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

Snakey

Hm, perhaps I might be there or thereabouts then if they keep indexing it and if I can trigger the "let's have a look then" point on my 58th birthday - I hadn't realised they only look at the pot once on the first occasion, I thought it was every time you touched it. I'll have to look into how the LTA and the lump sum vs income rates are apportioned, although I suspect "they" will have taken away the tax-free-ness of the lump sum by then so taking out a chunk wouldn't be a sensible choice anyway.

I'm currently self-employed, but I start a new job at the end of the month. Unfortunately no option of doing that via a company, but I may incorporate the consultancy business (which is small potatoes, relatively speaking) and pile up the profits from that, since I don't need it for anything now. Lots of things I don't know about that sort of thing e.g. would I have to pay myself NMW and run a payroll, but I can't do anything this tax year anyway because if you cease a sole trade in the same period you start it then you don't get allowances on your capex. So I can kick that can down the road for a few months.

Thanks for all the comments, much appreciated.

MARTYM8`

I often think whats missing here is that this is actually far more of an attack on younger people - who don't have £1m pension pots yet but could do in the future. And what with ever reducing annual allowances and possibly removal of higher rate relief on the agenda its going to get even more difficult to justify pension saving over other forms of investment (e.g. ISAs or property).

Don't expect much sympathy but I am in my mid 40s - lucky to have a final salary pension which has recently moved to career average. Assuming just a 1% pay rise and modest inflation its likely to exceed £1m by retirement by some margin - also have an in house AVC and personal pension on the side.

Seems I may just have to start scaling back my pension contributions soon - as there is no protection available for those who are likely to exceed £1m but aren't there yet.

Am still lucky - what future does the pension system hold for those in their 20s and 30s. Quite bleak I might suggest.

hugheskevi

Don't expect much sympathy but I am in my mid 40s - lucky to have a final salary pension which has recently moved to career average. Assuming just a 1% pay rise and modest inflation its likely to exceed £1m by retirement by some margin - also have an in house AVC and personal pension on the side.

Seems I may just have to start scaling back my pension contributions soon - as there is no protection available for those who are likely to exceed £1m but aren't there yet.

I'm in the same position.

Fortunately I always planned to access my final salary pension at age 50 (protected minimum pension age), and due to the silly way HMRC value DB pensions that will lead to a huge undervaluation for Lifetime Allowance purposes. Assuming that all stays the same (a big assumption) I should be fine for LTA purposes.

Like you, personal pension contributions are becoming increasing less attractive for me. I'll review my situation carefully at the end of the tax year. The problem I face (aged mid 30s) is that the pension landscape is hugely volatile in policy terms. Planning anything more than a few years in advance is very dangerous, so increasingly other investment wrappers are preferable whilst Annual and Lifetime Allowance charges and policy change is a risk. Whilst protections mean you can freeze the current position, the risk is having to do that and miss out on future employer contributions. If that is considered a risk, better not to make personal pension contributions now.

I do find it is very helpful having a spouse who also earns a decent level - although a single set of Annual and Lifetime Allowances is becoming very restrictive, I find being able to utilise two sets of Allowances is more than adequate.

For those with decent DB pensions, there does seem to be quite a strong incentive to commence them early under the current valuation system if LTA issues are relevant.

Snakey

Tax relief on contributions, and the tax-free lump sum, were designed as incentives to get people to save for their retirement. Now we're moving towards making it compulsory for everybody to save for their retirement, there's no longer any need to incentivise it. I can see a lot of it vanishing before we get there. Governments are short-term things, and would happily trouser the increased tax take from e.g. abolishing higher rate relief and never mind whether this leaves half a generation in financial difficulties thirty years down the line. As long as it doesn't get them voted out... which may be what saves us.

The other thing that I'm seeing changing is more subtle, and that's the shifting of moral responsibility away from the State and on to the individual. The raising of the State pension age is the key here. I can absolutely see people having to work into their seventies because they cannot afford to retire, and nobody else having a problem with that. So if you have any sense you will make the best provision possible whether it's tax-efficient or not! There's a large gap between being able to manage a full-time job plus a commute, and qualifying for "unable to work" benefits, and God help you if you fall into that gap and don't have savings.

The lack of protection for people in our situation isn't quite intended. They would happily do it to everyone without exception, but as I understand it you can't make laws that have retrospective application and so they have no choice but to give people the option of being able to grandfather in their existing too-high-under-the-new-rules pots.

When you're planning, be sure not to let the tail wag the dog. It isn't a 100% tax charge above the LTA. You have to look at the post-tax return, along with all the other non-tax considerations of that decision, and it may well be that sucking up a punitive tax charge nonetheless gives you the best overall result.

kidmugsy

spakkaman wrote: »

I am not angry just bemused

I regret to say that one of Osborne's motives might have concerned Labour's promise to reduce the LTA to a million. He might have decided to shoot their fox. It's a blemish on his career as the Great Pension Liberator.


Mind you, some of the agonising about the reduced LTA seems to me to come close to Violet Elizabeth Bott mode. Cooler heads required.

kidmugsy

MARTYM8` wrote: »

Seems I may just have to start scaling back my pension contributions soon.

There is a public interest justification for limiting individuals' pension funds. So the debate should be about how best to do it, not about Woe Is Me. "I may just have to start scaling back my pension contributions" is the desired result, not an unfortunate side-effect.

I am persuaded by the people who suggest that the obvious limit would be to annual contributions, for DC schemes, and to Lifetime Value, for DB schemes. For those people who have both, I'd clap them on the back, say "lucky chap", keep calm and carry on.

kidmugsy

Snakey wrote: »

I understand it you can't make laws that have retrospective application and so they have no choice but to give people the option of being able to grandfather in their existing too-high-under-the-new-rules pots.

Not so. Parliament can make any law it pleases. It's just a convention that decent people won't make retrospective laws. In my lifetime two Chancellors (at least) proved themselves indecent - Roy Jenkins and Dennis Healey.

Triumph13

How about this for a way of making the LTA a slightly less blunt instrument. Give any employee who can demonstrate that his existing pension savings are such that he is already likely to hit the LTA, a statutory right to have the employer's pension contributions to which he would otherwise be entitled paid as taxable income.
This takes away all the risk of missing out on employer's contributions if you contribute too much too early.

EdSwippet

kidmugsy wrote: »

There is a public interest justification for limiting individuals' pension funds.

There is a public interest justification for limiting individuals' tax deferred contributions into pension funds.

kidmugsy wrote: »

"I may just have to start scaling back my pension contributions" is the desired result, not an unfortunate side-effect.

Where 'scaling back' may include taking an effective pay cut by entirely foregoing employer match.

kidmugsy

EdSwippet wrote: »

Where 'scaling back' may include taking an effective pay cut by entirely foregoing employer match.

That would be the fault of the employer for being inflexible in his pay-and-perks policies. Serves him right if it costs him staff.