Plans to Tax Pension Lump Sums?

shop-to-drop

Am I right in thinking that sometimes people can get interest only part of their mortgage on the basis of repaying with this lump sum on retirement?

KMK

Well I hope it is just a rumour.

However, I for one did not see the change to CPI instead of RPI coming. It was not mentioned in Osborne's pre election manifesto,nobody was consulted and no debate in Parliament was held because it was hidden in the "small print" of his Budget.MPs' pensions are still linked to RPI of course.

If they want to tax lump sums, they will probably do it without consultation and then announce the change on a "bad news" day when they think nobody is looking!

hugheskevi

Am I right in thinking that sometimes people can get interest only part of their mortgage on the basis of repaying with this lump sum on retirement?

Yes, although interest-only mortgages are increasingly drying-up so in practice it might be a bit hard at the moment. Personally I have a large interest-only mortgage with pension named as repayment vehicle.

MPs' pensions are still linked to RPI of course.

No, they changed to CPI too. Reference here.

C_Mababejive

Paul_Herring wrote: »

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

I'm not the only one who has forgotten it ..!

Thrugelmir

I suspect that the maximum annual contribution to be lowered further.

Tinkering with the tax relief, restricting to basic rate, is to complex to implement.

mickyrod

I hope you are right. I will retire in June and have plans for my lump sum.

SeniorSam

I don't believe that the OP will have any problems whatsoever. Nor do I think it likely that the average (if there s one) man or woman will have their tax free lump sums taxed.

However, I do believe that it is logical that a tax will be imposed at some stage on the people who get huge salaries and bonuses and pump up their pension funds to maximise the tax free lump sum that can get at.

Whenever it is imposed, I believe it will have a lower limit of between £150k - £300k, or slightly more, before tax is implemented.

My wisdom comes after many mistakes .............

Sam

Paul_Herring

SeniorSam wrote: »

However, I do believe that it is logical that a tax will be imposed at some stage on the people who get huge salaries and bonuses and pump up their pension funds to maximise the tax free lump sum that can get at.

Such a tax is likely to hit those that aren't getting huge salaries.

For example, the 2nd article I linked to above suggested:

Anyone taking out more than £42,000 as a lump sum on retirement would be affected.

That implies a pension pot of £168,000 (leaving enough for a pension of about £5-6k if purchasing an annuity with the remainder.) Well within reach of people earning below the 40% tax band if saving a realistic amount over a decent portion of their career. (The 'average pot' of £25k for retirees today notwithstanding.)

jamesd

For context, someone after £20,000 inflation-linked income would need a pot of about £660,000 using 3% as the annuity rate. The 25% of that would be £220,000. The new lifetime allowance of £1.5 million takes effect at only twice that level so it servers as a cap already for those who might have pensions producing higher rate tax levels of inflation-protected pension incomes.

Limit the annual amount more and you can end up catching both more of those in final salary schemes who get pay rises and those trying to catch up quickly after years of not using their allowances.

To me the lifetime allowance looks like the best of the caps because it leaves maximum flexibility but still acts as a cap on the tax benefit that can be obtained. It has the political disadvantage that it doesn't make or save money within a year, it takes time to work.