Pensions uncertain in the future?

grey_gym_sock

hugheskevi wrote: »

Higher and additional rate pay 54% of all income tax, which doesn't look too far out of line.

Although 10-15% of individuals paying 54% of the total income tax does look rather unfair.

utterly the wrong conclusion.

if you have the income, why shouldn't you pay the tax?

and there are more ways to minimize your income for tax purposes as you get richer, so the real tax rates paid are much lower than the official rates.

what the statistic suggests that is incomes are surprisingly unequal. (er ... or not, if it didn't surprise you.) but that's another topic from tax policy.

hugheskevi

utterly the wrong conclusion.

It wasn't a conclusion, it was an observation. Mainly designed to show how quoting partial statistics that appear to support an argument can be very misleading.

if you have the income, why shouldn't you pay the tax?

A value judgement - an equally valid judgement may be if you have the wealth why shouldn't you pay the tax?

Why should someone with a volatile income pay more tax than someone with a stable income? Take a self employed entrepreneur who earns £20,000 for 5 years, then £100,000 in year 6 as their enterprise bears fruit. Why should they pay a higher rate of tax than an employee who earnt £33,333 in every year?

Pensions move the taxation of income from one year to another year. Being well off is based on a lot more than income in a single year.

grey_gym_sock

hugheskevi wrote: »

It wasn't a conclusion, it was an observation.

so were you actually thinking: "it looks unfair, until you reason that the reason a few ppl pay a large proportion of all income tax is because they receive a large proportion of all taxable income"?

i didn't read it like that (which is why i made that point in reply).

A value judgement - an equally valid judgement may be if you have the wealth why shouldn't you pay the tax?

we can't discuss everything at once. how income tax is divided among tax payers is 1 issue. income taxes vs wealth taxes is another.

if you really want to know, i'm not totally against wealth taxes, but i think realistically far more tax is always going to be raised by taxing income/profits than by taxing wealth.

Why should someone with a volatile income pay more tax than someone with a stable income? Take a self employed entrepreneur who earns £20,000 for 5 years, then £100,000 in year 6 as their enterprise bears fruit. Why should they pay a higher rate of tax than an employee who earnt £33,333 in every year?

they don't. an entrepreneur could claim entrepreneur's relief (if selling the company), or only pay corporation tax at 20-ish% (if leaving a lot of the money inside the company). there are lots more options to reduce your effective tax rate when you're a business owner, or just wealthier.

atush

Neverland wrote: »

The current system is VERY unfair

About 2/3 of the tax relief goes to higher and additional rate tax payers

Only 15% of workers pay higher rate income tax according to HMRC

Its no coincidence that the number of people paying into private pensions is at a 30 year low

This is skewed by an unwillingness to take responsibility for retirement by many of the low/no- middle tax payers.

Higher rate taxpayers pay more attention to pensions to take advantage of tax relief. I'd pay into a pension for only 10% TR at least for a portion of my savings.

the reason we are at a 30 year low in pensions is the credit boom hangover, and the instant gratification society we have largely become. Plus scare/alarmist stories about pensions in the popular press many don't understand- they read pension and they say Yikes.

stinktankcynic

Thanks for your posts. My concerns with pensions are that the government will either do a raid on them, remove the lump sum or will deduct them from your state pension if there is one. I don't want to save thousands, hundreds of thousands even to find that doing so 1. Stops us from having a state pension in future. 2. Is worthless because annuities will be so low, you won't get hardly anything back.
3. The retirement age for taking pensions rises, and despite everyone supposed to live to 100, someone croaks at 85, after having a 5 year annuity, and everything is lost.

Is it logical to put the money into ISA's instead, then if pensions are looking decent in 20 years, putting the max in then? Over the last 5 years?

Also, if annuities are that good, you can buy them with the cash from isa's?

If your not a higher rate tax payer, and don't get an employers pension, then the flexibility of an is a, outweighs the risk/tax relief of a pension?

stinktankcynic

atush wrote: »

This is skewed by an unwillingness to take responsibility for retirement by many of the low/no- middle tax payers.

Higher rate taxpayers pay more attention to pensions to take advantage of tax relief. I'd pay into a pension for only 10% TR at least for a portion of my savings.

the reason we are at a 30 year low in pensions is the credit boom hangover, and the instant gratification society we have largely become. Plus scare/alarmist stories about pensions in the popular press many don't understand- they read pension and they say Yikes.

There are people out there who can see the older generation who had good pensions and annuities, they look at falling annuities, no final salary schemes, means tested benefits and wonder are they completely wasting their money.

grey_gym_sock

you can buy an annuity without having a pension at all. and you don't have to buy an annuity with a pension pot. whether to use pensions, and whether to use annuities, are separate decisions.

there is a genuine risk that governments will keep fiddling with the laws about pensions. though not all the changes have been bad for ppl with pensions. and the most drastic options - like reducing your state pension pound-for-pound if you have a private pension - are very unlikely to happen (i reckon).

do you mean cash ISAs or S&S ISAs? cash ISAs are a poor bet for long-term savings. S&S ISAs are more comparable to pensions.

many ppl (including me) prefer S&S ISAs to pensions because they are more flexible and have less regulatory risk. other ppl prefer pensions because having a pension fund doesn't prevent your claiming means-tested benefits, and their pension fund is safe if they go bankrupt, or just because they know they'd foolishly spend the money if they could.

it's true that if you're not a higher rate payer, or have employer contributions on offer, or (1 might add) have a salary sacrifice pension scheme available (which gives a basic rate payer 32% relief instead of just 20%), ISAs tend to look better than pensions. but it might still be worth using both.

Neverland

hugheskevi wrote: »

Higher and additional rate pay 54% of all income tax, which doesn't look too far out of line.

Although 10-15% of individuals paying 54% of the total income tax does look rather unfair.

Quoting how much highly paid people pay in income tax when it is only one of many taxes (vat, ni, council tax etc) is of course highly misleading when all the other taxes are much less progressive

You probably know this already of course

Neverland

stinktankcynic wrote: »

There are people out there who can see the older generation who had good pensions and annuities, they look at falling annuities, no final salary schemes, means tested benefits and wonder are they completely wasting their money.

Company pension schemes weren't that generous until the 80s actually...so they were very well funded

Then for about 20 years Conservative and Labour government competed to both skim money from company pension schemes and force them to offer better pensions to workers

Result: final salary schemes became largely unaffordable

Its a mathematical fact that anyone retiring in the last 15-20 years on a final salary scheme pension didn't actually put in what they got out

We are going back to the post-war model of 45-50 years of working followed by 15-20 years of retirement, but with the working age starting at 21 not 16

Neverland

stinktankcynic wrote: »

Thanks for your posts. My concerns with pensions are that the government will either do a raid on them, remove the lump sum or will deduct them from your state pension if there is one. I don't want to save thousands, hundreds of thousands even to find that doing so 1. Stops us from having a state pension in future. 2. Is worthless because annuities will be so low, you won't get hardly anything back.
3. The retirement age for taking pensions rises, and despite everyone supposed to live to 100, someone croaks at 85, after having a 5 year annuity, and everything is lost.

Is it logical to put the money into ISA's instead, then if pensions are looking decent in 20 years, putting the max in then? Over the last 5 years?

Also, if annuities are that good, you can buy them with the cash from isa's?

If your not a higher rate tax payer, and don't get an employers pension, then the flexibility of an is a, outweighs the risk/tax relief of a pension?

They are two very different things:

Pensions are a tax deferral product - you pay tax on the income at the end

ISAs are a tax free wrapper for savings - you pay tax when you get paid, but not on any investment growth or income after that

Pensions are hugely advantageous to anyone who pays higher rate tax on their current income, but will only be a basic rate tax on retirement (which is almost all higher rate tax payers)

However, even as a basic rate tax payer, if you put £100 into a personal pension, it will instantly and risk free become £125 - thats about 5 years investment growth risk free right there

I would do some spreadsheets and you can see the magic of the tax relief yourself