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

kidmugsy

EdSwippet wrote: »

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

As I said, I agree with you on that, for DC pensions. For DB it may well be simpler, or wiser, to limit the accumulated value. While we're on the subject, the multiplier of twenty used to value DB pensions against the LTA is preposterously low; it should be north of thirty, I'd say. Then the LTA could be pushed back up to £1.8M. Hurray!

bowlhead99

kidmugsy wrote: »

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.

I generally agree with that of course if the company will put 10% into a pension but will not give you most of that in cash as an alternative. But the government will be forcing employers to make 3% available to all, by 2018, so the employers are certainly being pushed into getting most people signed up into schemes that they contribute to.

EdSwippet

kidmugsy wrote: »

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.

Here you assume an ability to seamlessly move jobs that, for the employee, may not exist.

Employers use several tools to retain long-term employees. Stock options. Stock purchase plans. Bonuses. Enhanced annual leave. Deferred compensation plans. And so on.

An employee facing a 7% or more salary cut because the govt changed the rules yet again on pensions cannot necessarily just up sticks and move in the way you suggest. Loss of other 'long term service' benefits may outweigh moving to an employer with a more flexible pay-and-perks policy on pensions.

Employers know this.

regkent

My issue is that I have spent 40 years planning for my pension and now the governement comes along with change after change and very limited time to react/adjust

123Sandra

After saving into a personal pension scheme since they came out, I thought I'd be fine, but at the age of 60 my contracted-out-of-SERPs 2 plan (encouraged by the government to take out) has just taken up 6.7% of my lifetime allowance (seems unfair as the left-in Serps2 pension doesn't count in the same way). I have years to go before I can sensibly retire, and I am very concerned that I will go over the lifetime allowance even if I stop all payments into my scheme from now on (and of course remove myself from the new workplace pension scheme).
I have no problem with a lifetime limit on the pension contributions made (and the tax relief gained), but putting the limit on the resulting pot just seems crazy. How is anyone supposed to know years in advance what investment gains will be. In some years I've lost a third of my pension pot, in other years, gained almost 20%. I'd also like to leave my pension as long as possible before drawing - (and because my pension scheme is so old, there is no flexible drawdown allowed, so I'm talking annuity here) but that increases the likelihood of going over the allowance.

+ as others have said, the lifetime allowance treats those in defined contribution schemes (many of which are not employer sponsored) far worse than those in defined benefit schemes (£50,000 joint, increasing, is about twice the amount that could be bought with £1M).

Does anyone know of any campaigns about this that I could join? If not, do you think there would be an appetite for a petition to the government calling for a review to the legislation, and either a change to a contributions limit, or a scheme that would allow lifetime allowance protection as any investment amount approached the allowance?

bigadaj

123Sandra wrote: »

After saving into a personal pension scheme since they came out, I thought I'd be fine, but at the age of 60 my contracted-out-of-SERPs 2 plan (encouraged by the government to take out) has just taken up 6.7% of my lifetime allowance (seems unfair as the left-in Serps2 pension doesn't count in the same way). I have years to go before I can sensibly retire, and I am very concerned that I will go over the lifetime allowance even if I stop all payments into my scheme from now on (and of course remove myself from the new workplace pension scheme).
I have no problem with a lifetime limit on the pension contributions made (and the tax relief gained), but putting the limit on the resulting pot just seems crazy. How is anyone supposed to know years in advance what investment gains will be. In some years I've lost a third of my pension pot, in other years, gained almost 20%. I'd also like to leave my pension as long as possible before drawing - (and because my pension scheme is so old, there is no flexible drawdown allowed, so I'm talking annuity here) but that increases the likelihood of going over the allowance.

+ as others have said, the lifetime allowance treats those in defined contribution schemes (many of which are not employer sponsored) far worse than those in defined benefit schemes (£50,000 joint, increasing, is about twice the amount that could be bought with £1M).

Does anyone know of any campaigns about this that I could join? If not, do you think there would be an appetite for a petition to the government calling for a review to the legislation, and either a change to a contributions limit, or a scheme that would allow lifetime allowance protection as any investment amount approached the allowance?

You don't give many details so it's difficult to know your exact situation.

Have you applied for protection at any point, having over £1 million in a pension fund doesn't make you an obvious case for victim hood.

There are options for people approaching the lifetime limit, anything from unwrapped investments and utilising the dividend and cgt allowances, through to vct or eis investing.

If you contracted out of SERPS then you may well have benefitted from the doubling up available since the pensions changes, so as well as the contracted out pot there is the option of increasing teh state pension, typically from £119 currently to the new £155 figure.

If you are close to the lifetime allowance and apparently 60 then why can't you retire currently?

You obviously don't have to stay with your scheme for an annuity, a transfer and drawdown would probably be a far better option.

If you post some specifics you'll probably get some suggestions about alternative approaches, little point in moaning or expecting a change from a petition but there's probably quite a lot you can do to improve your situation.

jamesd

There aren't any significant personal pension schemes for contracted out money where you're forced to buy an annuity. Some only offer annuities or resell annuities but if you want something else you can just transfer the pot somewhere else. You might be in something uncommon but probably aren't, though you might be getting fooled by them only saying what they offer instead of telling you what you can get by transferring instead.

Malthusian

123Sandra wrote: »

+ as others have said, the lifetime allowance treats those in defined contribution schemes (many of which are not employer sponsored) far worse than those in defined benefit schemes (£50,000 joint, increasing, is about twice the amount that could be bought with £1M).

That's based on annuity rates and nobody with a £1m pension fund buys an annuity (not a standard open market one at any rate).

The traditional rule of thumb is that you should be able to withdraw 4% per annum from a pension fund without a material risk of running out of money (though as with all rules of thumb, you need to pay attention to whether it is working or your thumb is going to get a nail through it). That makes £40,000pa, still less than a £50,000 DB scheme. However, the DB scheme is extinguished on the death of you and the spouse and offers no flexibility. Given these benefits, I don't think there's that much between the £1m pension fund and the £50,000pa DB pension.

As to whether there's any legs in a campaign, almost certainly not. What well-off people with pension funds bigger than £1m (or more due to transitional reliefs) lose to lifetime allowance charges they have probably gained from the government not whacking up higher rate income tax, National Insurance, VAT or stealth taxes.

There is pretty much universal consensus in the finance industry that the lifetime allowance is a) stupid and b) redundant anyway given the annual allowance and other taxes and restrictions, and I expect the Government gets reminded of this on a regular basis by industry lobbyists. I wouldn't be at all surprised if the Government abolishes it when it gets an opportunity to do so without "Tories give tax breaks to pension fat cats" headlines in the Daily Mirror. But who knows, the Government is a black box.

Triumph13

Malthusian wrote: »

I wouldn't be at all surprised if the Government abolishes it when it gets an opportunity to do so.

Anyone who thinks that you could get it abolished via petitions and whipping up public support is having a laugh. Most of the populace would say £1M = rich and have very little sympathy for anyone affected by the LTA. We are therefore stuck in a situation where the lobbyists need to convince the government that the damage caused to the country by keeping it (people retiring earlier than they would otherwise do leading to lower economic growth, lower tax revenues and a loss of key workers such as doctors) is worse than the damage caused to their party by repealing it. It's a similar situation to when they brought the top rate of tax back down to 45% which caused howls of outrage and an increase in the tax take.

123Sandra

Thank you for the replies. I don't have a million pounds in my scheme, but I've at least 6 years to retirement. Who can tell what's going to happen in the next decade. I think a rambled a bit too much. I really just wanted to make people aware of the Serps2 contracted out plan using up part of the lifetime allowance, which came as a shock to me, and I thought might be a surprise to others. I also think that setting this allowance against the final value of a pension pot, rather that the contributions made, makes it almost impossible to plan contributions to a scheme (and I'm thinking here of people with 20 or 30 years to go before retirement) - but it sounds as though most people also think that, but think that there is little that could be done about it. & I will take on board the drawdown advice and try to move away from my annuity loving/risk averse viewpoint a bit.