Two Eds are worse than one.

Aegis

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? Higher rate relief is only available to those already paying higher rate tax. That's the whole purpose of the tax relief - it's designed to defer a proportion of your income into retirement rather than taking it now.

A flat rate of income tax relief would be fine if the pensions were then subject to a flat rate of income tax on withdrawal, but that's not the case. Someone restricted to 20% relief and expecting to pay 40% on withdrawals will be advised not to use pensions at all - at that point they'd be better in an offshore bond (no tax relief but the capital can be withdrawn freely and the gains are only taxable at 20% if their income is carefully managed around the point of surrender.

Given this, there would be an immediate "gain" to the Revenue equal to tax reliefs no longer awarded, however there would be a longer term hit of far more actual losses as the wealthy reach retirement and pay next to nothing on their retirement income.

In short, there's nothing reasonable at all about a flat rate of tax relief going in and a variable rate of income tax on the way out, especially if there's also the possibility of further cuts to the lifetime allowance hitting the most diligent savers with up to 55% tax on the excess over some future unknown figure. What pensions need now are to be left alone for a few years.

Aegis

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?

From memory, the 45% figure is correct, with incomes of over £150k gross losing access to anything over 20% tax relief on contributions. As such, someone on £149,999 could get relief of 40% on a £30,000 contribution (assuming some carry forward is available for the purpose of this illustration), while someone earning a pound more a year would be restricted to 20%.

This is much the same fixation on the £150,000 figure as Labour had on the Special Annual Allowance during their last government, which was widely considered an absolute travesty. It meant that someone earning under £150k could pay their entire salary into a pension and get full relief on the balance, while someone earning over £150k was restricted to a £20k contribution. There's absolutely no rationale to picking this arbitrary level of salary to suddenly hit with crippling penalties, but it seems they haven't learned their lesson from last time and want to do something equally unfair if they get in this time around.

Aegis

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.

I read the same thing. It really does seem to be a policy specifically targeting £150k+ earners for specific additional restrictions as a cliff-edge policy.

Aegis

Spidernick wrote: »

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.

Last time Labour targeted those earning over £150k, it was for total gross unadjusted incomes of over £150k, i.e. not just pensionable earnings.

Aegis

gadgetmind wrote: »

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.

Exactly. Those with good advisers or independently-gained knowledge will simply take advantage of the opportunity to get out of this uncertain environment while they can, whether that be by making use of alternative or overseas pensions or by simply abandoning the idea of pensions altogether and using offshore bonds or VCT/EIS/SEIS arrangements to get rolling tranches of tax relief without having to pay anything on the proceeds.

Wealthy people will always have access to alternatives. Middle earners won't, and these constant changes will at some point affect those individuals as well. You can't keep cutting pension benefits and assuming that people will continue to fund their own retirements.

TH1878

Labour's politics of envy striking again.

robin61

Again Labour have nothing to offer prudent, hard working, successful people.
I suppose it could have been worse such as reducing the tax free PCLS or reducing the tax relief for 40% tax payers to 30% or even 20% which would have meant only partial tax relief for a lot of ordinary people.
It's sad that the only positive thing you can say is that it could have been worse. They are bereft of any ideas which encourage aspiration.

chucknorris

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.

But it just isn't worth getting only 20% tax relief going in, but paying 40% tax taking it out (which I would be), even when taking into account the 25% TFLS, it still isn't worth it. What would be my motivation to invest via a pension wrapper? I am going to have to be careful as it is, trying to avoid the 60% tax band when a pensioner, which would be even more disastrous if I was only getting 20% relief when investing.



EDIT: Forget the above, zagfles is correct, labour plan to restrict the 20% relief only to the highest rate tax payers, as well as restrict the annual allowance to £30k. Well done zagfles (you lead me to find it), here is a link:


http://www.hl.co.uk/news/articles/labour-plans-to-restrict-pension-tax-relief

Cyberman60

Aegis wrote: »

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.

You cannot denigrate private sector schemes without also criticising public sector schemes. Public sector schemes are in your logic a Ponzi scheme on the taxpayer. :rotfl:

Cyberman60

chucknorris wrote: »

But it just isn't worth getting only 20% tax relief going in, but paying 40% tax taking it out (which I would be), even when taking into account the 25% TFLS, it still isn't worth it. What would be my motivation to invest via a pension wrapper? I am going to have to be careful as it is, trying to avoid the 60% tax band when a pensioner, which would be even more disastrous if I was only getting 20% relief when investing.

You don't know what the tax rate will be on taking out. Nobody does. The current 40% band is around 40K so I really have no sympathy if you consider an annual pension on that level is insufficient. I have a good retirement on under 25% of that !!! :rotfl: