Pension tax free lump sum to be capped at 100k?

Pension tax free lump sum to be capped at 100k?

Author
Discussion

TT86

Original Poster:

142 posts

38 months

Wednesday
quotequote all
What do we think re the above? Is it likely we will see the tax free lump sum capped to 100k down from the current 268k?

I'm guessing lots of industrial action would be likely if they did so hopefully not too likely.

ChocolateFrog

31,947 posts

188 months

Wednesday
quotequote all
Nothing to base it on but I'm going to guess not. There's been loads of rumours around all sorts of finance stuff that Labour are supposedly going to raid and I think I'm right in thinking not a single one has happened.

We can convert our lump sum at a rate of £12 to £1 so I guess I'll just take the extra £14k pa if they did cut it to £100k.

TT86

Original Poster:

142 posts

38 months

Yesterday (03:40)
quotequote all
ChocolateFrog said:
Nothing to base it on but I'm going to guess not. There's been loads of rumours around all sorts of finance stuff that Labour are supposedly going to raid and I think I'm right in thinking not a single one has happened.

We can convert our lump sum at a rate of £12 to £1 so I guess I'll just take the extra £14k pa if they did cut it to £100k.
No that's a good point. My projected lump sum is £267k. To take 100k would give me an extra 11k a year. Id have to live a fair while longer to see the benefit mind.

wisbech

3,705 posts

136 months

Yesterday (04:08)
quotequote all
TT86 said:
What do we think re the above? Is it likely we will see the tax free lump sum capped to 100k down from the current 268k?

I'm guessing lots of industrial action would be likely if they did so hopefully not too likely.
Not sure industrial action would be legal in most cases. Going on strike, say, against Barclays Bank as your employer because of a change in UK law - presume you could be sued or fired for absence

Newc

2,104 posts

197 months

Yesterday (06:12)
quotequote all
As Reeves is discovering, making changes like this isn't as easy as it sounds when in opposition. Say she decides to reduce it - it's a political gift to Reform. "We will restore your hard earned pension savings blah blah".

Result - people hold off drawing it till after the election, no additional taxes are raised, Reform move up another couple of points in the polls.

Pension changes can only stick if either all parties broadly agree, or your party confidently expects to win at the next election.

What changes could stick? They could perhaps get away with reducing annual maximum contributions, or bringing in a lifetime contributions cap, or scrapping higher rate tax relief or the triple lock, or gradually raising the state entitlement age.

In the first two cases they have to deal with the fall out from the high paid defined benefit mob - doctors, senior civil servants, etc. Possible though.

Raising the age might fly too, but wouldn't deliver any savings for years.

Restricting tax relief and scrapping the lock both seem like shoo-ins for this October's budget. They can be brought in from April, and generate immediate savings, with the political reaction predominantly in people who don't vote Labour anyway.




Blue_star

112 posts

31 months

Yesterday (06:22)
quotequote all
Hahhaha you really made my day. You genuinely believe that there is so many people with £400k in pension pot, you can have industrial action?

I hope you torries wake tf up one of these days. Absolute insanity in this country.

Blue_star

112 posts

31 months

Yesterday (06:23)
quotequote all
Average pension pot is £145k.

Len Clifton

385 posts

5 months

Yesterday (06:44)
quotequote all
Newc said:
What changes could stick? They could perhaps get away with reducing annual maximum contributions, or bringing in a lifetime contributions cap, or scrapping higher rate tax relief or the triple lock, or gradually raising the state entitlement age.

In the first two cases they have to deal with the fall out from the high paid defined benefit mob - doctors, senior civil servants, etc. Possible though.

Raising the age might fly too, but wouldn't deliver any savings for years.

Restricting tax relief and scrapping the lock both seem like shoo-ins for this October's budget. They can be brought in from April, and generate immediate savings, with the political reaction predominantly in people who don't vote Labour anyway.
More than possible. It’s the reason the last government increased the allowance to £60k and removed the lifetime cap. Doctors would simply pack up and retire if they reversed it.

Steve H

6,271 posts

210 months

Yesterday (06:56)
quotequote all
Blue_star said:
Hahhaha you really made my day. You genuinely believe that there is so many people with £400k in pension pot, you can have industrial action?

I hope you torries wake tf up one of these days. Absolute insanity in this country.
And the majority of people with a decent pension are not Labour supporters so this government will happily screw them anyway.

On the other hand, doctors are walking out again next week because they are only getting an above inflation pay rise; they have big enough pensions, what do you think happens when they can’t get their full TFLS on retirement?

You think teachers (who are very much Labour stalwarts) wouldn’t be affected by a cap?


Newc is correct, these policies that raise very little but are aimed at punishing wealth will just strengthen Reform as a party and while a lot of Labour voters would never swap sides to the Tories, there’s a huge number that would swap to Reform if they look viable at the next election.

cliffords

2,581 posts

38 months

Yesterday (07:28)
quotequote all
Newc said:
As Reeves is discovering, making changes like this isn't as easy as it sounds when in opposition. Say she decides to reduce it - it's a political gift to Reform. "We will restore your hard earned pension savings blah blah".

Result - people hold off drawing it till after the election, no additional taxes are raised, Reform move up another couple of points in the polls.

Pension changes can only stick if either all parties broadly agree, or your party confidently expects to win at the next election.

What changes could stick? They could perhaps get away with reducing annual maximum contributions, or bringing in a lifetime contributions cap, or scrapping higher rate tax relief or the triple lock, or gradually raising the state entitlement age.

In the first two cases they have to deal with the fall out from the high paid defined benefit mob - doctors, senior civil servants, etc. Possible though.

Raising the age might fly too, but wouldn't deliver any savings for years.

Restricting tax relief and scrapping the lock both seem like shoo-ins for this October's budget. They can be brought in from April, and generate immediate savings, with the political reaction predominantly in people who don't vote Labour anyway.
It's one line in the budget. It's very easy to do and as stated elsewhere,it will effect in the main traditional non labour voters .
In the last budget she made a huge change to inheritance tax treatment on private pensions. It was literally one sentence in her speech. It had little push back,debate or follow up. It is a very significant change.
I absolutely think she will do it and soon.

Salted_Peanut

1,727 posts

69 months

Yesterday (08:21)
quotequote all
Jasey_ said:
And may have an exemption for public sector pensions.
While I could envisage this happening, it would be deeply unfair to exempt public sector pensions. It would exacerbate the already stark difference between private and public sector pensions.

The biggest risk to private pensions is government tinkering with the rules.








Pit Pony

10,121 posts

136 months

Yesterday (08:28)
quotequote all
Blue_star said:
Average pension pot is £145k.
At retirement age?

Or at 55

Or at the point people choose to take a lump sum?

Mean average or median average?

Andy 308GTB

2,982 posts

236 months

Yesterday (08:28)
quotequote all
Jasey_ said:
cliffords said:
It's one line in the budget. It's very easy to do and as stated elsewhere,it will effect in the main traditional non labour voters .
In the last budget she made a huge change to inheritance tax treatment on private pensions. It was literally one sentence in her speech. It had little push back,debate or follow up. It is a very significant change.
I absolutely think she will do it and soon.
And may have an exemption for public sector pensions.

The working man will be fine from this as they are being fked already and can't save for their pension.

Inflation rising, economy shrinking and unemployment at a 4yr high.

Who knew this was going happen rofl

Edited by Jasey_ on Thursday 17th July 08:02
The 2 items in bold above are pertinent. The other area is interest only mortgages which were sold linked to pensions, the TFLS being scheduled to pay off the principal - these were sold years ago when house prices were lower. No personal experience of these but that was my understanding

Tighnamara

2,405 posts

168 months

Yesterday (08:47)
quotequote all
Pit Pony said:
Blue_star said:
Average pension pot is £145k.
At retirement age?

Or at 55

Or at the point people choose to take a lump sum?

Mean average or median average?
Scroll half way down link below

https://www.charles-stanley.co.uk/insights/comment...

Tommo87

5,216 posts

128 months

Yesterday (08:55)
quotequote all
Young adults today

Presumably a blue star is given for just being there in the background on the school sports day. hehe


Very unlike that gold star that they never obtained through merit and hard work.


Blue_star

112 posts

31 months

Yesterday (09:23)
quotequote all
Shade of brown star for old adults today.

Grown up in country built by their parents after the war, set up for good life. Enjoying asset bubble, no education cost, tax cuts. Leaving to their kids ruined services and massive government debt.

Entitled to everything ashamed of nothing

Blue_star

112 posts

31 months

Yesterday (09:24)
quotequote all
Pit Pony said:
Blue_star said:
Average pension pot is £145k.
At retirement age?

Or at 55

Or at the point people choose to take a lump sum?

Mean average or median average?
Retirement age but includes adulta with no pension. Colleague below your comment gave very detailed and informative analysis.

wisbech

3,705 posts

136 months

Yesterday (09:29)
quotequote all
The way to position this (if it goes ahead) is to "save people from themselves". Reducing the lump sum that can be spent on cruises/ hookers & blow reduces the chance that some one runs out of money later on (so the old rules insisted on annuities) Yes, it might be a tax grab, but it can be spun as a safety measure

fat80b

2,830 posts

236 months

Yesterday (09:39)
quotequote all
wisbech said:
The way to position this (if it goes ahead) is to "save people from themselves". Reducing the lump sum that can be spent on cruises/ hookers & blow reduces the chance that some one runs out of money later on (so the old rules insisted on annuities) Yes, it might be a tax grab, but it can be spun as a safety measure
That would have to be the spin given.

The challenge though is that it (plus any other tweaks to the pension system) will also be seen as a massive negative driving people away from pensions as an investment / savings vehicle.

Given there are also rumours around them wanting to increase the mandatory workplace pension contribs (from ~8 to ~12%) then these two moves seem to send contradictory messages.

They (I) want to see people saving more in to their pensions and not less, so any change that discourages people from doing so needs to be carefully thought about.


If I had to guess, I'd guess that they'd lower the max annual contrib amount ((from 60 to 40K) but leave everything else alone as it's too risky...

Jawls

767 posts

66 months

Yesterday (09:46)
quotequote all
TT86 said:
What do we think re the above? Is it likely we will see the tax free lump sum capped to 100k down from the current 268k?

I'm guessing lots of industrial action would be likely if they did so hopefully not too likely.
Making decisions based on rumour is not good financial planning.

I would be shocked if they made major negative changes to the fundamental mechanics of pensions without significant transitional protection. (Exception: bringing them into scope of IHT, but you could argue that IHT mitigation was never intended as a key part of pensions infrastructure)