What would you do with pension law if you were in charge?

[JulianPH]

Given the many posts on pensions I thought this might be interesting for some.

I'll start it off:

• Remove the Lifetime Allowance. It is pointless and penalises hard saving and successful investment decisions

• Give everyone the same level of contribution entitlement with full tax relief. Stripping those who can actually save of their ability to do so is wrong. The more you earn the greater your tax level becomes (0% 20% 40% 45%), yet your capacity to take advantage of tax breaks reduces to very little (No 0% and pension contributions limited to a quarter of what everyone else can make)

• Pledge not to make any further changes in law for existing pensions. Any new changes can only apply to new ones taken out after (the same or next day) new rules come in

• Really simplify things A, B & C. That should be it.

Over to the PH collective to point out the errors of my ways..!

[sidicks]

JulianPH said:

Given the many posts on pensions I thought this might be interesting for some.

I'll start it off:

• Remove the Lifetime Allowance. It is pointless and penalises hard saving and successful investment decisions

Agreed. It actively penalises those (predominantly private sector workers) with DC pensions compared to those (predominantly public sector workers) with FB pensions.

JulianPH said:

• Give everyone the same level of contribution entitlement with full tax relief. Stripping those who can actually save of their ability to do so is wrong. The more you earn the greater your tax level becomes (0% 20% 40% 45%), yet your capacity to take advantage of tax breaks reduces to very little (No 0% and pension contributions limited to a quarter of what everyone else can make)

Agreed.

JulianPH said:

• Pledge not to make any further changes in law for existing pensions. Any new changes can only apply to new ones taken out after (the same or next day) new rules come in

Agreed - this is key to allow people to make long-term plans. There is no need for private pensions to be linked to state pension age in any way.

JulianPH said:

• Really simplify things A, B & C. That should be it.

Over to the PH collective to point out the errors of my ways..!

The trouble with C, is that inevitably if the government does make a change to the rules, you will end up with a series of different pensions, depending on which rules applied when you took them out!

Edited by sidicks on Saturday 6th January 18:36

[EddieSteadyGo]

I think the £40,000 per annum limit should be extended to look back over 7 years rather than just 3 years.

Those people who run their own businesses often have to prioritise other items of expenditure before they get to funding their own pension. When their business is able to afford larger pension payments, catching up for missed years with the current rules is quite difficult.

[bogie]

Agreed....and thats far too much common sense applied, so the government wont do it

[NickCQ]

JulianPH said:

Remove the Lifetime Allowance. It is pointless and penalises hard saving and successful investment decisions

1) Maybe there should be a Lifetime Allowance, but just on total contributions? That would limit the total amount of Income Tax relief granted, but the subsequent investment performance would be unrelated.

2) Whisper it (maybe I am the Finance section's token lefty), but perhaps it's time for an end to 25% tax-free cash? I know that I am not banking on it being there for my own retirement. Then the pension reverts to being a vehicle to average your income over your lifetime. You can defer earnings to benefit from a lower tax rate when you aren't earning in retirement, but it's not just a tax giveway. The 25% tax free cash as it currently works does not seem to be in step with a 'progressive' tax system, it's basically a bung to the middle (and upper) classes.

[sidicks]

NickCQ said:

1) Maybe there should be a Lifetime Allowance, but just on total contributions? That would limit the total amount of Income Tax relief granted, but the subsequent investment performance would be unrelated.

2) Whisper it (maybe I am the Finance section's token lefty), but perhaps it's time for an end to 25% tax-free cash? I know that I am not banking on it being there for my own retirement. Then the pension reverts to being a vehicle to average your income over your lifetime. You can defer earnings to benefit from a lower tax rate when you aren't earning in retirement, but it's not just a tax giveway. The 25% tax free cash as it currently works does not seem to be in step with a 'progressive' tax system, it's basically a bung to the middle (and upper) classes.

I’ve no problem with the 25% tax free cash reduced or removed.

[ellroy]

So much sense in one short thread.

It’s a shame no one in power will take any note. (A bit like Sid and his inability to understand that green is the greatest colour in the watchmaker’s palette.)

[gd49]

JulianPH said:

Given the many posts on pensions I thought this might be interesting for some.

I'll start it off:

• Remove the Lifetime Allowance. It is pointless and penalises hard saving and successful investment decisions

• Give everyone the same level of contribution entitlement with full tax relief. Stripping those who can actually save of their ability to do so is wrong. The more you earn the greater your tax level becomes (0% 20% 40% 45%), yet your capacity to take advantage of tax breaks reduces to very little (No 0% and pension contributions limited to a quarter of what everyone else can make)

• Pledge not to make any further changes in law for existing pensions. Any new changes can only apply to new ones taken out after (the same or next day) new rules come in

• Really simplify things A, B & C. That should be it.

Over to the PH collective to point out the errors of my ways..!

Agree with points A and C. Not sure I agree with point B, are you suggesting high earners should get more tax relief on their allowance? I don't see the benefit to society as a whole of this, we need to incentivise those on lower incomes to save, hence the tax breaks so society doesn't have to support them in retirement, those on highest tax rate incomes should be able to save enough for their retirement without tax breaks.

[mikeiow]

gd49 said:

JulianPH said:

Given the many posts on pensions I thought this might be interesting for some.

I'll start it off:

• Remove the Lifetime Allowance. It is pointless and penalises hard saving and successful investment decisions

• Give everyone the same level of contribution entitlement with full tax relief. Stripping those who can actually save of their ability to do so is wrong. The more you earn the greater your tax level becomes (0% 20% 40% 45%), yet your capacity to take advantage of tax breaks reduces to very little (No 0% and pension contributions limited to a quarter of what everyone else can make)

• Pledge not to make any further changes in law for existing pensions. Any new changes can only apply to new ones taken out after (the same or next day) new rules come in

• Really simplify things A, B & C. That should be it.

Over to the PH collective to point out the errors of my ways..!

Agree with points A and C. Not sure I agree with point B, are you suggesting high earners should get more tax relief on their allowance? I don't see the benefit to society as a whole of this, we need to incentivise those on lower incomes to save, hence the tax breaks so society doesn't have to support them in retirement, those on highest tax rate incomes should be able to save enough for their retirement without tax breaks.

Although clearly I like the sound of all three, I am inclined to agree that actually those on lower tax bands ought to be given incentives to put more into their pension provision by giving THEM the highest tax band benefits.

Are there caps on the % fees advisors can charge for those who are mandated to take advice on how to use their pot?
As I am now in my 50's and starting to pay more attention to these things, it strikes me that a big old lump of a pension can disappear in those fees!!
What is the most effective/efficient way to get that kind of advice?!

[sidicks]

ellroy said:

So much sense in one short thread.

It’s a shame no one in power will take any note. (A bit like Sid and his inability to understand that green is the greatest colour in the watchmaker’s palette.)

[wisbech]

Copy either the SIngapore or Australian systems of forced saving (CPF/ Super)

[Ginge R]

The problem with reducing access to tax free cash, is that so many more people entering retirement (or more likely, phased retirement) have either debt or debt that's expensive. There's a fine line between people gaming the system or the state missing out on taxable income, and denying people the chance to make fair provision for themselves.

I think the issue of disparity between DB and DC annual allowances is more likely to be resolved by GAD sometime soon anyway - simply fettle the valuation factors.

I would probably revisit GAD rates (which dictate how much cash can be drawn), how pensions are used for estate planning whilst increasing the annual gifting allowance, DB scheme partial transfers, look at the Money Purchase Annual Allowance in order to preserve flexibility whilst restricting recycling.

Oh. And stop tinkering. But looks like I just shot myself in the foot.

[brickwall]

Some great ideas in this thread. My additional suggestion:

Link the valuation multiple for DB pensions (for purposes of lifetime or annual limits) with interest/annuity rates at regular intervals (say every 3 years).

Practically - that means changing the current 20x valuation to ~33x. It is grossly unfair that those with a DC pension that would generate ~£35k pa are probably over the lifetime allowance, but for those with a DB pension it has to be <£50k pa before they're over the limit.

Obviously this becomes redundant if one removes both lifetime and annual allowances. If one removed just the lifetime allowance, then I see no reason not to adjust the multiple every year.

[NickCQ]

anonymous said:

[redacted]

On the first point, not sure I agree. Almost it should be the other way around - during your working life tax rates should be lower to encourage people to work harder and take entrepreneurial risks, contributing to the economy. When you are a pensioner, none of that is relevant. In addition, pensioners tend to be pretty expensive on the public purse, particularly in use of the NHS.

On the second point, that’s not unique to pensions, it’s true of any investment income. Perhaps there’s an argument that some of it should be taxed at a CGT rather than income tax rate. However, if I was in charge I would equalise the CGT and income tax rates so that distinction would cease to be relevant!

[brickwall]

NickCQ said:

anonymous said:

[redacted]

On the first point, not sure I agree. Almost it should be the other way around - during your working life tax rates should be lower to encourage people to work harder and take entrepreneurial risks, contributing to the economy. When you are a pensioner, none of that is relevant. In addition, pensioners tend to be pretty expensive on the public purse, particularly in use of the NHS.

On the second point, that’s not unique to pensions, it’s true of any investment income. Perhaps there’s an argument that some of it should be taxed at a CGT rather than income tax rate. However, if I was in charge I would equalise the CGT and income tax rates so that distinction would cease to be relevant!

Completely agree with Nick here.

Income tax is a general tax to fund general govt expenditure - so in my view should be the same regardless of where that income comes from (employment, investment returns, pension). Pensioners shouldn't get any greater allowances than anyone else.

If the government wants to create incentives for risk taking and entrepreneurial activity, then you can do stuff like SEIS and effectively partially underwrite downside risks.

[sas62]

I would make illegal non funded pension schemes. If the Local Government scheme can be funded then why should the Civil Service, NHS and teachers have a ponzi-like scheme. It would give some additional security to the employees themselves, open up pension freedom to them (like the rest of us) and benefit the wider country as well. That future black hole that we all face as a result of this would disappear.

[sidicks]

sas62 said:

I would make illegal non funded pension schemes. If the Local Government scheme can be funded then why should the Civil Service, NHS and teachers have a ponzi-like scheme.

How the schemes are funded doesn’t really affect the overall cost, so not sure of the benefit of this. Moving to a DC scheme from a DB scheme would be fairer on the taxpayer, but once you have a massive unfunded DB scheme it’s not easy to suddenly move to a funded scheme or DC.

sas62 said:

It would give some additional security to the employees themselves

What additional security would they get? Is there any genuine expectation that the government won’t pay the pensions promised to teachers etc?

sas62 said:

, open up pension freedom to them (like the rest of us) and benefit the wider country as well.

How would the ‘wider country’ benefit? If the government suddenly has to borrow extra money to pay our pension transfers, isn't that a negative for the economy, not a positive?

sas62 said:

That future black hole that we all face as a result of this would disappear.

How are you proposing to fill the massive black hole that currently exists?

Edited by sidicks on Sunday 7th January 12:29

Edited by sidicks on Sunday 7th January 12:32

[drainbrain]

The Inevitably Socialist Future of Massive Automation and the Desire for Equality and Social Justice:

Pension (and most benefits) concept scrapped. Higher taxes (especially on high earners, the rich and their wealth) paying for a Citizens Income (at 'average wage' level) that continues for life.

Experiment now commenced:

http://basicincome.org/news/2017/10/overview-of-cu...

[JulianPH]

gd49 said:

Agree with points A and C. Not sure I agree with point B, are you suggesting high earners should get more tax relief on their allowance? I don't see the benefit to society as a whole of this, we need to incentivise those on lower incomes to save, hence the tax breaks so society doesn't have to support them in retirement, those on highest tax rate incomes should be able to save enough for their retirement without tax breaks.

No I am not, I'm saying that higher earners get the same tax relief on pension contributions as they would have paid tax had they not deferred this income for retirement. This is not the same as getting 'more' tax relief.

I'll add one more thing to my list though, make the state pension tax exempt.

It is after all a NI funded benefit and I am not aware of any other benefits that are taxable.

You can't incentivise people to save when they simply can't afford to. But by making the state pension tax free (like all other state benefits) you will certainly incentivise all those who can afford to save.

[JulianPH]

mikeiow said:

Although clearly I like the sound of all three, I am inclined to agree that actually those on lower tax bands ought to be given incentives to put more into their pension provision by giving THEM the highest tax band benefits.

Are there caps on the % fees advisors can charge for those who are mandated to take advice on how to use their pot?
As I am now in my 50's and starting to pay more attention to these things, it strikes me that a big old lump of a pension can disappear in those fees!!
What is the most effective/efficient way to get that kind of advice?!

By making the state pension tax free you would effectively be doing this as the personal pension provision would likely be covered by their personal allowance meaning it will go much further in retirement.

There are no caps on adviser fees. The most effective way to get advice is usually from an adviser who charges an hourly fee (just as an accountant or solicitor), rather than a percentage of your pot.