Telegraph - 25% Under threat.

zagfles

gadgetmind wrote: »

Which is why the new flat rate state pension is such a great idea. £144 is what you get to from the state and the rest is down to you, chum!

It's not quite as simple as that. Pension credit will still be available to top it up if you don't have a full contribution record. Housing benefit will still be available to those who rent.

If they really wanted to encourage the low paid to save for their retirement, they'd do something radical like lower the applicable amount for pensioners to the same as working age adults...

gadgetmind

zagfles wrote: »

Pension credit will still be available to top it up if you don't have a full contribution record.

If people can't manage 35 years over their 50 year working life, then they really don't deserve the full amount.

Housing benefit will still be available to those who rent.

Hopefully this will also be scaled back (eventually to zero?) once the flat rate is fully established.

If they really wanted to encourage the low paid to save for their retirement, they'd do something radical like lower the applicable amount for pensioners to the same as working age adults...

Applicable amount?

zagfles

gadgetmind wrote: »

If people can't manage 35 years over their 50 year working life, then they really don't deserve the full amount.

The benefits system isn't about what people deserve.

Hopefully this will also be scaled back (eventually to zero?) once the flat rate is fully established.

It won't. The flat rate was intended to absorb pension credit, not add ons like housing benefit and council tax benefit. There is no chance of these abandoned but maybe scaled back as I said by reducing the applicable amount (this is the income you can earn before housing benefit and council tax benefit start being tapered).

Currently the AA is massively higher for pensioners than for working age adults - over double - about £71pw for single people under 60's and £163pw for single over 65's. So now, a pensioner on the new basic £144 would get their HB/LHA paid in full without income tapering and also (probably) max council tax benefit (this has now been localised so varies area to area).

Whereas if they reduced the AA to the same as under 60's, they'd get their HB tapered by 65% of income over £71 ie about £47 chopped off, and also a cut to their council tax benefit. They wouldn't be worse off than under 60's in the same position, in fact they'd be better off if than if they weren't previously working because of the pension/pension credit which is higher than JSA/IS/ESA. There's no logical reason why over 65's need a much higher AA, any more than they need a higher tax allowance which is being phased out.

Triumph13

The real (and probably insuperable) problem is how to get from where we are now, to where we would be if we were designing a pensions policy from scratch. The purpose of giving tax breaks on pensions is to encourage people to make sufficient savings to be independent of the state in their retirement. Our current system ends up giving a large proportion of those tax breaks to people with eventual retirement incomes well in excess of that point. Whilst you could argue that those people deserve bigger tax breaks as they are paying more tax in the first place, it would be better to just target the tax breaks on the 'independence' level. Better off people, such as myself, could then make any additional provision they chose outside the pensions system and without additional tax breaks and the resulting savings could be used to lower general tax rates.

A simple way to do it would be to have a limit on 'pensionable salary' of say £30k pa. Any DC contributions in excess of that attract no tax relief. Final salary schemes would be limited to that and any 'employer contributions' on portions of salary higher than that would be given as taxed income outside a pension.

I believe that would be a fair and equitable system and would be affordable, understandable and sustainable. The problem is the working age population have planned their finances under a completely different set of rules and it would be a nightmare to try to manage the transition.

Ho hum

lvader

How do you define a pensionable salary limit with a DC scheme? Realistically you can only limit the pot size and they already do that.

gadgetmind

zagfles wrote: »

The benefits system isn't about what people deserve.

And that's the root of many of our current problems.

The flat rate was intended to absorb pension credit, not add ons like housing benefit and council tax benefit.

They could be adsorbed into it. This way, people know that anything they save for themselves will give them more income in retirement.

There is no chance of these abandoned but maybe scaled back as I said by reducing the applicable amount (this is the income you can earn before housing benefit and council tax benefit start being tapered).

Ah, thanks. Not a phrase I'd seen before as I'm not really a benefits person.

So now, a pensioner on the new basic £144 would get their HB/LHA paid in full without income tapering and also (probably) max council tax benefit (this has now been localised so varies area to area).

Utter lunacy.

There's no logical reason why over 65's need a much higher AA, any more than they need a higher tax allowance which is being phased out.

Agreed, particularly as my wife's projections saw her hitting the age related allowance claw back in its entirety.

gadgetmind

Triumph13 wrote: »

I believe that would be a fair and equitable system and would be affordable, understandable and sustainable.

It wouldn't be sustainable as those currently paying the vast majority of income tax would leave the UK if anything like you suggest were to be implemented.

I manage teams on four different continents, and now have no kids at home, so why wouldn't I just choose to work out of a different office in a different country?

It's touch and go as is, and every time I sign off an international transfer request for one of my team, and every time HMG escalate their war on private pensions, I get one step closer.

Triumph13

I don't think the ability to make an extra £25k of pension contributions pa with tax relief is really going to be a deciding factor in many people staying or going - particularly if by doing it we get to knock a percentage or two off all tax rates.

I do agree about the need to keep the big taxpayers in the country though and so I'd definitely want to scrap the 45p rate

Triumph13

lvader wrote: »

How do you define a pensionable salary limit with a DC scheme? Realistically you can only limit the pot size and they already do that.

I'd limit it purely to an annual allowance of say £15k pa (which is about what a 1/60th accrual on £30k is worth for a worker near retirement). Scrap the lifetime limit which currently makes pension planning such a lottery for anyone in danger of hitting it.

That way you also encourage people to start contributing early.

Seabee42

In general terms I can see tax relief going from pensions savings as they become more and more compulsory. Please note apart from the tax free cash sum tax is paid on receipt of pension through PAYE. So it does at best defer the payment of tax. Originally of course tax relief was an incentive to save but with compulsion that goes way.

There are many ways to make the situation more equitable but actually 90% of tax payers are not net contributors of tax. You can of course keep taking more and more from the 10% but if even 5% do up and go (paying tax elsewhere) that has a significant impact on the governments balance.