Osbourne's tax relief changes in the March budget

saver861

gadgetmind wrote: »

In my area (a branch of engineering) it's very tangible.

Yes I've no doubt different sectors will have different levels of difficulty.

gadgetmind wrote: »

I'm sure it does, but TBH I find equating "successful" with "banker" doesn't help discussions given how many ways there are to be successful.

Well, fair enough - perhaps not the best choice example - all bankers pretty much the same then!!!

gadgetmind wrote: »

The competition for good people is *intense* and while the UK policy continues to be to punish those who work hard and earn a commensurate salary, why on earth would good people choose to move/remain here to take their beating?

I think there is a greater likely hood that people will stay in relation to those that will want to move here. To move here there would have to a greater incentive, than the incentive to stay. Put another way, the incentive to move would need to be significantly better then we can provide here. Are we that far behind?

There will be gap of no return where the difference here v Aus, US etc will keep people away and as well as people leaving. I don't know what that general percentage gap might be in raw financial terms.

However, I would also say we need to be training and growing our own 'best' and not having to rely on imports.

EdSwippet

tinter wrote: »

... So for most HRT payers 30% would actually be closer to a defered salary as suggested earlier, though of course there is a loss for those at the very top, but they would benefit from an end to the life time allowance.

At 30% flat rate, an HRT payer pays 10% in tax on pension contributions. If they are (or suspect they may be) also in HRT on withdrawals then they pay a further 30% (allowing for PCLS) on withdrawals. This produces an overall 37% tax rate, and is perilously close to the 40% HRT rate for simply taking the money now, rather than saving in a pension.

That 3% is a pretty thin incentive when held against the downside of decades to wait before being able to access the money. Decades during which the government will doubtless change the rules over and over and over. Potentially removing even the thin 3% incentive that remained.

My suspicion is that even at a 30% flat rate, many HRT payers will simply disengage from pensions and choose alternatives. Perhaps in a few months or so I'll be able to judge the accuracy of that prediction.

tinter

EdSwippet wrote: »

At 30% flat rate, an HRT payer pays 10% in tax on pension contributions. If they are (or suspect they may be) also in HRT on withdrawals then they pay a further 30% (allowing for PCLS) on withdrawals. This produces an overall 37% tax rate, and is perilously close to the 40% HRT rate for simply taking the money now, rather than saving in a pension.

Only 2% of pensioners pay HRT. Compared to I think over 17% of working age population. So, your above maths only represents a thin, richest part of the working population, who may in any case get some additional benefit from the increased lifetime allowance. You have also ignored the 25% tax free element, which means their overall tax is 32.5%, so you are understating the gains.

Further, even among that 2% they are almost certainly paying 40% tax on a much lower proportion of their income, so the above math still grossly underestimates the benefits of using a pension, as the first ~33k is taxed at 20%, not 40%, in receipt.

Looking at the current system:

For the other 15%- the vast majority of HRT payers, who become basic rate payers on retirement- they pay 42% tax with national insurance; get a 40% rebate; and then (with 25% tax free) pay 15% as pensioners- effective rate about 17%.

For basic rate taxpayers, they pay 32% with NI; get a 20% rebate; pay 15% as pensioners- effective rate about 27%.

Nobody would possibly design a system to work this way, and while its hard to speculate as to what the change would be its easy to see its likely to be justified.

EdSwippet

Linton wrote: »

... So yes, if the large and arguably unnecessary incentives for those with a very high income to save for their old age were removed such people would be upset. Though I cant see many emigrating for that particular reason...

To be clear, I wasn't really suggesting that people would actually emigrate for this and this alone!

There are many other ways to disengage from both pensions and, for that matter, economic activity. We already see one here upthread, where the tapered annual allowance motivates a switch down from a five day to a four day week. Put together enough of these and the 'cost' of a flat rate incentive being paid to BRT payers could very easily exceed the 'income' from HRT payers who find themselves on the other end of the see-saw.

I should also admit to having no skin in this future game. I will retire before April, and so no longer be saving into pensions in any form. The catalyst for this in my case is the lifetime allowance reduction.

zagfles

EdSwippet wrote: »

At 30% flat rate, an HRT payer pays 10% in tax on pension contributions. If they are (or suspect they may be) also in HRT on withdrawals then they pay a further 30% (allowing for PCLS) on withdrawals. This produces an overall 37% tax rate, and is perilously close to the 40% HRT rate for simply taking the money now, rather than saving in a pension.

That 3% is a pretty thin incentive when held against the downside of decades to wait before being able to access the money. Decades during which the government will doubtless change the rules over and over and over. Potentially removing even the thin 3% incentive that remained.

My suspicion is that even at a 30% flat rate, many HRT payers will simply disengage from pensions and choose alternatives. Perhaps in a few months or so I'll be able to judge the accuracy of that prediction.

Why would they 'disengage'? With a £50k HRT threshold which the govt have promised, there's plenty of scope to get 30% tax relief and pay just 15% in retirement. They just need to ensure they don't contribute so much that their pension produces an annual income of over £42k (assuming £8k state pension). The LTA is doing that anyway - £1million would likely get you an annual income under £42k at 60.

_CC_

EdSwippet wrote: »

Taking that approach doesn't look to me like centre ground. At least not on a conventional definition of 'centre'.

What it does look like, though, is entirely the type of divisive and underhand approach that Osborne has so far appeared to favour as chancellor.

Unsure if I used "center ground" correctly or not.

Put simply, if the Labour party remain as they are now then I feel there is a large chunk of the electorate who can be won over by the likes of the higher minimal wage, higher tax allowance, a single tier pension relief.

I'm not going to get into the rights or wrongs of it, I've always found discussing politics with people has the same outcome as discussing religion or other set ideologies - it's usually pointless!

EdSwippet

zagfles wrote: »

... They just need to ensure they don't contribute so much that their pension produces an annual income of over £42k (assuming £8k state pension).

You're taking a very narrow view when assuming that they have no other sources at all of income. Savings interest, dividends from an unsheltered stock portfolio, rental income from BTL, and any number of other things can stack up to considerably increase the proportion of pension withdrawals that are exposed to HRT rates.

zagfles

EdSwippet wrote: »

You're taking a very narrow view when assuming that they have no other sources at all of income. Savings interest, dividends from an unsheltered stock portfolio, rental income from BTL, and any number of other things can stack up to considerably increase the proportion of pension withdrawals that are exposed to HRT rates.

Then why do they need incentivising to save in a pension? Why should the govt care if they 'disengage'?

gadgetmind

Linton wrote: »

Money in itself isnt a great incentive. After all lots of people could get a higher take home pay if they emigrated to the USA, but they dont.

Yes, the do. I've lost a fair few people to other companies in the USA, and regularly have been apply for transfers.

PS if people move to the USA the maximum they can contribute to a 401K ($24K for the over 50's) is much lower than the £40K limit in the UK. I know little about the US tax system but it seems to me there may not be a great benefit in tax relief in moving anyway.

There are lots of other "401s" and income tax is generally lower, and simpler(1). Pay is also higher in most spheres as competition for good people is even more vicious.

(1) - try describing our zany tax bands, income tax versus NI split, personal allowance claw back, etc. to an American. Hell, try doing it to a mirror and it's Alice Through The Looking Glass!

gadgetmind

saver861 wrote: »

However, I would also say we need to be training and growing our own 'best' and not having to rely on imports.

On that we agree. We have an active university programme (we create free products, teaching materials, commission books, and much more), take on work experience pupils, placement students (summer or annual), and actively recruit grads form many universities. Myself and others do speeches at local schools, where we try to encourage people to keep up the difficult subjects (maths and sciences), and guest lectures at universities where we explain what electronic/computer engineering is about in the real world.

So, we do what we can, but UK universities simply can't keep up with demand. And no, we don't want those who've studied sociology, dance, or golf course management. I'm sure others do, we don't.