High rate pension tax relief for the chop?

EdInvestor

It's already been limited for the best paid.Now the Govt has eneded high rate relief for childcare vouchers.Is the writing on the wall for pensions?

http://www.thisismoney.co.uk/work/article.html?in_article_id=495330&in_page_id=53928

nw_man

I would say the writing is on the wall with regards to pension relief for HRT, yes.

The government talks of people providing for their own futures yet does little to incentivise them.

mr_fishbulb

In years when I am a HRT payer, I claim the relief on my pension contributions. But I can never work out why they are offering the free money to higher earners?

Take advantage of it while you can.

geoffgeofftygeoff

mr_fishbulb wrote: »

In years when I am a HRT payer, I claim the relief on my pension contributions. But I can never work out why they are offering the free money to higher earners?

Take advantage of it while you can.

It ain't free money. The idea 'was/is' that there should be a relationship, i.e. a direct link between the tax paid on income and the tax relief received. It's a fair link. The government have proved that this is no longer the case by putting a cap on the upper amount earned after which no higher rate relief is paid.

It only seems unfair to people who don't earn enough to be paying the higher rate tax in the first place. Of course, they would see it differently if they were in the 40% bracket.

Unfortunately this is an easy target for the government because some lower income earners think it's a good thing to remove without understanding why the link is in place anyway.

I agree though - take advantage of it while you can.

jh2009

I think its an easy target, and one that won't upset the vast majority, but it doesnt mean its the right thing to do.

The problem is that by removing tax concessions for the higher rate people, you end up making pensions less attractive to higher earners. Often these are the people who will decide the pension arrangements for their company so could end a massive own goal. So removal of a tax advantage for them may make people at the top less interested in provision that ultimately benefits those at the bottom.

Top rate tax affects those with incomes roughly above £40k. So for those on the lower end of top rate tax band, they are probably saving more than they would without this relief. So removing this relief would mean they may save less and as a result be poorer in the long run (with lower government revenues years later when they tax their pensions in payment).

Short term benefits maybe with a few good headlines, but potential long term costs?

Most people in the pension industry just wish the industry would be left alone, not hit with more regulation!

Edit: I agree with posters above. If you're reading this and are a top rate taxpayer umming and erring over a contribution either now or in next few years or so then give this issue serious thought now.

zygurat789

geoffgeofftygeoff wrote: »

It ain't free money. The idea 'was/is' that there should be a relationship, i.e. a direct link between the tax paid on income and the tax relief received. It's a fair link. The government have proved that this is no longer the case by putting a cap on the upper amount earned after which no higher rate relief is paid.

It only seems unfair to people who don't earn enough to be paying the higher rate tax in the first place. Of course, they would see it differently if they were in the 40% bracket.

Unfortunately this is an easy target for the government because some lower income earners think it's a good thing to remove without understanding why the link is in place anyway.

I agree though - take advantage of it while you can.

Anyone who pays tax at the higher rate also pays tax at the standard rate so the link is still there and still fair
Mr Fishbulb's post shows that this is not true

Why should some people benefit more than others just because they have a higher income?

noh

zygurat789 wrote: »

Anyone who pays tax at the higher rate also pays tax at the standard rate so the link is still there and still fair
Mr Fishbulb's post shows that this is not true

Why should some people benefit more than others just because they have a higher income?

They benefit to exactly the same extent as every other tax payer.
Their pension contributions are tax free.

The group that benefit more than others are the very low earners who pay no tax but would get 20% tax relief added to their pension contributions up to £3600 gross

geoffgeofftygeoff

zygurat789 wrote: »

Anyone who pays tax at the higher rate also pays tax at the standard rate so the link is still there and still fair
Mr Fishbulb's post shows that this is not true

Why should some people benefit more than others just because they have a higher income?

1)The link is currently still there but it seems more and more likely that it will be removed by the government given their recent moves.

2)Mr F is one person - I was making a general point about what lower earners may think (but didn't explain it well).

3)These people are not benefitting in any way - we are talking about clawing back money already earned, not getting free money.

zygurat789

noh wrote: »

They benefit to exactly the same extent as every other tax payer.
Their pension contributions are tax free.

The group that benefit more than others are the very low earners who pay no tax but would get 20% tax relief added to their pension contributions up to £3600 gross

Pension contribution .£100 £100
Standard rate tax relief @ 20% . 20
Higher rate tax relief @ 40% .40
Net cost .60 .80

The net cost is higher for the standard rate taxpayer.
All taxpayers are entitled to 20% added to their contributions up to £3600

Judwin

The Man from the Pru who first sold me my pension said that removing the HRT relief was on the cards - and that was back in 1989. So if the government do go down that route, then at least I've had 20 years worth.

However, I can see big problems with what sounds like a simple/good idea to get more tax out of those earning more than about £44K.

1) Anyone with any sense should already be contributing to their personal pension / SIPP via salary sacrifice if at all possible (i.e. your employer will do it). Contributions are both tax and NI free to for employer and employee. So unless they're gonna make us put employer contributons on our Tax Returns, then removal of HRT tax relief will actually cost the Government money.

2) If they do tax us on Salary sacrifice, what are they going to do about defined contribution company pension plans some of which are non contributary? Presumably they'll force the employee to declare how much the employer has paid on your behalf on the tax return?

3) Final salary pensions? How do they 'cost' what the effective company contribution would be worth to each member? They would effectively be taxing company payments into the final salary pension pot. And given that many final salary pension pots are in huge defecit, that's going to be a popular as a chocolate tea pot.

Item 3 is the killer IMHO. If the govenment do anything that further affects final salary pension pots there will be uproar. And if they don't attempt #3, then #1 and #2 are unfair. So ultimately, all they'll do is taxing those HRT payers with personal pension plans into which they make personal payments from taxed income. I doubt that will raise very much money for very long.

IMHO
Judwin

zygurat789

geoffgeofftygeoff wrote: »

1)The link is currently still there but it seems more and more likely that it will be removed by the government given their recent moves.

2)Mr F is one person - I was making a general point about what lower earners may think (but didn't explain it well).

3)These people are not benefitting in any way - we are talking about clawing back money already earned, not getting free money.

1 The link will still be there whatever. They pay standard rate tax. Why should their contributions cost them less because they earn more?
2Mr f is 100% of the people we know have a recorded opinion
3 See previous post and calculation.