STATE Pension ALERT !

atush

The OP poll is flawed as there are no options that truly reflect me (so must others as well


this is why polling and market research takes a bit of training. Otherwise the results mean nothing

Snakey

BobQ wrote: »

So what is tax relief on pension contributions? Who pays them?

The amount of tax relief you get when making a contribution is not affected at all by your expected date of retirement.

greenglide

But the point at taking the taxable income is determined by the date of retirement (decumlation) this is the point at which HMG start getting the tax back. If the point at which pension savings can be accessed it moved later the government seems to have no gain, the people who simply use it as an investment vehicle (several in here) potential lose out and people who see it as an income stream in retirement see no change or an inconvenience as their early retirement is postponed. Remember that the huge majority of people cannot afford to retire to 55 or 60 so it makes no difference.

jamesd

BobQ wrote: »

So what is tax relief on pension contributions? Who pays them?

Us, in taxes at higher rates than would otherwise be the case.

A person who had the same tax rate paying in as when retiring, who paid the same rate when retired and took all of the pension pot as income without taking a tax free lump sum and whose personal allowance in retirement was all used by non-pension taxable income would have a relatively low cost of tax relief, with the biggest benefits not being used. Such a person would also probably not use a pension except to get employer matching contributions.

A person who is basic rate when paying in, not using salary sacrifice and basic rate at the same tax rate on the way out but who takes the tax free lump sum will benefit. 6.25% gain from the TFLS, gains from compounded tax free growth, gains from any unused personal allowance.

Same person who also uses salary sacrifice gains from the NI not paid by them and perhaps some of that not paid by their employer. The employer or other employees or customers benefit from lower employer NI costs.

Higher rate paying in and basic rate taking out adds the tax rate difference's gains.

All of these people who pay in are less likely to need means tested benefits or will get them at lower rates, so they are reducing that future cost to offset the tax relief gains. For those who get above the means tested benefit levels the tax relief will end up being a net cost to others and them that has to be paid for in higher general tax rates.

There are also the intangible benefits of self-reliance and self-confidence that comes from being in control of your fate adn doing it well.

The excess cost of the pension tax relief also has to be compared to other reliefs like that on ISAs and VCTs. It's easy to unbalance things with a less than ideally thought out policy change and make pensions less attractive than the alternatives. Fortunately, in recent years, including the last Labour government, the trend has been to make pensions more attractive rather than less. Hopefully that will continue and an increasing number of people will be providing for themselves well enough not to need means tested benefits of any sort in retirement.

Many pronouncements about cost of tax relief just look at the current year tax relief cost while ignoring all of the offsets. Don't be fooled if all you see is "this year HMRC lost x in tax revenue from higher/basic/whatever rate rate tax relief". It's not the whole story and anyone writing it either doesn't know the whole story or is trying to dupe you.

kidmugsy

Welcome back, FatherA. Be sure to keep the children in order.

Meik

I don't understand contracting out.. does being in a work place pension mean you are already contracting out?

jamesd

Not necessarily. It depends on the work pension. It will also soon not matter because that last of the work pensions that can be contracted out will no longer be able to have people contracted out soon.

If your work pension is the modern sort for newer employees you will have a pot in your own name with investments that you can change. If you see descriptions of things like a default fund you have this type. These cannot be contracted out any more and you are contracted in now.

If your work pension is one that talks of a pension in terms of 1/80th or 1/60th of final or average salary or similar, perhaps described as a final salary or average salary scheme or a defined benefit scheme then it is likely that all members of the scheme are contracted out. This form of contracting out will end soon.