Worth dumping cash into pension before 40% rate dropped ?
Discussion
Think of your objectives, ask if a big pension contribution would help (anyway) and then consider if he'll drop rates and restrict access later on. You'll have your answer. Don't do it simply because time might be running out, do it because it's going to be good for you. Between now and you possibly retiring, we'll continue to see huge churn in retirement planning anyway, so rise above the turbulence, see the bigger picture too.
George111 said:
Is it worth dumping a lot of cash into the pension before the 40% rate is dropped ? Have read a lot that suggests it is but with further pension rule changes in the coming years, might I be locking away cash that I might be able to use more efficiently later on ?
Let's say,- I usually put £5k in my pension plan every year and intend to continue doing that for at least the next 5 years
- I happen to have £25 kicking around at the bank right now
- I am concerned that 40% tax relief might not be available in future years
Ozzie Osmond said:
Ozzie's logic: I can at "no cost" lock in the "certainty" of 40% tax relief on my next £25k of contributions by making five years contributions at once. I would do it. [Others might not]
Don't forget you need £25k of earnings at 40% to able to achieve that (assuming the £25k contribution is gross).PurpleMoonlight said:
Contributions are always allocated to the current year until that is all utilised.
Then you allocate to the furthest away unused allowance, so 2012-13 at the moment.
Interesting, as our company pension advisor said the reverse (re which unused allowance), that you have to allocate to the most recent unused allowance. ie to use the oldest unused allowance before it expires, you need to have filled all the others first.Then you allocate to the furthest away unused allowance, so 2012-13 at the moment.
Academic for most people, and especially if it gets removed.
http://www.pensionsadvisoryservice.org.uk/about-pe...
"To use carry forward, you must make the maximum allowable contribution in the current tax year (£40,000 in 2015-16) and can then use unused annual allowances from the three previous tax years, starting with the tax year three years ago."
swerni said:
If I hypothetically dumped £40k in to the pension before the year end...
Depending on whether you're talking about this in the context of the upcoming changes or just in general, I'll point out that, from what I've read, much talk is around changes taking place immediately following the budget rather than at financial year end.It will be almost impossible to change the tax relief from budget day. Computer programs need to be adjusted.
6th April 2016 is likely the earliest but even that would be difficult for payroll programmers. To do it properly 2017 is my bet.
The only way it could be introduced quickly (2016) would be for every higher rate tax payers in occupational pension schemes to declare their contribution in their 2016-17 tax return and pay more tax over the following year or one off in January. This would involve redesigning the forms and HMRC computer program by 5th April 2017.
6th April 2016 is likely the earliest but even that would be difficult for payroll programmers. To do it properly 2017 is my bet.
The only way it could be introduced quickly (2016) would be for every higher rate tax payers in occupational pension schemes to declare their contribution in their 2016-17 tax return and pay more tax over the following year or one off in January. This would involve redesigning the forms and HMRC computer program by 5th April 2017.
PurpleMoonlight said:
It will be almost impossible to change the tax relief from budget day. Computer programs need to be adjusted.
6th April 2016 is likely the earliest but even that would be difficult for payroll programmers. To do it properly 2017 is my bet.
The only way it could be introduced quickly (2016) would be for every higher rate tax payers in occupational pension schemes to declare their contribution in their 2016-17 tax return and pay more tax over the following year or one off in January. This would involve redesigning the forms and HMRC computer program by 5th April 2017.
I agree with everything you've said however I think that the tax return option is unlikely as there would be a requirement for a huge number of people to complete tax returns who have never done so in the past and HMRC cannot deal with the ones they receive now effectively. 6th April 2016 is likely the earliest but even that would be difficult for payroll programmers. To do it properly 2017 is my bet.
The only way it could be introduced quickly (2016) would be for every higher rate tax payers in occupational pension schemes to declare their contribution in their 2016-17 tax return and pay more tax over the following year or one off in January. This would involve redesigning the forms and HMRC computer program by 5th April 2017.
I think that there are about 5 million higher rate tax payers, many of these will be 'ordinary people' who are not far over the threshold and do have pensions so I'd conservatively suggest that at least 20% of these have never submitted tax returns so that would be at least another million tax returns to be processed.
swerni said:
PorkInsider said:
swerni said:
If I hypothetically dumped £40k in to the pension before the year end...
Depending on whether you're talking about this in the context of the upcoming changes or just in general, I'll point out that, from what I've read, much talk is around changes taking place immediately following the budget rather than at financial year end.http://www.independent.co.uk/money/pension-changes...
http://www.telegraph.co.uk/pensions-retirement/new...
I accept that neither source is the last bastion of pensions advice but I decided not to risk waiting until the period after the budget and before the fiscal year end to add to my pension.
PurpleMoonlight said:
It will be almost impossible to change the tax relief from budget day. Computer programs need to be adjusted.
6th April 2016 is likely the earliest but even that would be difficult for payroll programmers. To do it properly 2017 is my bet.
The only way it could be introduced quickly (2016) would be for every higher rate tax payers in occupational pension schemes to declare their contribution in their 2016-17 tax return and pay more tax over the following year or one off in January. This would involve redesigning the forms and HMRC computer program by 5th April 2017.
Computer programs wouldn't need to change in order to prevent most people claiming tax relief on higher contributions, would they?6th April 2016 is likely the earliest but even that would be difficult for payroll programmers. To do it properly 2017 is my bet.
The only way it could be introduced quickly (2016) would be for every higher rate tax payers in occupational pension schemes to declare their contribution in their 2016-17 tax return and pay more tax over the following year or one off in January. This would involve redesigning the forms and HMRC computer program by 5th April 2017.
Most (I won't say all as I don't know how it works in the public sector pension schemes) higher rate taxpayers will need to either fill in a tax return or call HMRC directly to ask for the additional relief, so wouldn't it just be a case of saying 'no' to claims for contributions after the chosen cutoff date?
PorkInsider said:
swerni said:
If I hypothetically dumped £40k in to the pension before the year end...
Depending on whether you're talking about this in the context of the upcoming changes or just in general, I'll point out that, from what I've read, much talk is around changes taking place immediately following the budget rather than at financial year end.Now I see that they might scrap the 25% tax free element I really don't know whats best. I wish they would announce plans then give you a while to consider your position and adjust accordingly. To announce something and implement it immediately is not the way to encourage long term saving.
I also really don't like the way you save into a pension under one set of rules, but are at the mercy of later Governments to honor those rules.
This is why I stopped saving into pensions years ago, but with the recent draw down options I was about to start again. If all the rumored rules to arrive then there will be little point in saving.
PorkInsider said:
Computer programs wouldn't need to change in order to prevent most people claiming tax relief on higher contributions, would they?
Most (I won't say all as I don't know how it works in the public sector pension schemes) higher rate taxpayers will need to either fill in a tax return or call HMRC directly to ask for the additional relief, so wouldn't it just be a case of saying 'no' to claims for contributions after the chosen cutoff date?
Yep.Most (I won't say all as I don't know how it works in the public sector pension schemes) higher rate taxpayers will need to either fill in a tax return or call HMRC directly to ask for the additional relief, so wouldn't it just be a case of saying 'no' to claims for contributions after the chosen cutoff date?
It will be easy to restrict tax relief where contributions are paid under relief at source, there would simply be no tax refund for higher rate tax payers.
However, most occupational pension schemes deduct personal contributions from pay before income tax is assessed. That needs payroll programming changes if tax relief is restricted to, say, basic rate.
Occupational pension schemes could of course swap to relief at source, but they would have to make a specific application to HMRC for it and, to be honest, the administration and reporting of it is a right ball ache on a smaller scale.
98elise said:
If all the rumored rules to arrive then there will be little point in saving.
I don't think that a logical conclusion.The government keeps lowering the Lifetime Allowance cap on pensions because they know that saving in the tax exempt environment is still very attractive. A decade ago the maximum was at £1.8m but now they're dropping it all the way down to £1m.
So what can you get for your £1m at, say, age 60?
- £250,000 of tax free cash, plus
- good quality pension of maybe £30,000 p.a.
PurpleMoonlight said:
Yep.
It will be easy to restrict tax relief where contributions are paid under relief at source, there would simply be no tax refund for higher rate tax payers.
However, most occupational pension schemes deduct personal contributions from pay before income tax is assessed. That needs payroll programming changes if tax relief is restricted to, say, basic rate.
Occupational pension schemes could of course swap to relief at source, but they would have to make a specific application to HMRC for it and, to be honest, the administration and reporting of it is a right ball ache on a smaller scale.
Thanks. Makes sense.It will be easy to restrict tax relief where contributions are paid under relief at source, there would simply be no tax refund for higher rate tax payers.
However, most occupational pension schemes deduct personal contributions from pay before income tax is assessed. That needs payroll programming changes if tax relief is restricted to, say, basic rate.
Occupational pension schemes could of course swap to relief at source, but they would have to make a specific application to HMRC for it and, to be honest, the administration and reporting of it is a right ball ache on a smaller scale.
I suppose the only thing we really know is that we don't really know what's going to happen on March 16th...
Ozzie Osmond said:
98elise said:
If all the rumored rules to arrive then there will be little point in saving.
I don't think that a logical conclusion.The government keeps lowering the Lifetime Allowance cap on pensions because they know that saving in the tax exempt environment is still very attractive. A decade ago the maximum was at £1.8m but now they're dropping it all the way down to £1m.
So what can you get for your £1m at, say, age 60?
- £250,000 of tax free cash, plus
- good quality pension of maybe £30,000 p.a.
So with that in mind plus the (very likely) March budget changes and potential further changes (possibility of no tax relief on contributions at some point further down the road) it could be that there's very little tax benefit at 'either end' of a pension.
In which case it's conceivable that one could end up with a pot worth far less than expected and with much increased tax liabilities on any withdrawal.
Doesn't sound likely but then I'm sure we thought that about other 'reforms' a decade or two ago...
Edited by PorkInsider on Monday 29th February 15:27
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