Restriction of pension tax relief to 20%

zygurat789

gadgetmind wrote: »

And a lot will qualify for 20% tax relief and not pay any tax on some/all of it in retirement. Shouldn't they also be penalised?

Are you suggesting poor OAPs should be penalised?

zygurat789

exxxybeast wrote: »

I would be very very surprised as it is the main incentive for private pension planning.

That said, it is a quick fix help to a huge national debt problem, so who knows, but nothing is going to happen overnight

So if 40% is the main incentive and people don't save hard enough for their pensions then we should all get 40% relief.

zygurat789

Meeper wrote: »

Sorry, but you said you understood the maths. I disagree.

If a higher rate tax-payer puts in £80 net, they do not receive £40.

Lokk at it this way

Pension contributions are negative income.

kevin52

It is only right and proper that all pension contributions receive the same (20%) tax relief. Why should the wealthiest receive 40% relief on their contributions when they are in a better position to afford it. It makes no more sense than to tax poorer people at a higher rate than the rich.

Meeper

The taxation position is a neutral one as far as the government is concerned whether the individual is a basic rate or higher rate tax-payer. They are simply giving tax back that has already been paid by the individual.

In your argument, a higher-rate tax-payer would have to pay more into the pension than a lower-rate one to get the same result. For example, if a higher rate tax-payer earns £100, he only gets £60 after tax (ignoring NI and any other stuff, just basic numbers here). If a basic rate tax-payer earns £100, he gets £80 after tax. If they both wanted £100 to go into a pension, then the BRT pays £80 and gets his tax back, and the HRT pays £60 and gets his tax back. Net position to the government is the same.

If both people got tax relief on pension contributions at the 20% rate, the position for the BRT is unchanged, but the HRT, having only received £60 pay then needs to put an additional £20 in to make up the difference, leaving him £20 worse off than the BRT guy. How is that sitting with the continued over-use of this "fair" word?

gadgetmind

laurel7172 wrote: »

I understand the maths very well, but thank you

Fair enough, but lots don't, and think that HMG is giving a HR tax payer some kind of free money. It isn't so!

An HR taxpayer puts in £80 of their take home pay and receives £40.

Hmmm, and you said that you understood the maths?

I just don't see HR taxpayers deciding to live on the state pension if they only get 20% relief.

Perhaps not, but it's yet another argument for them to work elsewhere. If we keep on punishing hard-working people who are striving to make this country a success, then they'll go and do it elsewhere instead.

gadgetmind

kevin52 wrote: »

It makes no more sense than to tax poorer people at a higher rate than the rich.

Please explain why you think that is happening, and remember to show your working.

kevin52

If a basic rate taxpayer pays £100 into his pension he gets £20 back from the tax man. If a higher rate taxpayer pays £100 he gets £40 back from the tax man. I know I benefitted from the arrangement in the past, but that doesn't make it right.

hugheskevi

It is much easier to talk about abolishing higher/additional rate relief than it is to implement it.

The simple approach - simply limit relief to 20%. That would see a surge in salary sacrifice arrangements, which are already commonplace anyway. Then you exacerabate the unfairness of salary sacrifice, with those who offer it getting maybe 55% relief (40%+13.8%+12%) and those without getting 20%.

So ban/limit salary sacrifice too. But how do you distinguish between a 'genuine' employer contribution and something that is really a personal contribution. Perhaps a particular employer genuinely wants to put, say, 20% into their exec's pensions.

So tax employer pension contributions. That might be easy enough in Defined Contribution arrangements, but difficult for Defined Benefit pensions. But perhaps we can say DB pensions are declining, so we should just ignore them....but that would be a huge subsidy to public sector which really isn't fair.

So now work out a notional contribution rate for every member of public sector, which varies by age and sex as well as other things, and tax accordingly...an actuary's paradise

When someone comes forward with a detailed proposal that addresses these issues I take them seriously, if they just go on about abolishing higher rate tax then it isn't very realistic given that they clearly haven't given the matter a great deal of consideration

gadgetmind

kevin52 wrote: »

If a basic rate taxpayer pays £100 into his pension he gets £20 back from the tax man. If a higher rate taxpayer pays £100 he gets £40 back from the tax man. I know I benefitted from the arrangement in the past, but that doesn't make it right.

Try starting from the top line of the payslip, as I did in my earlier message, and I think you'll start to understand it better.