ASPs in the news

Nick_C_4

On A-day it also introduced a new regulation that you can only have your fund revalued every 5 years ( instead of three) which means that if your fund has gone up in value you have to wait an extra 2 years to get the higher income it can pay out - and that's 2 years in which the Government doesn't get the tax.

There's a way round this - each time you add to your drawdown funds, it triggers a recalculation of the limit (in addition to the 5-year cycle). So you designate all but £1 of your pension for drawdown, and then whenever you feel it would be beneficial to recalculate the limit, you designate a penny and get your limit changed.

I believe under ASP the limit is recalculated every year.

It's interesting to note that in the Canadian version of drawdown (called a RRIF), the income limit imposed by the regulations is a minimum, and there's no maximum. That is, you could take the whole fund straight away. A Canadian friend informs me that this is because the Canadian Revenue want the tax to be paid on the proceeds sooner rather than later, and they are not concerned about the pensioner running out of funds like HRMC is.

EdInvestor

There's a way round this - each time you add to your drawdown funds, it triggers a recalculation of the limit (in addition to the 5-year cycle). So you designate all but £1 of your pension for drawdown, and then whenever you feel it would be beneficial to recalculate the limit, you designate a penny and get your limit changed.

This is a variant on "phased drawdown". Another way of triggering a review is to leave a chunk of your tax free cash in the fund and then vest a little bit a year, which triggers a revaluation.

But this doesn't work for ordinary drawdown and you can't switch from one to the other.If you are already in that under the old 3 year rule, to trigger a review before 5 years under the new rules, you have to convert part of your fund to an annuity - probably a minimum of 5k - if you can find anyone to sell you one. Of course annuities are exactly what people do drawdoiwn to avoid....

IMHO on the whole the well off get a good deal under the pension/tax rules and the poor do reasonably well - it's the basic rate taxpayers in the middle that are taken for a ride.

Milarky

EdInvestor wrote:

IMHO on the whole the well off get a good deal under the pension/tax rules and the poor do reasonably well - it's the basic rate taxpayers in the middle that are taken for a ride.

This is presumably because:

- the 'rich' can take full advantages of all reliefs simultaneously (eg maxed ISAs, pensions, VCT, realised GCT allowances annually, large or second properties), whilst

- the 'poor' get sufficient 'leg up' through housing benefits, tax credits, flat rate state-second pension and (if already retired) top ups and pension credit which are non contributory in large part and therefore have little if any need of the more limited 'perk' of contributing to a private pension from modest income?

cheerfulcat

The rich tend to live in tax havens; they don't need ISAs and pensions...the moderately well off can't afford to move to Monaco, so they get clobbered.

EdInvestor

Milarkey:

That seems to be how it works to me - it's basic rate taxpayers and the bottom end of higher rate.You don't have to go and live in Monaco to 'work the system' - I wasn't really talking about the super rich.

It is *possible* to do OK as a basic rate taxpayer but I suspect you have to be pretty knowledgeable about the system.Otherwise you get caught up in disadvantageous products ( eg private pensions) designed to help the well off but actually a ripoff for the BRTs.At the lower end of the BRT scale, there's the tax/benefits/savings/ collision where it's very easy to fall foul of the system.

Since the group I'm talking about are the majority, it's all pretty uncool.

**BTW today's Sunday Times says the compulsory annuity threat looks to have receded as the religious matter wasn't mentioned in the Finance Bill published Wednesday.**

So that's good news.

cheerfulcat

Ed, I can't find the Finance Bill (2) - would you happen to have a link?

EdInvestor

Hi CC

Can't find a direct link but the Lords debate may be of use - the bit on IHT and trusts may be of interest.

Surprised to see how few estates actually pay IHT, given the amount of heat the issue seems to generate.

cheerfulcat

Thanks for that, Ed, couldn't find anything about the amended Bill for some reason.

margaretclare

Thanks for the link. Fascinating stuff. I read that one of the Conservative Lords thinks that winter fuel allowance and free bus travel should be targeted at the most needy, and everyone else should pay tax on these 'freebies'! Couldn't agree more, but I can imagine the loud screams of anguish if this idea went any further.

I too was surprised at the low number of estates that actually pay any IHT, and as you say, this whole issue generates an amazing amount of heat. 'How can I prevent Gordon Brown (or the council) getting my hard-earned assets?' is the way it's often worded.

Margaret Clare

caveat_emptor

margaretclare wrote:

Thanks for the link. Fascinating stuff. I read that one of the Conservative Lords thinks that winter fuel allowance and free bus travel should be targeted at the most needy, and everyone else should pay tax on these 'freebies'! Couldn't agree more, but I can imagine the loud screams of anguish if this idea went any further.

I too was surprised at the low number of estates that actually pay any IHT, and as you say, this whole issue generates an amazing amount of heat. 'How can I prevent Gordon Brown (or the council) getting my hard-earned assets?' is the way it's often worded.

Margaret Clare

This is interesting extension of means testing. It could mean, for example, that the state pension would be means tested and denied to those with private pension income over a certain level. Presumably you would be happy with that.
Getting off topic, I don't think it's the tax take per se that people object to but the apparent wastage at national and local level.