OP's judgement of what is/ isn't controversial
could lead to a kickoff.
Seriously though, my decision to take the Tesla PCP was Zen.

And it looks increasingly likely it’ll work the same way here

 

[gangzoom]

. No right answer on salary sacrifice - this lease has worked for me but it is very specific to your individual financial circumstances.

You're right, but the NHS SS scheme isn pushed on to employees with zero explanation of consequences apart from a single line 'your pension may be effected'.

From memory for me a £400/month NHS SS 'deal', actually would cost me £700-800/month once pension impacts are taken into account, and that assumes I die at 75, if I lived to 85 that figure would be higher.

NHS SS meets every metric needed for 'miss selling' in my view. The final 'total cost' need to be advertised to employees as well as the initial cost.

 

[Bootneckshuffl]

You're right, but the NHS SS scheme isn pushed on to employees with zero explanation of consequences apart from a single line 'your pension may be effected'.

From memory for me a £400/month NHS SS 'deal', actually would cost me £700-800/month once pension impacts are taken into account, and that assumes I die at 75, if I lived to 85 that figure would be higher.

NHS SS meets every metric needed for 'miss selling' in my view. The final 'total cost' need to be advertised to employees as well as the initial cost.

Wow, they don’t package it that way do they!

 

[DrJFoster]

The NHS potential issue is because when you give the car back, the salary sacrifice unwinds, your salary goes up and as its a final salary pension, your pension pot has a sudden growth to be able to pay out. The amount is a function of the number of years in the pension and salary. The BMA figures illustration works on somebody having been in the pension scheme for 24 years, a salary sacrifice of £8253, which after the calculations results in a bump of £47k - this is irrespective of your salary, it s function of the amount you were sacrificing for the car and years in the pension. This is seen as additional contributions in the tax year, however the limit for contributions is £60k. The regular pension contributions including employer and employee vary, but can as high as 30%. If you're on a 60k a year, that means you're also paying in about £18k, plus the £47k bump = £65k. So you have over paid and you'll get a tax bill on the 5k, so end up paying about 2k to clear the tax bill.

The alternate is to keep doing salary sacrifice until retirement however its a final salary scheme, and the reference point is after salary sacrifice, so you've effectively cut your pension every year, 39 years on an 80th scheme would mean the pension is reduced by £4000 every year.

You need to do the sums, but for most people up to about 40 (when they come out of the salary sacrifice scheme) they'll not have the problem, and then it gets gradually worse above that. I don't see what they've done as being a problem, it's an unfortunate consequence of two different things, and you have to manage your own tax affairs, and the BMA and Unions are there to explain these things to their members, in fact I know of at least one union which lobbied to introduce the scheme in the first place without understanding the consequences.

 

[gangzoom]

The NHS potential issue is because when you give the car back, the salary sacrifice unwinds, your salary goes up and as its a final salary pension, your pension pot has a sudden growth to be able to pay out.

That is only one issue.

The figure I'm talking about is loss in actual pension income due to a reduction in pensionable pay.

So the NHS SS scheme have multiple 'issues', none of which are highlighted to employees.....Miss selling essentially.

 

[gangzoom]

I don't see what they've done as being a problem, it's an unfortunate consequence of two different things, and you have to manage your own tax affairs, and the BMA and Unions are there to explain these things to their members.

What's the BMA got anything to do with employer SS schemes???

If you don't see a problem with how complex the NHS SS scheme is, good for you. But a single line saying 'your pension might be effected' wouldn't pass any FCA guidance if NHS SS was a commercial product available to anyone.

This was the NHS SS 'offer' page for our trust. You can literally sign up in two clicks. Given the size of your own reply, shouldn't you think somewhere on the figures costs should be massive text or links to either the BMA or the NHS pension website??

Nope, instead it's just a single monthly cost now - absolutely zero indication of the ACTUAL cost.

The OP is irritated at Zen leasing not making it clear leasing = rental, imagine how irritated they would be now if they got a letter from HMRC for extra tax + 25 years when they get their first pension withdrawal the amount is less than they expected because of a rental car they have been hiring?