Two Eds are worse than one.

kidmugsy

From the Guardian: "The changes to pensions allowances to fund the [university] fee cut would also mean the lifetime limit on pension pots would be reduced from £1.25m to £1m and annual maximum contributions to pension pots would be cut from £40,000 to £30,000. There will also be a reduction in the rate of tax relief from 45p to 20p for those earning more than £150,000."

That's Ed Moribund speaking, apparently. He presumably hopes that people on £50k won't notice that they'll lose their 40% tax relief.

Aegis

It's as though they looked at the pension system, which - aside from the cuts to the lifetime allowance - is actually in a pretty reasonable shape, and decided that people saving for their retirement needed less certainty and more punishment. Honestly, it's difficult to even try to establish why politicians do what they do. This in particular would represent further needless complication to the pension system and demonstrates exactly why people don't trust pensions.

Idiotic ideas, quite simply.

Cyberman60

Aegis wrote: »

It's as though they looked at the pension system, which - aside from the cuts to the lifetime allowance - is actually in a pretty reasonable shape, and decided that people saving for their retirement needed less certainty and more punishment. Honestly, it's difficult to even try to establish why politicians do what they do. This in particular would represent further needless complication to the pension system and demonstrates exactly why people don't trust pensions.

Idiotic ideas, quite simply.

How can it be in reasonable shape when we've had private sector final salary schemes closing ever since Brown stopped dividend tax credits in 1997. It's my view that Labour want people to be dependent on the state so they can continue to offer cynical bribes at elections etc. If we were all wealthy they'd never be able to persuade us to accept their socialist ways.

There is an irony in you saying 'people do not trust pensions' though. Perhaps they should not trust Labour !!!! :mad:

Thrugelmir

Policies have to be self funding to be credible. The cake has to be shared more equitably. Dispensing with higher rate relief seems a reasonable proposition.

Cyberman60

Thrugelmir wrote: »

Policies have to be self funding to be credible. The cake has to be shared more equitably. Dispensing with higher rate relief seems a reasonable proposition.

Why not just cancel pensions altogether and make everybody dependent on the state... :T That will be fair because everybody will be at the same level of poverty.

Spidernick

kidmugsy wrote: »

From the Guardian: "The changes to pensions allowances to fund the [university] fee cut would also mean the lifetime limit on pension pots would be reduced from £1.25m to £1m and annual maximum contributions to pension pots would be cut from £40,000 to £30,000. There will also be a reduction in the rate of tax relief from 45p to 20p for those earning more than £150,000."

That's Ed Moribund speaking, apparently. He presumably hopes that people on £50k won't notice that they'll lose their 40% tax relief.

The bit immediately above that in bold suggests that relief is only going to be cut for the 45% taxpayers, which would make your statement in bold incorrect. Hardly helpful, is it? Does anyone know the actual position?

kidmugsy

Spidernick wrote: »

The bit immediately above that in bold suggests that relief is only going to be cut for the 45% taxpayers, which would make your statement in bold incorrect. Hardly helpful, is it? Does anyone know the actual position?

Are you really suggesting that they'll cut relief for 45% payers to 20% but leave the relief for 40% payers at 40%? You seem to have an even lower opinion of them than I have.

jamesd

That's what the coverage of their announcement seems to say: 20% in basic rate band, 40% in higher rate band and 20% in top rate band. Then of course the lifetime allowance cut for those who buy an annuity means that you won't be allowed to accumulate more than about £27,000 of personal pension without paying the punitive lifetime allowance penalty on the rest. So naturally that will hit those earning in the higher and top rate bands more than most because it's those who are most likely to aim for a pension paying that level of income.

I assume that firms with lots of relatively high earners will start to offer matched VCT and EIS contributions as the obvious alternative to the reduced pension tax relief, much as some already do it or ISAs.

gadgetmind

Those approaching the current lifetime allowance currently just up sticks and pay into pensions (and income tax) overseas. Without our higher earners subsidising the system, this country would be stuffed, so policies like this are just lunacy.

Spidernick

kidmugsy wrote: »

Are you really suggesting that they'll cut relief for 45% payers to 20% but leave the relief for 40% payers at 40%? You seem to have an even lower opinion of them than I have.

Well, that's exactly what your OP said, hence I asked for clarification! Jamesd seems to think that is the case, which seems somewhat in inequitable, I must say!

It also raises interesting questions about how things will work if you have earnings of just over £150K and salary sacrifice pension contributions so that your P60 figure is under £150K. HMRC would not know about the pension element, unless something was put in place for employers to advise HMRC, some form of new PAYE regulation, a new entry on the tax return (rather like the pension surcharge), etc.

What if you have earnings of £140K but rental profits (say) of £20K. I know that your 'first' source of income for tax purposes is earnings, but would they try and restrict the relief in those circumstances?

This seems like the proverbial can of worms to me. If they want to restrict pension relief to 20%, they should do it for everyone, including 40% tax payers, but they won't do that, as it would alienate too many people.

Aegis

Cyberman60 wrote: »

How can it be in reasonable shape when we've had private sector final salary schemes closing ever since Brown stopped dividend tax credits in 1997. It's my view that Labour want people to be dependent on the state so they can continue to offer cynical bribes at elections etc. If we were all wealthy they'd never be able to persuade us to accept their socialist ways.

There is an irony in you saying 'people do not trust pensions' though. Perhaps they should not trust Labour !!!! :mad:

Private sector final salary schemes were a failed experiment in the long run because providing the guaranteed incomes effectively became something of a Ponzi scheme, albeit a legal one with well-understood requirements for management. With companies forced to provide for employees long after leaving service, this was never going to be sustainable over the very long term in a highly competitive market where companies come and go.

Bear in mind that before the current situation, someone could feasibly have lost their entire pension if the sponsoring employer went bust. Even now, the Pension Protection Fund exists, but it is highly restrictive in comparison to standard options. In addition, before 1987 (i.e. in the heyday of final salary schemes) there was no requirement to inflation-proof any of the pension benefits. This was fine if you worked for the same company all your life and commenced benefits after reaching 40 years of service, but if you wanted to change jobs you could find your pension almost worthless in comparison to what it should have been - decades of inflation had the potential to severely weaken a saver's retirement plans.

Steps taken to make these fairer, i.e. forcing all schemes to uplift with inflation, were likely responsible for a lot of the closures, as investing safely to guarantee that all members' investments beat inflation by a significant margin without taking undue risk became almost impossible, with the scheme deficits forcing large numbers of companies to close their schemes.

The current arrangements don't seem as fair to savers, but at the same time if we accept that the days of most people having final salary schemes are long gone, the current legislation on pensions is pretty fair. Contributions are limited to £40,000 per annum - high enough for most savers to put in any proportion of their salary but low enough to limit the use of pensions as a tax-planning vehicle - while the lifetime allowance is set at a level which should allow someone to generate around £50,000 of sustainable income a year if they remain invested. This isn't an outrageous sum of money, but it means that most people saving for retirement have few to no restrictions on doing so. Higher earners can be rewarded appropriately for saving for their retirement, but the highest earners will still need to make alternative arrangements outside pension schemes to top up their income.

Further restricting the use of pensions will simply stop more and more people from wanting to use pensions just in case their accidentally hit the lifetime allowance or lose access to their tax free cash. There's no real benefit to all these tweaks, it's just a foolish exercise to try to appeal to envy to win votes without considering the longer term consequences.