Budget - Green paper on pension contribution tax relief

Sterlingtimes

I wonder whether this is like Life Assurance Premium Relief (LAPR). The assured would receive 12.5% up to £1,500 or a sixth of of income if greater. The proceed of the policy were tax free.

Snakey

The first thing I notice about the document is that it says up front that the best way may well be to leave things as they are.

The second thing I notice is how much emphasis the graphs place on the employers NIC relief. Hinting at an easy way of saving £13bn-ish there - without any net cost to the individual - maybe? (Except most salary sacrifice schemes split the NIC saving or hand it over in its entirety and removing that would be a cost to those individuals, but that could easily be spun as some esoteric tax fiddle available only to those evil rich people who have good employers.)

I imagine that a changeover from EET to TEE would be simple enough - have a cut-off date beyond which no more payments can be made to "old style" pension funds (which will continue to be invested as usual, and in due course be taxed but also keep the PCLS if we're lucky - they can always quietly remove that at a later date if they need the money), and allow only new style ones to be opened which you pay in out of taxed income. I'm just about old enough to remember when Retirement Annuity Relief and Personal Pension Relief were running pretty much in tandem, and this would seem to be a far simpler interaction than that was.

Incentive for the employee is presumably that the employer has to match it, or you could remove the need for an incentive altogether by making it compulsory. Once it's fully compulsory you can hike the required contributions every year if you want, just like putting a penny a pint on beer. Alternatively the Government could throw us a bone or two for the first couple of years to get everyone into the habit (like they're doing with the help-to-buy ISAs) and then gradually reduce that or inflate it away.

This is a massive, massive one-off cash flow benefit to the Government for the first 20+ years - current and near-future pensioners will have wholly or mainly old-style taxed pensions therefore no reduction in the tax take, while vast amounts of extra revenue come in as nobody is getting tax relief on contributions any more. That benefit won't start to reduce until people get old enough to cash in the new-style pots (and pay no tax on them). For this reason, despite my opening paragraph, I don't think we can expect the reform to fizzle out and die. I'd totally do it if I was the Government. Look at the numbers and think of everything you could spend that extra money on. Labour might throw tomatoes but you can bet they wouldn't reverse it.

As long as they don't mess with my existing pot I'm OK with whatever they do. I'm flinging in as much as I can right now to make the most of higher rate relief and the 13.8% uplift and use all my brought-forward allowances. When it stops, it stops. Will it really encourage the "young people" (basic rate taxpayers) he referred to in his Budget speech to save more? Who knows.

robin61

[QUOTE=Snakey;68768454

As long as they don't mess with my existing pot I'm OK with whatever they do. I'm flinging in as much as I can right now to make the most of higher rate relief .[/QUOTE]

Yes. I am going to continue piling as much as I can into the AVC linked to my final salary scheme while I can. My ideal early retirement date will be in about 18 to 24 months time and hopefully it would take quite some time to introduce wide ranging changes. It is quite unsettling though and my cynical nature has me thinking that whatever happens it will benefit tHM Treasury.

gadgetmind

robin61 wrote: »

My ideal early retirement date will be in about 18 to 24 months time and hopefully it would take quite some time to introduce wide ranging changes.

Well, quite. I feel rather guilty about this "Allright Jack" attitude, but what else can I do? MPs and civil serpents are on generous DB pensions, and are clearly uncomfortable with the concept of people saving their own money to pay for their own retirement. I feel very sorry for those who'll be hit harder by this ongoing attack on private pensions than myself, but until it actually affects any of those making these crazy decisions, the attacks will continue.

peterg1965

I understand the consultation period is 12 weeks, which seems to me to be a very short period of time to potentially inform such a momentous decision as this. Legislation and change to the current system has to be 2-3 years away minimum, before it kicks in.

I will be early 50's by then, so hopefully in the "I'm all right Jack bracket"

What on earth would they do with the remaining DB schemes LGPS TPA, AFPS NHSPA etc? Especially where some are non contributory.

EdSwippet

peterg1965 wrote: »

I understand the consultation period is 12 weeks, which seems to me to be a very short period of time to potentially inform such a momentous decision as this.

It would be a short period, if not for the fact that consultation is merely window dressing for a foregone conclusion.

Snakey

Oh I don't know - remember the day before the election absolutely nobody, including the Tories, thought that the Tories were going to get an overall majority. In fact a lot of people thought Labour might be able to throw together the next coalition. Which is not to say it hasn't been bubbling under for a while as a tax grab, but I doubt that they've got the legislation all drafted up and everything else is just smoke and mirrors.

I'm 43 and I'm worried because I'm not yet in the age bracket where they would draw the line behind me rather than in front of me. I was hoping for early retirement - when I started paying in to a private pension you could start taking benefits at 50, then it was 55, now it's going to be 58, and it seems they're not finished yet...

AlwaysLearnin

Snakey wrote: »

Will it really encourage the "young people" (basic rate taxpayers) he referred to in his Budget speech to save more? Who knows.

I just wonder how many of that demographic currently have S&S ISA's? If as I suspect it's only a small number/percentage, then surely taking a similar approach to pensions won't really satisfy the 'simple' and/or 'personal responsibility' principles that they are looking with any reform, otherwise S&S ISA's would presumably be used much more.

Snakey wrote: »

when I started paying in to a private pension you could start taking benefits at 50, then it was 55, now it's going to be 58, and it seems they're not finished yet...

Sorry, why 58? I was thinking 57, but with so many changes I just want to make sure I haven't missed something else...

dunstonh

Sorry, why 58? I was thinking 57, but with so many changes I just want to make sure I haven't missed something else...

The minimum pension commencement age has been linked to 10 years less than the state pension. State pension is going up to 68.

AlwaysLearnin

Ah, I see, it was a general point rather than specific to Snakeys own circumstances (which I assume is still 67/57 for a current 43 year old?)