22/03/2014 Your Money


22/03/2014

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We will be looking at pensions and the small print and work out who is

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affected by what and when. As always, the full Your Money service.

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It was a day last Wednesday. What will be be talking about?

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Take a wild guess. More freedom for pensioners to spend

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the money you've saved during your working life. Scrapping the need for

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an annuity, that's what the Chancellor George Osborne announced

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in his Budget this week ` wanting to give people more control in how they

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manage their income after retirement. But will you be able to

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manage your retirement money? And keeping more of the interest you

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earn out of the taxman's hands. A big leap in the amount of money we

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can put in tax efficient ISA accounts. But are they worth the

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money? We will get some advice. So the Chancellor's lifting the

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shackles on pensioners, giving retired people who've saved more

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freedom to decide what to do with the money in their personal pension

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pot. Quick, Maud, book that cruise! George Osborne wants to get rid of

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rules that effectively force most retired people to swap some of their

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pension savings for an annuity ` an investment that pays a guaranteed

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income however long you live. 90% of people who retire buy an

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annuity with their pension savings. Years of low interest rates mean

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they've not been getting much for their money. The Chancellor says he

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wants to change the rules so instead of buying an annuity retired people

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can live off the cash they've saved and/or take that money and invest it

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in something else. He says he'll scrap the 55% tax charge that

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currently stops people from taking more cash than they're allowed from

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their pension pot after they retire. Malcolm McLean is a pensions

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industry consultant at Barnett Waddingham. For 13 years, he was

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Chief Executive of the Pensions Advisory Service. Sarah Pennels is

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editor of the website Savvywoman.co.uk full

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for people who have. It is not for people on a guaranteed

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works pension scheme linked to their salary ` not teachers, civil

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servants, police etc. Absolutely. It is people who are built up a pot of

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money over a number of years. At the moment, they have to use that pot to

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get an income for themselves in their retirement years. In many

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cases, that means taking out an annuity. Over the last four years,

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annuity rates have been on a slide and things have not worked very well

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in the market. What the Chancellor said is that instead of having to

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abide by a number of restricted rules on this, people will be given

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freedom to decide for themselves what to spend that money on. I think

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it is not as revolutionaries to think that people who have been

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saving money all their lives, to allow them to decide how they want

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to spend that money. They will possibly, probably need advice, it

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is the best thing to do as there are tax implications if you draw out the

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money. I keep reading about people saying that people buy flash cards

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and cruises and things. If the do that, they will pay a lot of tax. I

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don't think people will do that. Thinking long`term, this is going to

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become for them a budgetary issue, rather than a pension one. They need

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advice and they'll get guidance, the Government says, from various

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sources. If you have retired already, are you affected by this?

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If you've already bought your annuity, too late for you.

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You get a 30 day cooling off period, but in the last couple of days, a

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number of annuity providers say they will be extending back to 45 or 60

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days, so the first thing to do is check with them. Malcolm's point is

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it is not about taking the money and spending it on living the high life,

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it means taking the money and reinvesting it, maybe just putting

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it in the bank. Maybe in some cases, buying an annuity. That's right.

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We're not going to see the end of annuity is because people can take

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money from their pension fund. People with pension pots that are

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small cannot afford to take risks. If you put money in the bank at the

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moment with interests rates as they are, you're losing money because of

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the inflation rates. If people feel better being in charge of their

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money, they may come back to buying an annuity. What can people do today

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to make the most of these changes? From the 27th of this month, some of

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the restrictions will be lifted. You will be able to take more of the

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money out in cash. But the full change actually comes in when the

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old shackles are off from April 2015, so that is some time off. In

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the meantime, people need to think carefully. For some people, and

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annuity will still be the right answer, it will give them peace of

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mind throughout their retirement, and if they do live longer than

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expected, and many people are living into their 90s, they will make a

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profit on it, but nobody knows how long people live, so it is a gamble

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either way. The rule is, never take the first year offered, shop around.

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You mentioned that from the 27th of March, you can take more. 25% of

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that will be tax`free and the rest will be taxed when you draw it out

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at your marginal tax rate. Another phrase in the budget that chills the

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heart, flexible drawdown rules. It means that the moment, there are

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limits on how much you can take from your pension unless you have a lot

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of other income coming in. It is set at 120% of the annuity rate. From

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next week, you can increase the amount you take, but that doesn't

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this is certainly mean it will be the right thing for you to do. You

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have written about it on your website. Thank you for sharing your

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expertise. Some other things of interest to the

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golden generation ` if you're paying 10p in the pound in tax on the

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interest you earn from your savings, that's being cut to zero. Fed up

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with low interest rates at the bank? National Savings is to launch a new

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Pensioner Bond. Interest rates are expected to be 2.8% if you lock your

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money up for one year ` 4% if you take out the three year bond.

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Crucially, it doesn't look like the rate will be linked to inflation, so

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if prices rise sharply, you'll be left behind. And the amount you can

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save in Premium Bonds will go up from 30 grand to 40 grand in June,

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and up again to 50 grand next year. Of course, there are no interest

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payments there, but the second ?1 million monthly prize is being

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brought back. And don't forget this. The tax on bingo is cut in half to

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1%. That brings it into line with other gambling taxes. Rank has

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already said that will allow it to open three new bingo halls. Tax on

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Scotch whisky, spirits and cider has been frozen. And there's a penny off

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the pint ` tax on beer cut by 1p, but the tax on cigarettes is up

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again. Did you think that was all? Silly billy. Workers will be able to

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keep more of their money before paying tax ` the point at which we

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start paying income tax will rise to ?10, 500. The starting point for the

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40% tax rate will rise by just under ?1,000 to ?42, 285. And up to two

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million parents who work are to get more help with their childcare

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costs. From September next year ` 2015 ` they'll get vouchers worth up

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to ?2,000 a year. The thrupenny bit is back ` though this time it will

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be cold the new one`pound coin. 12 sides will apparently be harder to

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forge. And double good news for drivers. The Chancellor cancelled

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the next planned increase in fuel tax. Meanwhile, the AA says petrol

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prices are now at their lowest levels in three years. They could be

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an extra ?150 million to help people build their own homes. And tax

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relief could be cut if you put your money into solar energy schemes.

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Details on the government website. News for savers now. We can put more

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money into tax efficient ISA accounts. That is if you've got the

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spare cash. And if you know what an ISA actually is. Many people don't.

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Here's Alice Baxter. To save or not to save. When it

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comes to putting your hard earned cash into a tax`free ISA, analysts

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and politicians tell us it is a no`brainer. But of the 30 million

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Britons entitled is to them, less than half a subscribe. And do enough

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of us even know what's an ISA is? It's to do with money in the bag.

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I've never heard of it before. Do you think you pay tax on them? I do

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believe you pay tax. Did you know you can open up a new ISA every

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year? I didn't know that. A lot of people don't really understand what

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an ISA is. The stocks and shares ISAs, you can invest in Germany may

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go down as well as up all stop I had a lady other weekly didn't realise

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you were allowed to have one ISA per tax year. A lot of people don't even

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know what a tax year. Getting your head round the financial jargon is

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daft, but the numbers speak for themselves. You could get ?100,000

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of tax`free income. For a cash ISA, you would get ?20,000 of tax`free

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interest. No one will have a single new ISA. Should this be taken as

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further encouragement for savers? Absolutely. It is a simplification

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of the rules and erasing of the limits to a sensible level of

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15,000. It is nice and simple. The message is, when it comes to ISAs,

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either reduce them or lose them when it comes to the end of the tax year.

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It doesn't matter how much you have to save, you could have ?1000 or

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?100 or ?5, the more you can put away into your ISA piggy bank, the

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more you are giving away from the taxman and keeping for yourself.

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Alice Baxter, saving for a rainy day in London.

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So ` two big changes for ISAs in the Budget. The difference between a

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shares ISA and a cash ISA is being scrapped ` now it's just going to be

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one big pot with shares and cash. And the pot itself is getting a lot

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bigger, if you want ` the amount we can pay in will jump to ?15,000.

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Claire Walsh is from Pavilion Financial Services.

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Having one big pot should make things easier to understand.

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Hopefully. 15,000 is a nice round number. Has been confusion over ISAs

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in the past, about some of the limits restrictions. You can open an

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ISA each at tax year, seeded open one now and then another after the

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5th of April. It will go up in July to 15,000. The change from two types

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of ISA to one type of ISA, is that also in July? Yes. If if you look at

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cash ISAs, the interest is below what you would get in a current

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account. I think it is about shopping around. Interest rates are

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historically low at the moment, but what I'm courage people to do with

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cash ISAs is shop around and look for long`term rates. If you need to

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get the money out, you will lose a little bit, but chances are you

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probably won't. If you take money out of ISA, you can't put it back in

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if you've picked your annual allowance. Yes, you have to wait

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until the following tax year. Withdrawing money is not a good idea

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for a lot of people, but you can transferred it to another account if

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you find it as being a better rate. Yes, people come to me and they have

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been shopping around and they have several ISAs with lots of different

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institutions. It is easier to manage if you can consolidate them, but

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that takes a bit of work. Thank you very much. That's all from Your

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Money's special look at the Budget. If you mist anything or want more

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detail ` a good place to start is the Your Money bit of the BBC's

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website ` bbc.co.uk/money. Normal money service throughout the week on

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Twitter. We're back next week. Thanks for watching today.

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Most of us will get to see some sunshine today, but there will also

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be showers, with the cold

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