Millionaires... how?

Malthusian

however, ppl who exceeded the LTA before it was brought in, and took advantage of the earliest "protection" are unaffected

But that doesn't cover everyone. If you're aged 40, and have £600,000 in a DC pension, and if growth is a modest 4% per annum, by age 55 you'll be over the £1m lifetime allowance and will be effectively retrospectively taxed for saving. There's no transitional protection and nothing you could have done about it.

(We can ignore the government's claim that from 2018 they will index the lifetime allowance to inflation for obvious reasons.)

As gadgetmind says, the changes to annual allowance are a real pain in the exclamation marks, particularly for the self-employed and the business owners, who have irregular income and often want to make big contributions in good years and none when the business is just keeping afloat. These are the people that create wealth in this country and are the very people we should be most keen to incentivise to save so that they keep it here.

If it had been made clear from the start that people should not expect to accumulate more than £1m in pensions while benefiting from tax relief, that would be understandable, but it's not the case. The government cannot make up its mind what it wants and the constant changing of rules and shifting of goalposts fuel the belief that pensions are a waste of time and you might as well blow your money now because you can't predict the future.

"incentives to save"? don't make me laugh. ppl who have £1m pension pots, or who want to save more than £40,000 in pensions + £15,000 in ISAs per year don't need incentives.

Well, incentives is in fact a poor word, although so commonplace that I slip into using it occasionally. By "incentive" we are simply talking about not being taxed for the privilege of saving. If when you put money into a pension you get 40% tax relief and 20 years later the government deducts income tax at 40% and lifetime allowance charge of 25% - or if the government decides that you only deserve tax relief at 30% when you will be later taxed at 40% - then it is insanity, self-harm, to put it into a pension.

Refraining from taxing people twice is not really an incentive, it's just the absence of punishment.

grey_gym_sock

Malthusian wrote: »

But that doesn't cover everyone. If you're aged 40, and have £600,000 in a DC pension, and if growth is a modest 4% per annum, by age 55 you'll be over the £1m lifetime allowance and will be effectively retrospectively taxed for saving. There's no transitional protection and nothing you could have done about it.

yes, there is. they could have stopped paying in and claimed 1 of the "protection" things.

(We can ignore the government's claim that from 2018 they will index the lifetime allowance to inflation for obvious reasons.)

i suspect they will index it. actually, the announced intention to cut it to £1m, but then starting indexing it, could mean that we now have a settled policy about the LTA. what has been difficult to deal with before that was that there was no explanation of where the policy was supposed to be heading - there was a series of rises or cuts in LTA (mostly cuts), but no indication of when it was supposed to stop.

the whole saga of LTA changes has certainly caused a lot of ppl to worry about whether they're going to lose out; whether should they stop putting money in pensions; etc. i agree it's been poor policy making.

however, many have worried, and perhaps had to amend their plans (e.g. direct future savings to other tax wrappers than pensions) but not actually lost out.

it's only for about 10 or 15 years that there's been any option of drawdown. so before "The Changes", there was no LTA, but you'd be forced to buy an annuity eventually. would most ppl prefer that? i doubt it. ppl tend to remember the changes they don't like, and take the good bits for granted. that's not exactly a criticism - it's just how our psychology works - similarly to how losses in investing tend to hurt more than gains give pleasure.

Refraining from taxing people twice is not really an incentive, it's just the absence of punishment.

there's not really double taxation, just a change in the applicable rates. by putting money in a pension, you're expecting to pay tax on the way out, at the rates applicable at the time.

a few ppl will end up paying surprisingly high rates (e.g. 55%) on part of their pension pots. the changes in the rules have not been handled very well. but there should be some limit on how much you can benefit from tax relief on pensions - the aim is supposed to be to encourage ppl to save a decent amount for retirement, so once they've done that, why give further relief? and everybody hit by LTA will have got quite high rates of relief on their original pension contributions.

and meanwhile, there will now be complete non-taxation for ppl who can now turn their pensions into inter-generational trusts.

overall, "The Changes" - including drawdown, LTA, and everything else - have been very favourable to most ppl affected. though they have been introduced in a manner which has created unnecessary worry for many ppl.

gadgetmind

grey_gym_sock wrote: »

i suspect they will index it.

£255k
£50k
£30k (retrospectively applied)
£40k
£40k but up to £80k in first approx 3 month mini-PIP, deeply complicated, let's move on
£40k minus lots if income + pension > £150k.

Let's not mention Pension Input Periods and Carry Forwards. Apologies if I missed some complexity.

And after all of this, we think there might be simple indexing? Dream on.

grey_gym_sock

gadgetmind wrote: »

£255k
£50k
£30k (retrospectively applied)
£40k
£40k but up to £80k in first approx 3 month mini-PIP, deeply complicated, let's move on
£40k minus lots if income + pension > £150k.

Let's not mention Pension Input Periods and Carry Forwards. Apologies if I missed some complexity.

And after all of this, we think there might be simple indexing? Dream on.

you're quoting figures for the annual allowance. i think they might index the lifetime allowance, as they've announced they will do. i have no idea what they'll do with the annual allowance.

i don't think all the complexity is going away, by any means. i was just claiming that we might have a clear policy direction on 1 issue, the size of the LTA.

(BTW, aren't they now aligning all pension input periods with the tax year in future? because that is genuine simplification, if so - though it's just 1 issue.)

gadgetmind

grey_gym_sock wrote: »

you're quoting figures for the annual allowance.

And the trend in the LTA is ... ?

Every year we see more and more meddling. Pensions are long term things, but based on knee-jerk, under-informed, short-term political meddling.

The pensions crisis is being actively created by HMG, budget by budget,

gadgetmind

grey_gym_sock wrote: »

(BTW, aren't they now aligning all pension input periods with the tax year in future? because that is genuine simplification

Ah, yes this year's mini-PIP (aka mini tax year) that was announced retrospectively, with deeply complicated rules.

I'm a bright guy, who's capable of driving spreadsheets, tracking things, and playing "what if". Most people must be just plain stuffed.

grey_gym_sock

gadgetmind wrote: »

Ah, yes this year's mini-PIP (aka mini tax year) that was announced retrospectively, with deeply complicated rules.

I'm a bright guy, who's capable of driving spreadsheets, tracking things, and playing "what if". Most people must be just plain stuffed.

ok, so barely comprehensible transitional arrangements, but in future actually simpler.

i've never really got my head round PIPs.

gadgetmind wrote: »

The pensions crisis is being actively created by HMG, budget by budget,

which crisis? i thought that was about many ppl making hardly any provision for their retirement. not about the ppl who are running into the annual/lifetime allowances.

aldino

Not sure about millionaires but I know a BILLIONAIRE.

My girlfriend who lives in the USA works for one...well a couple...but the woman is worth over $15 billion.... thanks to her family who own...quite a few things...

I have met her a few times and she lives the high life that's for sure... $10k on a dress? No problem...she will wear it once then will be lost in her massive room full of clothes.

I have stayed in her 4 floor apartment in central Manhattan a couple times..which isn't even her main residence.

So yea I guess some people are just very lucky that they are born rich...

gadgetmind

grey_gym_sock wrote: »

i've never really got my head round PIPs.

I have been forced to. They are very complicated. They are part of "pensions simplification".

which crisis? i thought that was about many ppl making hardly any provision for their retirement

Yes. And the more complexity you pile on, the more you establish the rule of "the rules keep changing", the more people want nothing to do with pensions.

grey_gym_sock

gadgetmind wrote: »

And the more complexity you pile on, the more you establish the rule of "the rules keep changing", the more people want nothing to do with pensions.

most of the complexity we've been discussing doesn't affect "normal" ppl, who never contribute more than, say, £10,000 in any 1 year to pensions.

in any case, if ppl are put off pensions, and use S&S ISAs for retirement provision instead - or even follow the dreaded BTL route - then they are not ppl making no provision. i doubt that many ppl think pensions are complicated, and therefore spend 100% of their income.

some ppl do spend 100% of their income (or more :-(). but that is generally either because they're on such a low income that that is actually reasonable; or because they need to learn how to budget.

and there is a lot of popular hostility to pensions; but it has very little to do with the kind of rule changes we've been discussing. it's mainly very uninformed opinions, on the lines that "i know somebody who paid into a pension, and it was rubbish" (when perhaps that person just didn't pay enough in). or sometimes it's out-of-date opinions, where ppl are thinking of the very high-charging, opaque pensions that were sold in the 1980s and 1990s.