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    • EdSwippet
    • By EdSwippet 12th Oct 16, 4:16 PM
    • 352Posts
    • 319Thanks
    EdSwippet
    Osborne's tinkering revealed as damaging
    • #1
    • 12th Oct 16, 4:16 PM
    Osborne's tinkering revealed as damaging 12th Oct 16 at 4:16 PM
    The Office for Budget Responsibility has just released a report showing that George Osborne's endless meddling with pension rules and regimes over the past couple of government terms will damage both pension savers' prospects and the government's long-term financial outlook. A textbook lose-lose outcome looms.

    It should surprise nobody that pulling tax revenue forwards means it's not there for the future. Well, nobody except George Osborne, that is. But then, the future is not his problem.

    From the report:
    ... The net effect on the public finances is positive in the early years, peaking at £2.3 billion in 2018-19 before turning negative from 2021-22 – the year after our March 2016 forecast horizon.

    But the small net gain to the public finances from these measures over the medium-term is reversed in the long term as the net cost continues to rise, reaching £5 billion by 2034-35. Expressed as a share of GDP – a more relevant metric when considering fiscal sustainability – the net cost builds up until it reaches a steady state toward the end of the period of just over 0.1 per cent of GDP. If that steady-state effect was to continue to the end of our usual long-term projection horizon of 50 years, that seemingly small cost would add 3.7 per cent of GDP to public sector net debt.
Page 1
    • joujou
    • By joujou 12th Oct 16, 4:26 PM
    • 124 Posts
    • 78 Thanks
    joujou
    • #2
    • 12th Oct 16, 4:26 PM
    • #2
    • 12th Oct 16, 4:26 PM
    Pretty sure private pensions will be raided to keep up the state pension... expect laws against the former.... e.g. reduction of lifetime allowance, reduction of yearly allowance, etc...
    • redux
    • By redux 12th Oct 16, 4:43 PM
    • 15,580 Posts
    • 18,377 Thanks
    redux
    • #3
    • 12th Oct 16, 4:43 PM
    • #3
    • 12th Oct 16, 4:43 PM
    Pretty sure private pensions will be raided to keep up the state pension... expect laws against the former.... e.g. reduction of lifetime allowance, reduction of yearly allowance, etc...
    Originally posted by joujou
    These allowance reductions have already been happening.

    But it's all much older than that.

    If we go back about 20 years, actuaries were getting sums wrong all over the place. Equitable Life was in trouble due to conflicts of interest between people with and without guaranteed annuities, FTSE company reports were saying several years in a row that yet again we've been advised that no pension contributions are necessary this year, and the civil servant ones were telling Gordon Brown that the tax regime on pensions was unfairly lenient.
    • Linton
    • By Linton 12th Oct 16, 5:28 PM
    • 6,955 Posts
    • 6,548 Thanks
    Linton
    • #4
    • 12th Oct 16, 5:28 PM
    • #4
    • 12th Oct 16, 5:28 PM
    Pretty sure private pensions will be raided to keep up the state pension... expect laws against the former.... e.g. reduction of lifetime allowance, reduction of yearly allowance, etc...
    Originally posted by joujou
    Reduction in future allowances is hardly raiding of private pensions. That term surely implies removal of already accrued money/benefits.
    • AnotherJoe
    • By AnotherJoe 12th Oct 16, 5:29 PM
    • 4,195 Posts
    • 4,214 Thanks
    AnotherJoe
    • #5
    • 12th Oct 16, 5:29 PM
    • #5
    • 12th Oct 16, 5:29 PM
    Seems to me that the obvious thing to hit would be the 40% tax relief on pensions.
    One figure for all could be spun as fairer, and maybe it would be, why should I get an extra £2k on every £10k that someone else, on basic rate and less able to afford a pension, gets?

    Wasnt it even floated a few months back, maybe a 30% blanket rate?

    Only a matter of time i reckon.
    • EdSwippet
    • By EdSwippet 12th Oct 16, 5:50 PM
    • 352 Posts
    • 319 Thanks
    EdSwippet
    • #6
    • 12th Oct 16, 5:50 PM
    • #6
    • 12th Oct 16, 5:50 PM
    Wasnt it even floated a few months back, maybe a 30% blanket rate?
    Originally posted by AnotherJoe
    It's a kite that has been flown so often that the air above 11 Downing St must now consist almost entirely of a tangled mess of string. Of course, one possible secondary effect here could be to push higher rate taxpayers out of pensions and into other savings vehicles even further than the tinkering over the past decade has done. Again pulling revenue forwards from the future, which is not the same as generating new revenue. Obvious is not always wisest.

    How about this latest kite: replace tax deferral with a government top up on pension contributions calculated at 100% minus the persons' age. What could possibly go wrong?!
    • Thrugelmir
    • By Thrugelmir 12th Oct 16, 5:55 PM
    • 51,306 Posts
    • 43,127 Thanks
    Thrugelmir
    • #7
    • 12th Oct 16, 5:55 PM
    • #7
    • 12th Oct 16, 5:55 PM
    Wasnt it even floated a few months back, maybe a 30% blanket rate?

    Only a matter of time i reckon.
    Originally posted by AnotherJoe
    Incentivising people to save must be a top priority. Auto enrollment at current contribution levels isn't enough. Agree that subsidising those that can afford to provide for their retirement isn't equitable. 30% seems a sensible compromise.
    “A man is rich who lives upon what he has. A man is poor who lives upon what is coming. A prudent man lives within his income, and saves against ‘a rainy day’.”
  • jamesd
    • #8
    • 12th Oct 16, 7:06 PM
    • #8
    • 12th Oct 16, 7:06 PM
    showing that George Osborne's endless meddling with pension rules and regimes over the past couple of government terms will damage both pension savers' prospects and the government's long-term financial outlook.
    Originally posted by EdSwippet
    Unfortunately none of those things is true. From chart 4.2:
    • Annuities secondary market: increase in revenue through 2018-19 then no long term effect through 2034-35.
    • Pensions tax relief effect of annual allowance changes: increase in revenue throughout the whole projection period, the largest single pension effect with a long term revenue gain estimated at 0.08-0.09% of GDP a year.
    • Pensions tax relief effect of lifetime allowance changes: increase in revenue throughout the whole projection period, around 0.06% of GDP a year at the end.
    • Pensions, lowered tax on withdrawing from 55% to income tax rate: increase in revenue in the early years gradually decreasing until it's about zero in 2030 then becomes a little negative at about 0.01% of GDP a year.
    That's a long term increase of revenue from all of the pension changes combined of about 0.14% of GDP a year.

    The costs mainly come from the savings measures, with end of projection annual costs of about 0.33% of GDP a year from them.

    I'm unsure about you but I do not consider the introduction of pensions flexibility that stopped forcing me to use non-pension investing for the start of my retirement because the GAD limit was way too low was harmful to me. It's made pension saving considerably more attractive to me and I've substantially increased my pension saving as a result.
    Last edited by jamesd; 12-10-2016 at 7:08 PM.
    • EdSwippet
    • By EdSwippet 12th Oct 16, 7:23 PM
    • 352 Posts
    • 319 Thanks
    EdSwippet
    • #9
    • 12th Oct 16, 7:23 PM
    • #9
    • 12th Oct 16, 7:23 PM
    Unfortunately none of those things is true. ... The costs mainly come from the savings measures, with end of projection annual costs of about 0.33% of GDP a year from them.
    Originally posted by jamesd
    The cost-reducing pension measures do not exist in a vacuum. The cost-increasing savings measures are part-and-parcel of an overall and concerted shift in the larger savings landscape, which has been a gradual transition of emphasis, from tax-deferred and taxed later (pensions) to taxed-now but tax-free later (ISAs, and to a lesser degree ordinary savings accounts).

    This brings revenue forwards, but it also reduces what's available later, both because it has been taxed already and because there is less of it to tax now since it has not been allowed to grow over time.

    I'm unsure about you but I do not consider the introduction of pensions flexibility that stopped forcing me to use non-pension investing for the start of my retirement because the GAD limit was way too low was harmful to me. It's made pension saving considerably more attractive to me and I've substantially increased my pension saving as a result.
    Originally posted by jamesd
    Different measures will clearly affect different folk in different ways and by different degrees. For you it seems that flexibility wins out, so that's good for you.

    For me, lifetime allowance issues centred around the repeated reductions have not only made it sensible for me to stop contributing to a pension, but in fact have also catalysed an earlier-than-expected retirement. This make me an obvious counter-example to your statement above.
  • jamesd
    The cost-reducing pension measures do not exist in a vacuum. The cost-increasing savings measures are part-and-parcel of an overall and concerted shift in the larger savings landscape, which has been a gradual transition of emphasis, from tax-deferred and taxed later (pensions) to taxed-now but tax-free later (ISAs, and to a lesser degree ordinary savings accounts).
    Originally posted by EdSwippet
    Your original assertion was confined to pensions: "meddling with pension rules and regimes over the past couple of government terms will damage both pension savers' prospects and the government's long-term financial outlook".

    If the non-pension measures are included as well there is a net cost. I'm not sure that cost is harmful, though, since people can benefit from those changes. Since the majority of the measures involved are helpful mainly to younger people that's perhaps not a bad thing.

    For me, lifetime allowance issues centred around the repeated reductions have not only made it sensible for me to stop contributing to a pension, but in fact have also catalysed an earlier-than-expected retirement. This make me an obvious counter-example to your statement above.
    Originally posted by EdSwippet
    The problem with you as a counter-example is that you are unusual. Only a relatively small number of people who pay into pensions end up subject to the lifetime allowance. Of course for you that costs you pension tax relief. Most people don't pay any extra cost because of the lifetime allowance and just gain from the changes to tax relief and access. Even you might be gaining from the access if you're withdrawing more than the GAD limit would have allowed.
    • marlot
    • By marlot 12th Oct 16, 7:43 PM
    • 2,822 Posts
    • 1,951 Thanks
    marlot
    For me, lifetime allowance issues centred around the repeated reductions have not only made it sensible for me to stop contributing to a pension, but in fact have also catalysed an earlier-than-expected retirement. This make me an obvious counter-example to your statement above.
    Originally posted by EdSwippet
    I believe a significant number of GPs are in this position, and choosing to retire at 55-ish, despite the actuarial reduction.
    • bowlhead99
    • By bowlhead99 12th Oct 16, 9:28 PM
    • 5,144 Posts
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    bowlhead99
    Not everything the government does has to be measured in what it takes or adds to gross domestic product. For example, the suggestion in post #1 is that we get a boost now but eventually end up with a steady state reduction of 0.1% of GDP.

    So, taking that at face value and disregarding jamesd's inconvenient analysis, on the face of it the country is losing money due to the last couple of governments' "meddling".

    However, we all have a bunch of extra freedoms, and freedoms and flexibility contribute to quality of life. So instead of, "you must do this and this and this and then get an annuity, whether or not that suits your circumstances", we have "you can do this or this or this". To have a generally more satisfied population, maybe that is worth losing 0.1% of your income each year?

    Personally I don't agree with progressively smaller lifetime allowances (for DC) which can be complex to plan around, when there are already annual limits which reduce for the extremely high earners. The system isn't perfect. But you won't get much sympathy complaining that you have hit either of the limits, because a truly massive majority really won't get anywhere near hitting that limit.

    If a doctor stops providing his doctoring services for the last 5 or 10 years that he'd be good at it, because he accumulated his million and can already retire on £40-50k a year pension, then that's some lost productivity - but good luck to him, and it will leave a role for someone else to fill. A huge number of people can only dream of getting to a million while living a "normal" lifestyle and not putting a massive proportion of salary away in a pension as some here do.
    Last edited by bowlhead99; 12-10-2016 at 9:51 PM.
    • Teaandscones
    • By Teaandscones 12th Oct 16, 9:29 PM
    • 91 Posts
    • 70 Thanks
    Teaandscones
    I believe a significant number of GPs are in this position, and choosing to retire at 55-ish, despite the actuarial reduction.
    Originally posted by marlot
    My dad's eye specialist has just retired at 55 due to the lifetime allowance so he is now waiting for them to find a replacement. I am sure that is great for the operation of the health service.
    • bowlhead99
    • By bowlhead99 12th Oct 16, 9:44 PM
    • 5,144 Posts
    • 9,070 Thanks
    bowlhead99
    My dad's eye specialist has just retired at 55 due to the lifetime allowance so he is now waiting for them to find a replacement. I am sure that is great for the operation of the health service.
    Originally posted by Teaandscones
    So your complaint is that the eye specialist earned too much over the course of his life and already had enough to retire comfortably at 55 so he didn't want to bother working for a lower salary or high tax rate until he was 60 or 65 or 70.

    A solution to that is to either not pay such decent compensation to eye specialists in the first place (and take your chances with what that does for the quality of healthcare), or let these people who already have more than enough to comfortably retire just carry on earning large salaries while taking substantial tax deferral opportunities - despite not needing the assistance or incentive to put money away because they're unlikely to be a drain on the economy in retirement.

    I'm sure the majority, who don't get eye specialists' salaries, are not overly worried by the lifetime cap - assuming it rises with inflation rather than becoming a real practical cap for mr or mrs average.
    • Paul_Herring
    • By Paul_Herring 13th Oct 16, 11:47 AM
    • 6,072 Posts
    • 2,769 Thanks
    Paul_Herring
    How about this latest kite: replace tax deferral with a government top up on pension contributions calculated at 100% minus the persons' age. What could possibly go wrong?!
    Originally posted by EdSwippet
    Non starter I reckon.

    Sounds like tax relief for those who least need it. If younger people can afford to put aside money, then it's going to have, what, 30? 40? years of compounded tax-free growth to start with.

    What incentives are proposed for those who couldn't put aside money when younger but are able to start later on in life?

    And I wonder what the Office for Tax Simplification would have to say about it...
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