Two Eds are worse than one.

Spidernick

dunroving wrote: »

As someone who is just learning these things (steep curve, but know a lot more than I did 2 years ago), could I ask someone to explain, without getting into politics, what economic or financial purpose the annual allowance serves?


I'm trying to see what is the advantage or disadvantage to it being £30k, £40k, or £50k ... why does it matter?

It's very expensive to give people 40% tax relief on £200K or so of pension payments a year (which used to be the case). The lower the limit, the less it costs the government. Of course down the line it may mean lower tax receipts on pensions paid out, but short-term savings are often king.

BobQ

zagfles wrote: »

Like public sector workers for instance? For instance a nurse I know who got a well deserved promotion and breached the £40k annual allowance!

It is nature of DB final salary schemes that a promotion pay rise in any one year can have that kind of effect. The new public sector schemes will I imagine make this less likely.

But yes I think there are many in the public sector who do not earn enough to add such sums to their pension annually. But Fortunately they are part of a reasonably good scheme. The better paid in the public sector will of course accrue several thousands of pensions benefit in year from their schemes.

The "outrage" is because it isn't a sensible policy and it doesn't fix the problem it purports to. Like Martin says, "financially illiterate". Or do you assume a vested interest with him too, perhaps he's just eyeing his own pension?

I would not personalise this. I am just observing that the outrage on this forum and elsewhere is largely from the pensions industry and from those in higher income levels.

ETA Some contributors have managed to keep political remarks out of this, others have failed in my view and that debate is best had on DT not in the Pension's Thread.

TheTracker

dunroving wrote: »

As someone who is just learning these things (steep curve, but know a lot more than I did 2 years ago), could I ask someone to explain, without getting into politics, what economic or financial purpose the annual allowance serves?


I'm trying to see what is the advantage or disadvantage to it being £30k, £40k, or £50k ... why does it matter?

If it is reduced from 40k to 30k then a political party assumes everyone who currently pays in excess of 30k will now be liable for up to 10k of income tax. So if there a million people in the boat and the average impacted is 5k (half 40 minus 30) then they'd get 5 billion pounds (5k x 1m) more subjected to income tax. They then offset that against the cost of other promises, like tuition fee reductions.

But economically it isn't so neat. People modify behavior to reduce tax exposure. And in the long term have less pension so the state may end up having to pay more subsidy. So maybe they should really only count 3B not 5B.

dunroving

TheTracker wrote: »

If it is reduced from 40k to 30k then a political party assumes everyone who currently pays in excess of 30k will now be liable for up to 10k of income tax. So if there a million people in the boat and the average impacted is 5k (half 40 minus 30) then they'd get 5 billion pounds (5k x 1m) more subjected to income tax. They then offset that against the cost of other promises, like tuition fee reductions.

But economically it isn't so neat. People modify behavior to reduce tax exposure. And in the long term have less pension so the state may end up having to pay more subsidy. So maybe they should really only count 3B not 5B.

That is my limited understanding of the consequences, too. Other than people who get a higher tax relief on the way in that they pay tax on the way out (or people who get some tax relief on the way in but don't pay any tax on the way out), it seems that as I think someone else said, it isn't really tax relief but tax deferral.


From my perspective (cash poor and no capital or savings until I was in my late 30's and now finding myself able to contribute substantially to pensions), a liberal annual allowance gives regular people the opportunity to fluctuate their pensions contributions. A liberal annual allowance, plus carry-over would allow people to invest in pensions in this way while a sensible LTA would limit the potential for *perceived* fat cats to simply not pay tax on their *perceived* unfairly high income..

Cyberman60

wessy53 wrote: »

So i am supposed to believe that the brains behind a major political party know less than a few self obsessed pot growers.

This 10 weeks before an election it must have some political merit, would love someone from the think team to come on here and blow you away.

It appears to me that any solution would be considered financially illiterate seeing Martin himself decided all three major parties offerings were so.

This is not about student grants or pensions this is pure politics and people on here expect to be able to use derogatory remarks like Red Ed and whatever remark you care to make about Ed Balls, without redress.

Well not everyone thinks this way and that may just become apparent in 10 weeks time when Gideon and his Eaton cronies (see i am doing it now) are begging to form some other coalition with anyone that will have them god forbid. UKIP (Tory with knobs on) anyone!!

So you'd give the handling of our economy to the SNP and Labour. Enjoy another BUST and unlimited immigration, the Human Rights Act etc !! :rotfl:

kidmugsy

Aegis wrote: »

The latest batch of changes have mostly been positive after many years of negative tinkering from first Labour then the Coalition, but I strongly suspect that these changes have been brought in as something of a desperate move to restore confidence in the pension system. Certainly the prevailing view that I've seen from clients regarding pensions over the past few years has been sceptical distrust, whereas the recent changes have changed the into cautious optimism.
...
At this point, the single best policy that could positively impact pensions would be to simply leave them alone for at least three years to analyse their usage for a while and allow people to confidently use them with the new rules. Constant tinkering only reduces confidence further, which results in fewer people using them sufficiently.

I'm not a pension professional but my instinct is to agree with you: let well alone for a few years until the sustained consequences have become clearer.

My guess, alas, is that some of the Great Pension Liberator's reforms will eventually be wound back, as evidence emerges of people blewing their pensions and then freeloading on the taxpayers. Since Labour cultivates the votes of those who freeload on the taxpayer, it may have to be the Conservatives who wind back the reforms a bit. Ironic, eh?

MARTYM8`

robin61 wrote: »

We still have grammar schools in Kent. They are very popular but the kids who are not academic enough to go there still get a decent education and have every chance of still going to university if they want to. So it doesn't have to mean a sub standard education for the rest - it works fine here. (I am not a UKIP supporter in any way).

And I grew up in the London Borough of Redbridge - it still has two grammars (one boys one girls) and comprehensives. Historically the borough has had some of the best exam results in the country - and the comprehensives do far better than the comprehensives in the neighbouring London boroughs without grammars.

And for all its faults is selection by ability worse than what we have at present - selection by catchment areas and who can afford the property prices near the good schools or fake their new found religious beliefs the best.

zagfles

BobQ wrote: »

It is nature of DB final salary schemes that a promotion pay rise in any one year can have that kind of effect. The new public sector schemes will I imagine make this less likely.

Yes the CARE schemes will make this far less common.

But yes I think there are many in the public sector who do not earn enough to add such sums to their pension annually. But Fortunately they are part of a reasonably good scheme. The better paid in the public sector will of course accrue several thousands of pensions benefit in year from their schemes.

Which I think is why they aren't proposing cutting 40% tax relief. That would cause big tax bills for averagely paid public sector workers.

I would not personalise this. I am just observing that the outrage on this forum and elsewhere is largely from the pensions industry and from those in higher income levels.

That is personalising it. And even presumptuous - not many have declared their income level in this thread - you haven't got a clue about mine. I'm a regular on the benefits board too and have argued against stuff like the benefits cap and means testing those on low incomes - does that lead to a presumption about my income level?

ETA Some contributors have managed to keep political remarks out of this, others have failed in my view

This is a thread about a political party's pension proposal, so obviously will generate a political discussion. And there's nothing wrong with that, as long as the discussion centres around the nitty gritty of the policy. Rather than personalising it by assuming people are only motivated by their own self interest.

and that debate is best had on DT not in the Pension's Thread.

...which is exactly what would happen on DT. Most posters there would have no interest in the facts and figures, the nitty gritty of any policy, they're mainly political loonies who'll come to the conclusion first and then search for some analysis, graph, newspaper article etc that seems to support their point while ignoring anything that doesn't. Classic confirmation bias from those with closed minds. And others will post irrelavant stuff like pictures of politicans eating bacon sandwiches or playing polo. That's the level of debate over there.

DaveMcG

zagfles wrote: »

Yawn. Go back to reading the Mirror. My friend's wife is a nurse - she went over the current annual allowance last year because she got a promotion. Of course the financially illiterate wouldn't understand how. They're stupid enough to think this just affects the "rich".

In fact, cutting the AA could even reduce some students' income while at uni! See https://forums.moneysavingexpert.com/discussion/5183615

Have a rant about that!!!!!!!!

Well your "friends wife" should realise that the annual allowance was ~£250k and the LTA was £1.8m when Labour left office. So all her problems are due to the coalition.

And the assertion in the OP that Labour are sinister or idiotic for maintaining a Tory party policy is clearly absurd.

hugheskevi

Yes the CARE schemes will make this [promotions leading to a breach of Annual Allowance] far less common.

They will, but not for a long time.

Many of those in danger of breaching the Annual Allowance due to promotion are those with many years of past service. This group will tend to be older, and many will be protected from the 2015 changes and remain in their existing final salary schemes.

Even amongst those who move to the new career average schemes, members will retain a final salary link on past service so they will be affected.

By about 2022 the Annual Allowance and promotion effects should start to be dying away, although by then who knows what the system will look like. In terms of the next 5 years or so, the change to the 2015 career average schemes will have little impact on promotions and Annual Allowance breaches.