MSE News: Budget 2015: Pension lifetime allowance to fall to £1m

Triumph13

I would agree that definitions of 'wealthy' based on asset values are unhelpful which is why I was talking about income.


The LTA limit only translates to a big tax charge if you put too much in. Transitional reliefs mean that in most cases you have protection and just aren't allowed to make any more tax advantaged contributions.


And as for someone getting a return of 9% above CPI for 45 years! A more realistic 5% real return less 0.5% charges gets you to £145k not £1m.

EdSwippet

Triumph13 wrote: »

...The LTA limit only translates to a big tax charge if you put too much in.

Nope. It also translates to a big tax charge if you put in only a modest amount but shepherd it wisely.

jamesd

I didn't use 9% above CPI, I used 9% total. With 5% the after RPI inflation growth of the UK stock market the nominal growth has been well over 9%, varying with inflation. If you want to assume that the LTA grows with CPI then the amount of money paid in to get to the LTA at 6% after CPI inflation growth is £72,650. 6% because RPI is about 1% higher than CPI, so I allowed for that in the historic growth rate. But I don't think that the LTA is really going to increase with inflation long term for all of those 45 years, certainly not based on the large decrease history it's had so far.

I think that wealth has to be based on both asset values and income but that in the pension case, the purpose of a pension is to provide income, so the income basis is the one that makes most sense. At say £100,000 of income I wouldn't consider someone to be wealthy because I also want them to have very substantial assets as well. For context here, the income it takes to be in the top 1% of incomes in the UK is about £140,000.

If we were to say start to use "wealthy" for those who are in both the top 1% of incomes and top 1% of assets then we might be on to something, though that threshold is too low for what I'd want to use for "rich", which I'd be inclined to use at no lower than 0.1% of both, possibly higher.

DaveMcG

DesG wrote: »

The fact that it is index linked is actually a big win, in the future, it will be higher than the current £1.25M.

It was index linked and £1.8m when Osborne took office.

Triumph13

jamesd wrote: »

If we were to say start to use "wealthy" for those who are in both the top 1% of incomes and top 1% of assets then we might be on to something, though that threshold is too low for what I'd want to use for "rich", which I'd be inclined to use at no lower than 0.1% of both, possibly higher.

I think if you were to do a representative poll of the population, it would be interesting to see what qualifiers the average person thought you needed in front of your adjectives at those levels. I suspect it would be quite a way past 'very'.

jamesd

I think that you're right about that poll because I know that it is common for people to think of those with twice their own income as being wealthy or even rich and I know the distribution of incomes in the UK. I also know it's common to completely disregard things like the value of the state pension, NHS, benefits and many other things that the person expressing the opinion has when making such comparisons.

I prefer to use measures that have some hope of not just having better off than me as the working definition.

Triumph13

I'll admit that before I discovered Mr Money Mustache my definition of 'wealthy' would probably have been nearer to yours. By moving the bar down a few notches so that it includes me it's amazing how much happier I am!

Orwell

It's another limit - introduced to stop abuse of pensions by the seriously rich (e.g. board level directors of PLCs) - now gradually affecting the middle-class.

It hits DC pensions harder than DB, because in reality you only get abound 2.8% annuity if RPI linked with spouses pension (assuming 5 year younger spouse).

So the fat cat public sector on index (uncapped) linked DB pensions can get £50k p.a. (20 x income) before hitting the limit - whereas the taxpayer with a money DC scheme can get only a max of £28k p.a. (not much when between two as is often the case).

TheTracker

DesG wrote: »

The fact that it is index linked is actually a big win, in the future, it will be higher than the current £1.25M.

Not really, it was index linked before he took it away. Either way, index linking is dumb. Investments should return considerably more than R/CPI so it's a weird thing to link it to. Ideally pensions, like ISAs, should be constrained by contribution not value. OR make it LTA and not contribution. Doing both is confusing.

richbeth

jamesd wrote: »

A million Pounds only puts you in the top 10% of the country, not the top 4%. It's only the top 4% of pension pot sizes. Having the terms used for such large percentages of the population just doesn't seem reasonable or sensible.

I'm not a big fan of the lifetime allowance as it currently favours those on DB schemes over DC and penalises those with good investment skills but surely With a £90bn deficit giving tax breaks to those in the top 10% "wealthiest" is a luxury we can't afford.

R