Budget - Green paper on pension contribution tax relief

Orwell

Paying in without tax relief - taking out tax free = an ISA - we already have these. Where is the incentive to tie up the money until age 55?

40% taxpayers on say £50k a year are not rich. But they do not want to pay tax twice (20% now), 20% later. Again would not bother saving for retirement.

Of course lifting the 40% threshold to at least £50k makes sense, but this needs to be done before any thought of removing 40% pension tax relief at these income levels.

Why not just set a maximum tax relief amount that can be claimed per year, regardless of tax rates? For example £15k.

kidmugsy

Orwell wrote: »

Why not just set a maximum tax relief amount that can be claimed per year, regardless of tax rates? For example £15k.

Not a bad idea at all: about 40% of £40k. I dare say that Otto von Osborne would prefer £10k since he's keen to try to fund his welfare state without sacking many government employees or increasing the deficit. Another idea would be BOGOF: you contribute say £5k and HMRC adds £5k. Or 3 for the price of 2: you add £6k and HMRC £3k. These are all variants of getting tax relief/deferral at the front end, which seems to me to be such a useful alternative to ISAs.

And the LTA nonsense should be ended as part of any reforms.

robin61

What a pain. Surely stability would encourage people to invest for their retirement which is what the government should be encouraging rather than people relying on the State.

gadgetmind

Stability? How can this be better than the half dozen complex changes we have per annum at the moment, sheesh, really!

SnowMan

If they were to remove tax relief on employees contributions and run pensions like ISAs, then you also wonder what would happen about employer contributions.

Would employers then not be able to deduct these in calculating taxable profits for corporation tax purposes? And so their corporation tax bill would go up? And would that then be usable as a tax dodge for high earning employees?

So would instead the employer contributions still be allowable against tax, but treated as a benefit in kind, increasing the employees taxable income. The employee would effectively end up paying tax on money they hadn't yet received, as the benefit in kind, that is that part of the pension pot resulting from the employer's contributions would be tied up in the pension.

And what would happen with defined benefit schemes, you couldn't even segregrate old and new regime benefits and contributions for them; well you could in terms of splitting past and future accrual but it gets very messy and how do you treat schemes in deficit or surplus?

This idea becomes more and more unworkable the more you think about it.

Silian

I don't see how this will be an incentive for people to save more.

People tend to focus on the present day much more than the future. If you take away current gains for some future benefit people are unlikely to use it.

And why would someone save in their pension instead of their Isa?

kidmugsy

It's no use asking for stability: if one chancellor delivered it, the next government could just change it again.

peterg1965

Surely, if there is significant change there would have to be transitional arrangements for those close to retirement under the current rules, say those over 50. Any transition could get very complicated, very quickly.

I also don't believe George Osborne has an open mind during the consultation period. Am sure he wants his 'jam today' by stopping of reducing pensions tax relief

kidmugsy

peterg1965 wrote: »

Surely, if there is significant change there would have to be transitional arrangements for those close to retirement under the current rules, say those over 50.

There's not the remotest chance that they will want to create an army of seriously browned off voters in their fifties.

BobQ

Seems to me that he wants to bring forward when tax is paid on pensions and apply NI contributions to contributions as well as removing the TFLS.

Snake Oil salesman at work......