Telegraph - 25% Under threat.

tony4147

Probably old news but according to an article on the Telegraph website Pension savers are resigned to losing the 25% lump sum.

If that were to happen then I like many would feel robbed, in my case I would probably stop paying into a pension completely and divert my contributions into S&S Isa's.

I do wish the parties would stop meddling and creating uncertainties with peoples futures like this, and then they wonder why people won't save into pensions ...............the mind boggles

wakeupalarm

Yes, it is old news, the same story has been doing the rounds for at least 20 years and yet the 25% TFLS is still there.

zygurat789

wakeupalarm wrote: »

Yes, it is old news, the same story has been doing the rounds for at least 20 years and yet the 25% TFLS is still there.

Always just before the budget. Oh yes it's on March 19.

dunstonh

Probably old news but according to an article on the Telegraph website Pension savers are resigned to losing the 25% lump sum.

There have been scaremongers on this since 1988 when personal pensions first came out.

Yet here we are 26 years later and its still there. Indeed, rather than it being restricted or going away, all the legislation changes since 2006 have actually increased the amount people can get from pensions as a lump sum. (e.g. being able to get 25% on former protected rights when you never used to be able to or flexible drawdown allowing people to withdraw more than 25%, subject to tax).

The tax free lump sum helps the economy far more than a smaller amount dripped annually over a period. It also helps people get out of debt. There isnt even a hint from the Government that tax free tax is under threat.

The only ones that suggest it are think tanks trying to get into the media to promote themselves or scaremongering journalists trying to make a name for themselves. Happens often before the Spring budget. A couple of years ago, one paper ran with 20 things you will see in the budget. Yet not a single one of them was correct.

Teaandscones

Further to Dunstonh's comments, another reason why it is unlikely that the TFLS will not be abolished is that the government relies on it to reduce public service pension liabilities. As there is a standard 12:1 commutation for most public service pensions, this represents probably less than half of the value. If the government didn't allow the TFLS, there would be a significant additional cost for public sector pensions (approx 1.5% of payroll for the LGPS).

hyubh

Teaandscones wrote: »

another reason why it is unlikely that the TFLS will not be abolished is that the government relies on it to reduce public service pension liabilities. As there is a standard 12:1 commutation for most public service pensions, this represents probably less than half of the value. If the government didn't allow the TFLS, there would be a significant additional cost for public sector pensions (approx 1.5% of payroll for the LGPS).

Removing the tax free status need not imply removing the lump sum option full stop, not that I think either option is imminent, or even likely in the medium term. That said, I see little evidence of the current government at least taking much notice of the LGPS funding implications of its wider polices (see: auto-enrolment, academies, end of contracting out, etc.).

lvader

The Telegraph seems to think it's in Labours plans, I wouldn't put it past them, anything to show they are willing to tax anyone doing well for themselves.

kidmugsy

There's been chatter about limiting the amount you can withdraw as the 25% e.g. you could withdraw 25% up to a limit of (invented number) £50k. I think we need to know the typical sizes of potential lump sums for MPs before we worry too much.

grey_gym_sock

lvader wrote: »

The Telegraph seems to think it's in Labours plans

well, if you believe the telegraph's speculation about what labour might do ...

there already is in effect an upper limit on the TFLS, thanks to the lifetime allowance. i'm not sure why any government would see the need to introduce a second kind of limit (except perhaps to make "pension simplification" even funnier).

there is a real issue over the uncertainty about how far the lifetime allowance will be reduced, and when they will start indexing it again. i'd like to see some (or all) of the parties actually spelling out a policy on this, to remove the uncertainty. e.g. we'll reduce it to £1m, but then start increasing it again in line with CPI.

kidmugsy

On t'other hand, that nice Mr Brown did change the name from Tax-Free Lump Sum to Pension Commencement Lump Sum. Perhaps the clue is in the name?

grey_gym_sock

it's sometimes been mentioned that there are other circumstances in which there is a tax-free lump sum from a pension, and the name change should make it clearer which kind is meant.

i expect (but haven't checked) that the name change happened while mr brown was in either no. 11 or no. 10, but i don't think he wrote the tax legislation personally.