Plans to Tax Pension Lump Sums?

DiHi

Have just read a report that in next month's budget speech, the Chancellor may be planning to tax pension lump sums. Really worried - my husband becomes eligible for his pension this year - my questions are:

Does anyone think this is likely?
If so, how quickly would it happen?
Would it be better to draw his pension early?

Don't really understand much to do with economics or finances, but understand that such a move by the Chancellor will hit us (and many others) very hard .... so difficult to know what to do !!

atush

I don't think it is likely as the govt is trying to get people to take out pensions so they don't fall on state handouts. If they did this, less people ould open them or pay further into them.

It would not happen that quickly. the things that are coming in this year (ie the lifetime cointribs of 1.8Mil going down to 1.5 mil) were proposed some time ago and coming in now. So your OH could take his lump before it happened.

If he is not 55, he can't take it early.

Paul_Herring

http://www.economicvoice.com/pensions-face-new-tax-raid/50028145

But the real stinger is the possibility that the 25% pension tax free lump sum that retirees are able to extract from their fund to pay off debt and mortgages or go on that cruise may end up as tax free no more.

These proposals may never see the light of legislation, but they are a worry when those relying on the performance of a pension pot (not a final salary scheme) approaching retirement see the amount they get back per £thousand saved dwindle.

There'd be absolute uproar if they decided to tax that 25% lump sum.

shop-to-drop

Another Lim Dem idea no doubt.

Paul_Herring

shop-to-drop wrote: »

Another Lim Dem idea no doubt.

Express attribute it to Osborne himself.

This article is blaming the Lib Dems.

However I can't find a reliable citation for where the idea actually originated, or whether it's simply someone partaking of a bit of hyperbole to make what eventually happens seem 'less worse than it could have been' but is still bad.

shop-to-drop

I would imagine, but what do I know, that the OP husband will probably be OK if he is retiring this year. However for those of us retiring in 15-20 years how much chance is there of the tax free lump sum still being in place?

We'd like to make extra payments into our pensions when we can but without the tax free lump sum this is a much less attractive option. I really don't want to spend the next 20 years making this sacrifice if they pull it away.

chewback

This has been on the cards for a while. Why do you think they changed the name from "Tax free cash" to "Pension Commencement lump sum"?

No mention of tax free in the new name!!!

atush

The govt didn't change the name.

C_Mababejive

Paul_Herring wrote: »

http://www.economicvoice.com/pensions-face-new-tax-raid/50028145



There'd be absolute uproar if they decided to tax that 25% lump sum.

Will there? The last time the people took to the streets in this country was for the poll tax and they still did it.

Plenty of people wouldnt bat an eyelid of people were taxed on their pensions in this way and why? Becuase lots of people dont have such pensions so its a dog in a manger attitude with them.

Paul_Herring

C_Mababejive wrote: »

Will there? The last time the people took to the streets in this country was for the poll tax and they still did it..

You appear to have forgotten the uproar over public-sector pensions recently.

dunstonh

Every year or so you get rumours started somewhere that tax free cash is going to be taxed. Here we are 24 years after the tax free cash was set at 25% on personal pensions and it is still tax free.

it could happen but there is very little benefit to the treasury if they do and it harms the economy just at a time when it needs money to be spent.