Flexible fines

edited 30 November -1 at 1:00AM in Pensions, Annuities & Retirement Planning
14 replies 1.3K views
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  • zagfleszagfles Forumite
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    Your_Hero wrote: »
    Because tax-relief on pensions can be abused to a far greater extent than tax-free interest/gains on ISAs.

    I'm not fully supportive of it, but there's little alternative, in the short term at least, to ensure people stick to the rules. We still see people breaking ISA limits - such a simple product and yet people fail to understand/abide by the rules. No chance for the average person to understand pensions and annual allowances.
    And how exactly will this "ensure people stick to the rules"? Do you have to tell each provider every time you make a contribution to any other scheme? If not, how will any provider know you're exceeding the £10k limit if you contribute, say, £5k to 6 different pension schemes?
  • zagfles wrote: »
    And how exactly will this "ensure people stick to the rules"? Do you have to tell each provider every time you make a contribution to any other scheme?
    Unlikely I'd imagine, but I wouldn't rule it out.
    If not, how will any provider know you're exceeding the £10k limit if you contribute, say, £5k to 6 different pension schemes?
    They probably won't in your example, but for the masses it will make a difference.

    Consider an average individual who may have just 2 pensions at retirement. After drawing full benefits from the first pension, she then notifies the 2nd pension scheme of her reduced allowance of £10,000. This provider will manage her level of contributions to ensure she doesn't exceed this lower limit. Without this, it would be very easy for someone be confused at this point and believe they still have a full £40,000 allowance, particularly as not all withdrawals trigger the £10,000 reduced limit. It's not the perfect solution, but it will help to keep the majority in check.

    Whilst it does not subsequently stop her from opening a 3rd pension to circumvent the rules, the 'damage' is relatively limited when compared to the full £40,000 limit and cases like this will be few and far between (very few people have, say, 6 pensions at retirement and I've yet to come across someone who does. If you've had to open 5 new pensions to do this, it becomes a clear case of abuse and tax fraud).

    I think the other important element is the psychological effect since the pensioner is taking an active role to notify providers and so there's a high chance they will then stick to the £10,000 limit
    Stephen Covey once said that "when you teach once, you learn twice". That is the primary reason for my participation on the forums as an IFA.

    Although I strive to provide accurate information in my posts, there may be the odd time when I fail. Yes I know it's hard to believe but even Your Hero can make mistakes. Apologies in advance.
  • zagfleszagfles Forumite
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    Tenth Anniversary 10,000 Posts Name Dropper Chutzpah Haggler
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    Your_Hero wrote: »
    Unlikely I'd imagine, but I wouldn't rule it out.

    They probably won't in your example, but for the masses it will make a difference.

    Consider an average individual who may have just 2 pensions at retirement. After drawing full benefits from the first pension, she then notifies the 2nd pension scheme of her reduced allowance of £10,000. This provider will manage her level of contributions to ensure she doesn't exceed this lower limit. Without this, it would be very easy for someone be confused at this point and believe they still have a full £40,000 allowance, particularly as not all withdrawals trigger the £10,000 reduced limit. It's not the perfect solution, but it will help to keep the majority in check.

    Whilst it does not subsequently stop her from opening a 3rd pension to circumvent the rules, the 'damage' is relatively limited when compared to the full £40,000 limit and cases like this will be few and far between (very few people have, say, 6 pensions at retirement and I've yet to come across someone who does. If you've had to open 5 new pensions to do this, it becomes a clear case of abuse and tax fraud).

    I think the other important element is the psychological effect since the pensioner is taking an active role to notify providers and so there's a high chance they will then stick to the £10,000 limit
    But what about the 100% of relevant earnings/£3600 limit? That's likely to apply to far more people as generally people who start drawdown will have retired.

    If people can't be trusted to stick to the £10k allowance, how can they trusted to stick to the £3600 (if they have no relevant earnings) allowance which has been in place for years? People don't need to tell their pension provider their earnings, do they?

    In fact by telling people there's now a £10k allowance could lead them into believing this is their contribution limit, rather than £3600 if they have no earned income.
  • zagfles wrote: »
    In fact by telling people there's now a £10k allowance could lead them into believing this is their contribution limit, rather than £3600 if they have no earned income.
    That is possible if it's not been articulated properly. I suppose that's the job of the government and its "guidance" providers.
    Stephen Covey once said that "when you teach once, you learn twice". That is the primary reason for my participation on the forums as an IFA.

    Although I strive to provide accurate information in my posts, there may be the odd time when I fail. Yes I know it's hard to believe but even Your Hero can make mistakes. Apologies in advance.
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