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Balls on Pensions
Comments
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The main problem is people suddenly getting a massive tax bill if they get a pay rise.
Say someone on £30k with 30 years service in a 1/60th final salary scheme gets a promotion and a £5k pay rise. So an annual pension accrued of £15k changes to £18k in a year, inc the extra year's service.
If a factor of 16 is used, the value of the pension goes up from £240k to £288k, ie a £48k increase! So their income that year including the pension increase would be £83,000 - way over the HRT threshold.
If they only get basic rate relief on the "pension contribution", they'll have to pay 20% tax on about £42,000, ie a tax bill of £8,400 !! For getting a £5k pay rise!
Why I don't follow that at all I'm not sure it's right you only pay tax on earnings not pension accued0 -
Yes, you don't pay tax on pension accrued because you get full marginal tax relief on pension accrual at the moment.Why I don't follow that at all I'm not sure it's right you only pay tax on earnings not pension accued
The point being discussed it what would happen if you only got basic rate relief, then the value of pension accrual would have to be taken into account otherwise people would get higher rate relief.
Have a look at http://www.hmrc.gov.uk/tools/annual-allowance/calculator1.htm which is the calculator used for pension input amounts for the purpose of the £50k (reducing to £40k) annual limit. It's a bit less than I calculated above as they allow for inflation, but it would still be way into HRT.
They could do as they do with the £50k limit and allow carry forwards, in this case of the unused basic rate band, but that would really complicate things...0 -
Yes, you don't pay tax on pension accrued because you get full marginal tax relief on pension accrual at the moment.
The point being discussed it what would happen if you only got basic rate relief, then the value of pension accrual would have to be taken into account otherwise people would get higher rate relief.
Have a look at http://www.hmrc.gov.uk/tools/annual-allowance/calculator1.htm which is the calculator used for pension input amounts for the purpose of the £50k (reducing to £40k) annual limit. It's a bit less than I calculated above as they allow for inflation, but it would still be way into HRT.
They could do as they do with the £50k limit and allow carry forwards, in this case of the unused basic rate band, but that would really complicate things...
To what extent would all (or part) of a pension benefit being paid for under salary sacrifice work?0 -
The same way presumably. If you're only going to allow basic rate relief on pension contributions, then employer contributions whether final salary, or salary sacrifice, would have to be treated as a taxable benefit albeit one on which you get 20% tax relief. Otherwise it would be too simple to dodge.Loughton_Monkey wrote: »To what extent would all (or part) of a pension benefit being paid for under salary sacrifice work?0 -
The same way presumably. If you're only going to allow basic rate relief on pension contributions, then employer contributions whether final salary, or salary sacrifice, would have to be treated as a taxable benefit albeit one on which you get 20% tax relief. Otherwise it would be too simple to dodge.
Let's hope they haven't thought of this...
That would make a situation bad far worse. Pension saving is already too low; to make it that much worse is only going to drive things in the wrong direction.0 -
Perelandra wrote: »Let's hope they haven't thought of this...
That would make a situation bad far worse. Pension saving is already too low; to make it that much worse is only going to drive things in the wrong direction.
Haven't theya lready been driven in the wrong direction for most.
One of the reasons people are opting to plough into property and BTLs rightly or wrongly.
For those on lower incomes the returns and costs, of traditional DC mechanisms, are so opaque and unreliable even with tax relief and employer contribution."If you act like an illiterate man, your learning will never stop... Being uneducated, you have no fear of the future.".....
"big business is parasitic, like a mosquito, whereas I prefer the lighter touch, like that of a butterfly. "A butterfly can suck honey from the flower without damaging it," "Arunachalam Muruganantham0 -
It wouldn't affect the highest earners since tax relief is already capped, it would only affect middle income earmers (as usual).
:mad::mad::mad:
Pensions are already in a terrible state! With employers not offering final or even average salary schemes any longer, this is a recipe for disaster. If he does this, then to compensate we need a proper state pension, say 50% of average full time earnings.0 -
Really?? Final salary pensions were well on their way to being phased out from the early 1990s if not before. One key factor was increased life expectancy.
!!!!!!!!. The main reason they were phased out is that employers kept taking 'pension holidays' instead of paying regular amounts in, and the result was that they mostly fell into terrible deficits. And they also greatly underestimated the amounts needed to be paid in the first place.0 -
According to the bastion of truth, the Daily Mail, higher rate tax is paid by 1 in 6 taxpayers. So the claim that middle income earners would be affected seems to be stretching the definition of "middle" a bit.
In London and the south-east it's a lot more than 1 in 6. Moreover, the middle class have never been truly 'middle', as I'm sure you know.0 -
In my view what Balls should do is abolish all final and average salary schemes completely - in both public and private sectors - and instead enable the state pension to be salary related, i.e. 50% of the full time national wage, which is now £26,500. A guaranteed pension of £13,250, guarded by the triple guarantee, for everyone who has paid, say 40 years of contributions, would be a useful safety net and encourage people to build up decent personal savings in the knowledge that if the investments don't work out too well at least there is a safety net.
The current situation has created a climate of fear in which people are forced to work into advanced old age simply to survive. Madness!0
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