Pension lifetime allowance

[TownIdiot]

YouWhat said:

We are not talking about arithmetic, we are discussing pensions and ISA’s

Surely this is a valid discussion point?

[NowWatchThisDrive]

TownIdiot said:

How does the spreadsheet work with the TFLS and higher rate tax relief with lower rate income tax on withdrawal?

That would be the scenario for a great many with a decent size pot

Absolutely, so they need to weigh those benefits up among all the other factors I listed (and more) in the context of their own circumstances.

For my part, the decision to do the vast majority of my investing in taxable accounts and ISAs, as opposed to my pension, was primarily driven by two things.

Firstly and initially, entering the workforce not long after Gordon Brown's infamous pension tax raid, which wiser heads around me cited to counsel against hanging my hat on something that govts could dick around with to suit their electoral ambitions, and potentially screw me over. Some of it's been good and some bad, but I think the sheer amount of change to pension accessibility and tax treatment in the ensuing 25yrs has at least partly borne out that view.

Secondly, doing a job where I had the potential to earn extremely well, but with a limited shelf-life due to aging out or simply having had enough (not many people past 40 on IB trading desks when I started!). In which case the last thing I'd have wanted was to be unable or unwilling to still work, but with most of my money locked away in something I couldn't access for another decade or two. As it turned out I chose to pull the plug in my early 40s and have lived very comfortable since then, which wouldn't have been remotely possible had I smashed the pension contributions instead.

[mikeiow]

YouWhat said:

We are not talking about arithmetic, we are discussing pensions and ISA’s

& the simple power of compounding is illustrated by James Shack here…..stay to the end

Here’s your teaser:

[DoubleSix]

Guyr said:

Pensions were left well alone for decades, then in recent years have been meddled with several times, both on ages for withdrawals and other recent rules. It leaves me very unsure of the value of a pension scheme at all when adding in the uncertainty over many decades especially for someone currently young.

My daughters are 19 and 21 and just starting careers, I'm very tempted to advise them to not use pensions, but to use ISAs and other means of saving, since the tax advantages of pensions are often very small (or zero), but are offset against the inflexibility, changing rules and and ever increasing age for withdrawal.

Jesus christ.

[okgo]

NowWatchThisDrive said:

Absolutely, so they need to weigh those benefits up among all the other factors I listed (and more) in the context of their own circumstances.

For my part, the decision to do the vast majority of my investing in taxable accounts and ISAs, as opposed to my pension, was primarily driven by two things.

Firstly and initially, entering the workforce not long after Gordon Brown's infamous pension tax raid, which wiser heads around me cited to counsel against hanging my hat on something that govts could dick around with to suit their electoral ambitions, and potentially screw me over. Some of it's been good and some bad, but I think the sheer amount of change to pension accessibility and tax treatment in the ensuing 25yrs has at least partly borne out that view.

Secondly, doing a job where I had the potential to earn extremely well, but with a limited shelf-life due to aging out or simply having had enough (not many people past 40 on IB trading desks when I started!). In which case the last thing I'd have wanted was to be unable or unwilling to still work, but with most of my money locked away in something I couldn't access for another decade or two. As it turned out I chose to pull the plug in my early 40s and have lived very comfortable since then, which wouldn't have been remotely possible had I smashed the pension contributions instead.

Though folk in such roles have no choice but to avoid pensions now given tapering. I think that came in around 2015 or so.

I wonder if they’ll use fiscal drag to good effect there as per tax free allowances.

[mikeiow]

okgo said:

Though folk in such roles have no choice but to avoid pensions now given tapering. I think that came in around 2015 or so.

I wonder if they’ll use fiscal drag to good effect there as per tax free allowances.

Folk in such roles are something of an outlier in the general population though.

Earning enough to jack it all in by your 40s isn’t, with respect, a major concern to Governments. I tip my hat to those who do!

Obviously this is PH, so I am in a minority here NOT having had that career

[YouWhat]

TownIdiot said:

How does the spreadsheet work with the TFLS and higher rate tax relief with lower rate income tax on withdrawal?

That would be the scenario for a great many with a decent size pot

Here are some simple examples assuming 7% growth

for a 20% tax payer in and 20% tax out
ISA
£200 per month for 30 years @ 7% = £245,617 (Tax free)

Pension
£250 (£200 +£50) per month for 30 years @7% = £307,021
25% TFLS = £76,755
Tax on remainder 20% of £230,266 @20% = £46,053
Total left after Tax = £260,968

£15,351 better off in pension


for a 40% tax payer in and 20% tax out
ISA
£200 per month for 30 years @ 7% = £245,617 (Tax free)

Pension
£333 (£200 +£133) per month for 30 years @ 7% = £408,953
25% TFLS = £102,238
Tax on remainder 20% of £306,715 @20% = £61,343
Total left after Tax = £347,610

£101,993 better off in pension

And those figures only get bigger when you add in employer contributions and NI savings if included by employer. If you retire early at say 60 you could draw down £12,570 per year tax free before your state pension kicks in.

[TownIdiot]

Good information thanks.

Certainly a decent chunk if you are a 40% tax payer planning to withdraw at a rate that attracts 20%

Not so much if a 20% payer - the flexibility could well be worth something to you.

[LastPoster]

And not forgetting that if we are to factor in "things THEY might do", state pension might be moved to 70 so the window of wanting to retire and be able to take a sum of money without paying any income tax might be moved back a bit or even get wider (so far the mooted 10 year link hasn't materialised)

Personally I make my decisions based on the rules in force right now

[Guyr]

TownIdiot said:

Good information thanks.

Certainly a decent chunk if you are a 40% tax payer planning to withdraw at a rate that attracts 20%

Not so much if a 20% payer - the flexibility could well be worth something to you.

Exactly my point.

I can also pretty much bet with absolute certainty two things:

1. The Tax Free Lump Sum will be going down, not up, at some point.

2. The retirement age will be going up further at some point.


Oh and anyone who has looked at long term economics and demographics would be frightened for the UK:

- Static productivity

- Demographic nightmare, with ever smaller number of workers funding an ever growing amount of retirees

- Already high debt:GDP, growing over the coming decades.

https://www.bbc.co.uk/news/articles/cewlwkg82ggo

The chances of any source of extra tax eg pension benefits being left alone over that period are slim. The raid on pensions has just started, it has not ended.

Edited by Guyr on Sunday 1st December 15:03