Pension lifetime allowance - why not on contributions?
Discussion
Just a thought after reading the thread about potential reductions to increase tax take.
Why is the lifetime allowance based on the crystallised values and not the current contributions?
If the government's objective is to maximise tax revenue now then surely it makes more sense to calculate the % of LTA used every time a contribution is made.
It would then be clear to everyone when they are reaching the allowance and they could then decide to continue and pay the tax then and there, or stop and pay income tax instead.
The current system means makes planning difficult and the government won't receive revenue until, potentially, decades down the line.
Why is the lifetime allowance based on the crystallised values and not the current contributions?
If the government's objective is to maximise tax revenue now then surely it makes more sense to calculate the % of LTA used every time a contribution is made.
It would then be clear to everyone when they are reaching the allowance and they could then decide to continue and pay the tax then and there, or stop and pay income tax instead.
The current system means makes planning difficult and the government won't receive revenue until, potentially, decades down the line.
If you fancy running for office you have my vote anyway.
In my forties i have a pot of £450K and i am confident of hitting LTA in the next 17 years. Nuts that LTA was introduced in 2012(ish) and was quickly slashed limiting(or at least disincentivizing) the financial cushion you can build yourself.
In my forties i have a pot of £450K and i am confident of hitting LTA in the next 17 years. Nuts that LTA was introduced in 2012(ish) and was quickly slashed limiting(or at least disincentivizing) the financial cushion you can build yourself.
I was thinking the same thing after reading the other thread, but then realised that there is kind of a limit, but it's annual rather than LTA on the way in - currently £40k.
I guess they could force a crystallisation event with each contribution, but for most people that's monthly. Not sure it would achieve much as it would only hit those already over the LTA.
I guess they could force a crystallisation event with each contribution, but for most people that's monthly. Not sure it would achieve much as it would only hit those already over the LTA.
LTA used to be £1.8million then cut to £1.5million then £1.25 million then £1million +alterations for dynamising factor so where in past only affected top professors or civil servants will now affect most consultants/GP if working full time for their carerr hence why older docs are basically being forced to retire or get large tax bills or start career part time making NHS unworkable as not enough doctors
I'm still struggling with this 'forced to retire' thing.
They can still put money into a pension, there's just no tax benefit to doing so. They are still earning decent money & can save it elsewhere. I get that they don't like it, but it's hardly the end of the world & forcing them out of working.
The 100k+ tax band at an effective 60% I kind of get - working overtime in that bracket is not compelling when you 'only' get 40% for your effort.
They can still put money into a pension, there's just no tax benefit to doing so. They are still earning decent money & can save it elsewhere. I get that they don't like it, but it's hardly the end of the world & forcing them out of working.
The 100k+ tax band at an effective 60% I kind of get - working overtime in that bracket is not compelling when you 'only' get 40% for your effort.
LeoSayer said:
Why is the lifetime allowance based on the crystallised values and not the current contributions?
The government is foregoing two kinds of tax revenue - income tax on contributions and capital gains + dividend taxes on growth. If you only capped relief on contributions, you get inequitable situations where a careful / risk averse investor gets much smaller tax breaks than someone that YOLOs their whole pension pot into, for example, AIM mining stocks.It's also to stop the kind of avoidance that's rife in the US, whereby you tranche up investments such that all the growth goes into the bit held in the pension wrapper, where it doesn't attract tax (see Mitt Romney's $100 mm IRA!)
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