George Osborne MUST now U-Turn 'Granny Tax'!

everinthered

"Because a pension is generally a form of investment income ?"

I think that molerat has provided the answer to gadgetmind's question, in a nutshell.
If not, then please put us out of our misery and reveal your reason(s)

gadgetmind

everinthered wrote: »

If not, then please put us out of our misery and reveal your reason(s)

No, it's because National Insurance is a tax on income that is used to provide for pensions. The more years you work, the more state pension you get, and there is also (currently) an earnings related element, so the more you put in, the more you get out.

It's therefore pretty easy to understand why pensioners shouldn't pay it (they have already earned their pensions) and why NI isn't charged on investment income (because this income is from money that's already been fully taxed.)

It actually works well for those on low to middling incomes. Try working your "Mr. Average" again and this time model a typical working versus retirement to see how much he gets out versus what he's put in.

Then try for your high earner and you'll see that even under our current system these high earners are subsidising everyone else.

Removing caps on annual NI contributions (which has already happened to a certain extent for employee's contributions and totally for employer's) means that people will be paying in long after they've finishing paying for their own pension.

How many people's pensions do you think any one man (or woman) should have to fund?

everinthered

"No, it's because National Insurance is a tax on income that is used to provide for pensions. The more years you work, the more state pension you get, and there is also (currently) an earnings related element, so the more you put in, the more you get out."

I understand that the earnings related element is being phased out so that there will be a flat rate addition to the state pension regardless of earnings. Something like £1.50 extra per week for each qualifying year so that in the future, the maximum available S2P will be somewhat less than is currently the case. Presumably, the intention is to encourage more people to join occupational pension schemes or make private provision. No bad thing. But I stand to be corrected on this issue.

"Then try for your high earner and you'll see that even under our current system these high earners are subsidising everyone else."

Provided they're not playing the 'tax avoidance' game.

gadgetmind

everinthered wrote: »

Presumably, the intention is to encourage more people to join occupational pension schemes or make private provision. No bad thing. But I stand to be corrected on this issue.

No, spot on. People are being encouraged and even opted-in to making their own provision.

However, for this to work, some changes need to be made to the pensions and tax system.

Pensions are moving towards a flat rate with people being free to keep anything on top from their own provision rather than it being clawed back.

Similarly, the Age Related Allowance is being eliminated by accelerating personal allowances up to match it, which will remove a 30% tax on pensions earnings which have probably only enjoyed 20% tax relief.

Provided they're not playing the 'tax avoidance' game.

That fact that the vast majority of income tax is paid by high earners strongly suggests that extremes of avoidance happen far less in reality than they do in the tabloids.

everinthered

"Similarly, the Age Related Allowance is being eliminated by accelerating personal allowances up to match it,"

Back to that old chestnut; although I welcome the acceleration of personal allowances and can accept the elimination of the Age Related Allowance, I still consider that all 'up and coming' pensioners should benefit from this allowance while it continues to exist. My reasons are purely selfish as I'll be one of those affected and who will remain on the £9205 personal allowance instead of moving to the £10500 Age Related Allowance in the 2013/14 fiscal year. Every little helps !

"which will remove a 30% tax on pensions earnings which have probably only enjoyed 20% tax relief."

Being a 'bear of very little brain', I find this statement rather 'taxing' and I'd appreciate further enlightenment.

gadgetmind

everinthered wrote: »

I'll be one of those affected and who will remain on the £9205 personal allowance instead of moving to the £10500 Age Related Allowance in the 2013/14 fiscal year.

Commiserations, and I do think this one particular aspect wasn't thought through too well as some will "lose out" until personal allowances catch up with where the age related allowance is.

However, I don't think there is a tax payer on the planet who hasn't had the rug pulled out from under them at times (and usually not for positive reasons as in this case) and you just have to adapt and carry on.

"which will remove a 30% tax on pensions earnings which have probably only enjoyed 20% tax relief."

The age related allowance is/was clawed back for income over £25,400 so many people would put money into a pension to get 20% tax relief only to then pay an effective tax rate of 30% on some of it in retirement.

The personal allowance rules have become far too complex and are in serious need of simplifying. Why not give everyone the same allowance and be done with it?

http://www.hmrc.gov.uk/incometax/personal-allow.htm

I actually like an idea promoted by the Green Party (which might not be theirs, dunno) that every adult gets (say) £8kpa from the government. This replaces all personal allowances, all pensions and all benefits. If you earn extra (work, interest, whatever), you pay 20% tax on it and keep the rest. No clawbacks, no complex forms, no bands ... simples!

everinthered

"The age related allowance is/was clawed back for income over £25,400 so many people would put money into a pension to get 20% tax relief only to then pay an effective tax rate of 30% on some of it in retirement."

Yep; much as I thought. As I intend (And need) to work beyond the SPA, I'd have been subject to this. Even so, I still don't relish the prospect of having to complete self assessment forms, which will still probably be the case.

"The personal allowance rules have become far too complex and are in serious need of simplifying. Why not give everyone the same allowance and be done with it?"

True; but the complexity extends far beyond personal allowances.

"I actually like an idea promoted by the Green Party (which might not be theirs, dunno) that every adult gets (say) £8kpa from the government. This replaces all personal allowances, all pensions and all benefits. If you earn extra (work, interest, whatever), you pay 20% tax on it and keep the rest. No clawbacks, no complex forms, no bands ... simples!"

I agree; as long as 'every adult' means all adults in any one household.

everinthered

BTW...Some days ago, I posted this to you:-
"What utter tripe !!...grow up !!"

I was wrong and I apologise.

everinthered

This has been a thoroughly enjoyable, enlightening and sometimes amusing thread. As a late participant, I was not initially aware of the threads origins. The page I 'landed' on was the result of a Google search regarding the Age Related Allownce. However, when I decided to go back to page 1 of this thread, I see that it was one 'boozecruiser' who started the whole thing off. Hence my 'sometimes amusing' comment. Whatever became of him? As the initiator of this thread, why has he mysteriously disappeared from it? Did he finally realise he was flogging a dead horse? Did he exhaust his supply of emoticon thingies? It's a dull and boring Sunday afternoon in my neck of the woods, so come back boozecruiser and make me smile.

molerat

This thread was obviously too much for him

Last Activity: 08-06-2012 12:19 AM