MSE News: Summer Budget 2015: Pensions overhaul proposed

madeinireland_2

Well that would be rather handy as it's currently screwing up all my pension plans and forcing me to ditch out of pension saving earlier than I wanted to do.

Thrugelmir

Popularity of salary sacrifice schemes is going to be monitored. A clear hint that there'll be changes on the way.

tillycat123

So what exactly does this mean?
If you earn £150K or a bit more and say your employers contributions to your pension are say £10K or even more does that mean you cannot contribute anything at all now yourself when this kicks in?

EdSwippet

Now that the govt can 'claw back' bankers' bonuses for up to 10 years, how about a law that MPs can be stripped of their pensions for up to 10 years if it can be shown that policies passed while they were in office had damaging or perverse unintended consequences?

gadgetmind

The new cap is going to make life hard. If you don't know what you're going to earn during the year (and many people don't know the total until after the end of the tax year) then it's hard to make ongoing pension contributions without risking either not putting in what you can or going over the limit.

Why do they have to make saving for old age so sodding hard?

ratechaser

tillycat123 wrote: »

So what exactly does this mean?
If you earn £150K or a bit more and say your employers contributions to your pension are say £10K or even more does that mean you cannot contribute anything at all now yourself when this kicks in?

Yep, this change is a total pile of poo for me, although I fully accept I'm in a small minority here. But to the best of my knowledge the 10k won't be a 'hard' contribution cap, simply the limit that qualifies for 47% tax relief (assuming a salary sacrifice arrangement). In other words, that's another £14,100 in tax I'll pay next year. And no, I'm not expecting a wave of sympathy!

However given the financial services theme of my employer, the fact their basic contribution goes above 10k for me already, and that quite a few of my colleagues will be in the same boat, will be interesting to see if they come out with any creative alternative solutions here!

Also be interesting to see if we can still use prior year unused allowances or if that avenue will be shut down as well...

Ho hum, and this is a Conservative government too!

gadgetmind

ratechaser wrote: »

YIn other words, that's another £14,100 in tax I'll pay next year. And no, I'm not expecting a wave of sympathy!

Well, that's a big chunk of change to extract from someone! As you'll have more after tax income, you might like to look at VCTs as a way of clawing back at least some tax relief.

I expect many employers will start putting in place other ways to reward high earners given that personal pensions have been crippled.

bowlhead99

tillycat123 wrote: »

So what exactly does this mean?
If you earn £150K or a bit more and say your employers contributions to your pension are say £10K or even more does that mean you cannot contribute anything at all now yourself when this kicks in?

No. At '£150k or a bit more', you still have roughly 40k allowance. However, a bit like the gradual loss of the annual personal allowance for people earning £100k+, the allowance will be tapered away: you lose £1 of allowance for every £2 earned.

So if your salary plus employer pension contribution is £150,002, you will have a pension allowance of £39,999. At £150,004, you have an allowance of £39,998. And so on, until you are up at £210,000 and by that point your allowance has dropped to £10,000. It doesn't drop any further.

So when they talk about a £10,000 limit for high earners, that's only once you've tapered all the way down to that level.

Example
- you earn £155k salary with a generous 15% employer contribution taking you up to a salary-plus-pension level of £178.25k.

- you lose 14.125k of pension allowance for having that 28.25k excess over the £150k threshold. So your annual allowance is £25.875k.

- so you can get that full employer pension of £23.25k, and make gross contributions of £200 a month yourself, and still get your full 45% tax relief on all of it. If you have, as some do, tens of thousands of unused allowance from previous years, you will be able to put a lot more in, though you should probably make the most of it because you can't carry it forwards forever and under the new rules you would be generating very little unused allowance going forwards.

Similarly someone on £160k with a 5% employer pension can make their own gross contributions of almost £2k a month, while someone on £175k with 10% employer pension can only contribute £100 gross a month themselves.

It's only above those levels that you struggle, because (say) £200k salary plus £10k employer pension contribution is £210k total which knocks your annual pension allowance down to the £10k your employer already put in... and assuming you have no carry-forward, you won't be able to contribute. Well you will, but it won't be tax deductible over the limit.

DaveTheHedgehog

Maybe this is a way to just increase tax!

You can pay money into a pension to reduce your tax threshold. For example if you earn say £50,000 a year, then you can pay extra into your pension to avoid becoming a higher rate tax payer.

This has the advantage that you also get to keep your Child Benefit and also reduce your overall tax bill. With salary sacrifice there is even more of a benefit.

ratechaser

gadgetmind wrote: »

Well, that's a big chunk of change to extract from someone! As you'll have more after tax income, you might like to look at VCTs as a way of clawing back at least some tax relief.

I expect many employers will start putting in place other ways to reward high earners given that personal pensions have been crippled.

Yes, I'm sure it was no coincidence that I was cold called by 2 private equity / wealth management people yesterday... So much for the rich getting richer under the Conservatives eh :eek:

Admittedly the theory is that this is all going to be funding the increase in IHT allowance, so I try and look at it as a form of upfront estate planning. But that's tempered with the realisation/hope that I'll be around for a good few years yet, and we do know how governments like to tinker with tax allowances. So heaven knows if my kids will ultimately benefit in 30/40/50 etc years off the back of this...

Anyway, I'm going to have to do the sums here, but my employers basic 7% contribution comes to just over 10k, once the notional earnings cap is applied. So my guess is that they wouldn't bother touching that - what they'll need to do is think about the additional contributions that they encourage people to make by partially/fully matching themselves, suddenly that will become a LOT less attractive.

In the meantime, at least I can still use this year's 40k (EDIT: which will actually be about 50k for the whole tax year given that the allowance has reset as of today), and the proposed uplift of the minimum early retirement age from 55 to 57 was never implemented, so trying to see my glass as still half full

One other thing that occurs... is it just tax relief being withdrawn or would it also apply to the 2% of uncapped NI that you also get on salary sacrifice... ?