Pensions - What will the government do?
Discussion
Morning all,
It’s looking increasingly likely that Labour will announce tax increases in the Autumn Budget. They have already ruled out increases in Income tax, VAT, and NI. This leaves, amongst others, pension tax relief, the tax free lump sum, and the annual allowance (currently £60k / annum).
If the Government did decide to reduce pension tax relief for higher rate taxpayers to say 30%, would this apply to both employee and employer contributions for those on PAYE that contribute to their work place pension scheme?
Also, would this effectively mean the end for salary sacrifice schemes?
We will have to wait until the end of October to find out what the government is planning but it feels likely that they will raise taxes (or reduce relief) on pensions, CGT, or inheritance tax to try and reduce the deficit.
Interested in your thoughts.
It’s looking increasingly likely that Labour will announce tax increases in the Autumn Budget. They have already ruled out increases in Income tax, VAT, and NI. This leaves, amongst others, pension tax relief, the tax free lump sum, and the annual allowance (currently £60k / annum).
If the Government did decide to reduce pension tax relief for higher rate taxpayers to say 30%, would this apply to both employee and employer contributions for those on PAYE that contribute to their work place pension scheme?
Also, would this effectively mean the end for salary sacrifice schemes?
We will have to wait until the end of October to find out what the government is planning but it feels likely that they will raise taxes (or reduce relief) on pensions, CGT, or inheritance tax to try and reduce the deficit.
Interested in your thoughts.
Slow.Patrol said:
I also think the tax free lump sum will be either abolished or restricted to a fixed amount..
That would be a massive vote loser, they would have to be insane to do it. VAT on private school fees they can get away with - it affects a tiny percentage of the population. Tax free lump sum - affects everyone with a pension pot.
I do think a limit on that lump sum would be a headline winner, but it would have to be meaningful enough to bring in sufficient revenue to justify the flak.
I feel that the big question on pensions is the state pension age. I'm 52, my state pension age is already 67, I think that should be pushed to 70. As a country we need to be brave enough to have that conversation, that successive governments have got their sums wrong vis-a-vis an ageing population and we need to reset.
This is my layman down the pub actuarial view - I'm sure there are some actual actuaries on PH who can/will happily dismiss this, and I'm open to correction, but looking at my peers not many of them will be able to retire in 15yrs because many still have massive mortgages. I feel it's a bit of a ticking time bomb that no party really wants to entertain discussion on.
Slow.Patrol said:
Personally I think the higher rate of tax relief on pension contributions will be abolished and it will be a flat rate of 20%.
I also think the tax free lump sum will be either abolished or restricted to a fixed amount..
Removing the higher rate tax relief will create a big disincentive to save for retirement, but it would raise plenty cash. Good in the short term but a disaster for the long term prospects of young people as they look at retirement. I also think the tax free lump sum will be either abolished or restricted to a fixed amount..
It's about the last ladder for young folk in this country to build wealth.
FamousPheasant said:
Removing the higher rate tax relief will create a big disincentive to save for retirement, but it would raise plenty cash. Good in the short term but a disaster for the long term prospects of young people as they look at retirement.
It's about the last ladder for young folk in this country to build wealth.
This is what I can't understand, the more cash people save in their working life the less the state will have to support them in future years, it's exceptionally counter productive to dis-incentivise putting money in pensions. I can see the point in reducing those incentives if you have a £1m pension pot, but many people saving at 40% tax rate will only have maybe £300-£400k at retirement which doesn't get you a massive income, and they'll still rely on the state for some support. It's about the last ladder for young folk in this country to build wealth.
Especially since the tax bands are fixed for another 3 years, fiscal drag is massive and for people near the tax bands they are likely to prioritise pensions savings to avoid that tax hit. It's utterly stupid and extremely short sighted.
Condi said:
FamousPheasant said:
Removing the higher rate tax relief will create a big disincentive to save for retirement, but it would raise plenty cash. Good in the short term but a disaster for the long term prospects of young people as they look at retirement.
It's about the last ladder for young folk in this country to build wealth.
This is what I can't understand, the more cash people save in their working life the less the state will have to support them in future years, it's exceptionally counter productive to dis-incentivise putting money in pensions. I can see the point in reducing those incentives if you have a £1m pension pot, but many people saving at 40% tax rate will only have maybe £300-£400k at retirement which doesn't get you a massive income, and they'll still rely on the state for some support. It's about the last ladder for young folk in this country to build wealth.
Especially since the tax bands are fixed for another 3 years, fiscal drag is massive and for people near the tax bands they are likely to prioritise pensions savings to avoid that tax hit. It's utterly stupid and extremely short sighted.
Personally I'll probably still put the same amount into my pension if the higher rate tax relief is reduced to say 30% - 35%. Any more than than and I'll need to think about it.
Another thought.....
If the government opt for a flat rate of 30% for everyone, will the money raised from the reduction in tax relief from higher rate and additional rate taxpayers offset the cost of topping up the relief from 20% to 30% for basic rate taxpayers?
Of course the government may choose to keep the tax relief for basic rate taxpayers the same at 20% and only reduce the relief for higher / additional rate taxpayers.
If the government opt for a flat rate of 30% for everyone, will the money raised from the reduction in tax relief from higher rate and additional rate taxpayers offset the cost of topping up the relief from 20% to 30% for basic rate taxpayers?
Of course the government may choose to keep the tax relief for basic rate taxpayers the same at 20% and only reduce the relief for higher / additional rate taxpayers.
Ecosseven said:
Agree with all of this but the way the government probably thinks is that by introducing a tax on pension contributions it will encourage more people to spend money in the economy now. They either benefit from the reduction in pension tax relief from higher earners or the full marginal rate of income tax if people put less money in their pension.
Personally I'll probably still put the same amount into my pension if the higher rate tax relief is reduced to say 30% - 35%. Any more than than and I'll need to think about it.
Indeed there will be a certain demographic who will just spend instead of saving. Personally I'll probably still put the same amount into my pension if the higher rate tax relief is reduced to say 30% - 35%. Any more than than and I'll need to think about it.
Personally I think I would look at severely curtailing my spending and saving in ISA's instead. The lack of flexibility of a pension and it getting taxed on the other side needs to be offset by the perks, if those are removed saving from taxed income looks far more appealing. Would just need to not spunk it on a Ferrari in my forties!
Slow.Patrol said:
Personally I think the higher rate of tax relief on pension contributions will be abolished and it will be a flat rate of 20%.
I also think the tax free lump sum will be either abolished or restricted to a fixed amount..
Isn't this just encouraging people to not bother paying into a private pension and to effectively throw themselves at the mercy of the state when they are older?I also think the tax free lump sum will be either abolished or restricted to a fixed amount..
Also isn't this pandering to the percentage of people who are on benefits for life by punishing those who bothered to get off there arse and work for a living?
Slow.Patrol said:
Personally I think the higher rate of tax relief on pension contributions will be abolished and it will be a flat rate of 20%.
I also think the tax free lump sum will be either abolished or restricted to a fixed amount..
I think it might be reduced but not abolished. I also think the tax free lump sum will be either abolished or restricted to a fixed amount..
The question is, if they announce changes come the autumn budget when will they take effect from ?
I'm assuming at the start of the next fiscal year
The idea of pensions is that it is free on the way in and then taxed on the way out. They now want to tax on the way in and on the way out? That will be the end of people paying into pensions then if they are 40 or 45% rate payers, absolute joke. Might as just well pay the tax now and then blow it or give it to the kids.
Controversial opinion and it would never work as the party who introduced it would lose votes.
But should the state pension be abolished completely? I know it would be impossible to do now and people have payed in etc.
But the country can’t afford it and shouldn’t people take some accountability for themselves?
I don’t know, I’m 36 and not counting on my state pension at all. Granted it will be a very nice bonus when I get it. But how old will I be then? 67 currently if the age goes up much more I might not be in the best health to enjoy it anyway.
But should the state pension be abolished completely? I know it would be impossible to do now and people have payed in etc.
But the country can’t afford it and shouldn’t people take some accountability for themselves?
I don’t know, I’m 36 and not counting on my state pension at all. Granted it will be a very nice bonus when I get it. But how old will I be then? 67 currently if the age goes up much more I might not be in the best health to enjoy it anyway.
Googie said:
Suspect that they may look to bring pensions into IHT too. Whatever changes are announced none are likely to be good. Hopefully, any changes will apply from new tax year with no anti forestalling provisions.
Would IHT be applicable between married couples? If so then as we've accumulated all pension savings in my name as my wife's raised the kids etc then as her health is better than mine it'd make sense to divorce to split the pension and get it outside of IHT.cb31 said:
The idea of pensions is that it is free on the way in and then taxed on the way out. They now want to tax on the way in and on the way out? That will be the end of people paying into pensions then if they are 40 or 45% rate payers, absolute joke. Might as just well pay the tax now and then blow it or give it to the kids.
And at least you don’t have to wait until you are late 50s to access it. Puzzles said:
cb31 said:
The idea of pensions is that it is free on the way in and then taxed on the way out. They now want to tax on the way in and on the way out? That will be the end of people paying into pensions then if they are 40 or 45% rate payers, absolute joke. Might as just well pay the tax now and then blow it or give it to the kids.
And at least you don’t have to wait until you are late 50s to access it. The other thing is when they would implement it. I'd assume it would have to be the start of the next financial year as you'd have to give companies time to adjust systems (especially salary sacrifice). I remember it being a nightmare when the VAT rate was changed for the first time in decades with just a week's notice! If they gave that level of notice then I may well transfer my ISA's to pension savings over the balance of the fiscal year to take advantage of the Tax Relief and then top up the ISA's over the balance of the year and put off other spending (such as the patio and car change which are planned for next year) until the ISA's are re-established.
SunsetZed said:
Yeah I'd be thinking along the same lines tbh. The trade-off for me in the lack of flexibility over when I can access it is the higher rate tax relief. If they're going to tax me on it before I put it in and then when I take it out I'd take the flexibility.
The other thing is when they would implement it. I'd assume it would have to be the start of the next financial year as you'd have to give companies time to adjust systems (especially salary sacrifice). I remember it being a nightmare when the VAT rate was changed for the first time in decades with just a week's notice! If they gave that level of notice then I may well transfer my ISA's to pension savings over the balance of the fiscal year to take advantage of the Tax Relief and then top up the ISA's over the balance of the year and put off other spending (such as the patio and car change which are planned for next year) until the ISA's are re-established.
So im assuming the same timeframe for any adjustments of the TFLS ?The other thing is when they would implement it. I'd assume it would have to be the start of the next financial year as you'd have to give companies time to adjust systems (especially salary sacrifice). I remember it being a nightmare when the VAT rate was changed for the first time in decades with just a week's notice! If they gave that level of notice then I may well transfer my ISA's to pension savings over the balance of the fiscal year to take advantage of the Tax Relief and then top up the ISA's over the balance of the year and put off other spending (such as the patio and car change which are planned for next year) until the ISA's are re-established.
If they got rid of higher rate relief it would certainly make me think twice about my workplace pension.
But most of mine is done through salary sacrifice into a SIPP anyway, so it kind of bypasses the need for claiming higher rate relief as it's all off gross income.
Plus my employer adds the 13.8% employer's NI saving on top.
Plus i don't pay employee NI (though this is only 2% once into the higher rate bracket anyway).
Plus i keep my salary below the child benefit clawback.
If they go after salary sacrifice then i'll just cut my hours. It's not worth the marginal rate of 55%+ or whatever it works out as with 2 kids
EDIT: just read that salary sacrifice might be targeted too. oh well. that's me going down to 3 or 4 days a week then!
But most of mine is done through salary sacrifice into a SIPP anyway, so it kind of bypasses the need for claiming higher rate relief as it's all off gross income.
Plus my employer adds the 13.8% employer's NI saving on top.
Plus i don't pay employee NI (though this is only 2% once into the higher rate bracket anyway).
Plus i keep my salary below the child benefit clawback.
If they go after salary sacrifice then i'll just cut my hours. It's not worth the marginal rate of 55%+ or whatever it works out as with 2 kids
EDIT: just read that salary sacrifice might be targeted too. oh well. that's me going down to 3 or 4 days a week then!
Edited by LowTread on Tuesday 30th July 13:14
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