Osbourne's tax relief changes in the March budget

GunJack

greenglide wrote: »

While this is probably true we do see "many" people posting in this forum who do have eye-watering levels of DB pensions. Although the majority of public sector workers will be low paid the top levels certainly arent (in pure cash terms). These and the private sector schemes still running do have the ability to produce large sums of money.

I don't doubt that some do have large pensions, but in context, probably a fraction of 1% of the total.... what do you call "eye-watering"? I thought the poster on another thread who was wondering what to do with 127k ls and 19k p.a. as a fs pension was doing very, very, very well in my experience...

TheTracker

GunJack wrote: »

I don't doubt that some do have large pensions, but in context, probably a fraction of 1% of the total.... what do you call "eye-watering"? I thought the poster on another thread who was wondering what to do with 127k ls and 19k p.a. as a fs pension was doing very, very, very well in my experience...

Contributing about £11k (including tax relief) per annum over 35 years in a market returning 5% over inflation with 0.5% fees will get you a pot of £1m and you can expect to drawdown about £40k per annum, before income tax. That does not seem very extravagant or high flying to me, but rather disciplined and perfectly achievable for someone even who stays on BRT throughout their life.

All anyone is saying is if you have a DB pension of £40k pa you should be assessed with equivalence of someone with a £1m pot. (At the moment it is £50k=£1m, or £40k=£800k). And that those in receipt of such DB allowances realise, in this case, they are being rewarded with about an £11k gross salary boost, and by the way up to £165k in tax relief across 35 years.

If you start to introduce additional taxes for holding a £1m pot, then you should introduce equivalent taxes for those with £40k DB pensions. As you say, a large majority of DB pensioners do not need to worry about the LTA, nor do DC pensioners.

Some people think that this x25 (4%) rule is generous and it should even be x30. But it seems the x20 rule is extremely generous.

Either way, your apparent "ignore it" strategy falls apart when you look at people who hold both types of pension. Do you let someone have a £30k pa DB pension AND a 900k DC pot without suffering tax increases? That's hardly fair when the fellow next door has no DB pension, a £1.2m DC pot, and is taxed heavily on the additional £0.2m. So you must find a way to measure that DB pension in a way that can be compared with DC pots.

greenglide

All anyone is saying is if you have a DB pension of £40k pa you should be assessed with equivalence of someone with a £1m pot. And that those in receipt of such DB allowances realise, in this case, they are being rewarded with about an £11k gross salary boost, and by the way up to £165k in tax relief across 35 years.

That does seem fair to me.

I would class a £40k DB pension and a total pot of £1m DC as both being eye-watering but I am a simple soul who never got to be paid as much as £40k anyway.

chucknorris

kidmugsy wrote: »

I suspect you know more than I do on this. But if so I object to both the 16 and the 20. They are inequitable vis-a-vis DC pensions. Use the average and double it = 36 = 35, near enough.

I think that maybe you misunderstood the motivation of my post, it wasn't your opinion about pension equality that concerned me, it was that I have invested right up to the max annual allowance for the last 3 tax years using a x16 multiplier, and you cast a doubt in my mind whether I had used the correct multiplier. The inland revenue wouldn't accept that it was (as you say) 'near enough' as far as they are concerned (and rightly so) it is either within the annual allowance or not, and if not, it would mean a penalty.

EDIT: But I am confident that x16 is correct, but when someone (you in this case) states otherwise, it is best to double check, because we are all capable of making a mistake (me included).

OldBeanz

TheTracker wrote: »

Contributing about £11k (including tax relief) per annum over 35 years in a market returning 5% over inflation with 0.5% fees will get you a pot of £1m and you can expect to drawdown about £40k per annum, before income tax. That does not seem very extravagant or high flying to me, but rather disciplined and perfectly achievable for someone even who stays on BRT throughout their life.
...

Isn't the average annuity about £35k or about a thirtieth of what you suggest is achievable. Why is there such a disparity?

chiefie

It will be interesting to come back to this to see if anyone was right. Personally I'd like him to allow part transfer of DB schemes but I'm wishing for something that won't happen :-(

GunJack

TheTracker wrote: »

Contributing about £11k (including tax relief) per annum over 35 years in a market returning 5% over inflation with 0.5% fees will get you a pot of £1m and you can expect to drawdown about £40k per annum, before income tax. That does not seem very extravagant or high flying to me, but rather disciplined and perfectly achievable for someone even who stays on BRT throughout their life.

All anyone is saying is if you have a DB pension of £40k pa you should be assessed with equivalence of someone with a £1m pot. (At the moment it is £50k=£1m, or £40k=£800k). And that those in receipt of such DB allowances realise, in this case, they are being rewarded with about an £11k gross salary boost, and by the way up to £165k in tax relief across 35 years.

If you start to introduce additional taxes for holding a £1m pot, then you should introduce equivalent taxes for those with £40k DB pensions. As you say, a large majority of DB pensioners do not need to worry about the LTA, nor do DC pensioners.

Some people think that this x25 (4%) rule is generous and it should even be x30. But it seems the x20 rule is extremely generous.

Either way, your apparent "ignore it" strategy falls apart when you look at people who hold both types of pension. Do you let someone have a £30k pa DB pension AND a 900k DC pot without suffering tax increases? That's hardly fair when the fellow next door has no DB pension, a £1.2m DC pot, and is taxed heavily on the additional £0.2m. So you must find a way to measure that DB pension in a way that can be compared with DC pots.

where to start with all this???

para 1. £11k is an awful lot of a current CS/public sector salary, to do this I'd been putting almost 2x my salary in when I first started working, so sorry, but this is totally unrealistic for the vast majority of people. No mortgage or living expenses, would have to be living in a car or rent-free with parents to be able to do this. Even full-time on NMW would only be around £13k before deductions, so that much into a pension over 35 years is quite frankly ridiculous for the vast majority of people. The last sentence (my bold) shows how out of touch to reality this view is IMHO.

p.2 - to get a 40k DB, you'd need to do 40 yrs and end up on an £80k salary for a year before retirement, even that is very very rare in the CS, don't think anyone'll be doing that and having a DC/personal pension (para 5), unless they live under the conditions I described above.

I think you must be thinking about the top 2-3% of earners to be achieving the numbers you're talking about, unfortunately something that the other 97-98% of us can only dream of... how on earth do you think people can get 30k db plus 1 Mil dc pot?? I'd really like to know (not being funny, genuinely interested on what sort of salary/lifestyle you think it would be possible on)

bigadaj

This debate seems fixated on high earners whereas I think the real insight might be better evidenced at lower levels.

Assuming someone earns around the national average, say £26k, and qualifies for a 50% pension, then that £13k, index linked would cost something like £400k to buy in the open market from an insurer.

so the more pertinent point in my opinion is to determine how someone on an average salary could generate that within a dc pension scheme with typical employer contributions of say 5%.

kidmugsy

bigadaj wrote: »

so the more pertinent point in my opinion is to determine how someone on an average salary could generate that within a dc pension scheme with typical employer contributions of say 5%.

The answer is that if he were to take the same level of risk, nobody could generate that within a dc pension. And if you ask him to take much more risk then you are biasing the comparison.

The point (here I address others) isn't that the average govt employee gets a rather modest DB pension - after all, if he had been restricted to a DC pension it would be a darn sight more modest. Nor is the point (at least my point) that DB pensions should be mucked around with retrospectively - that would be improper. The point is that when annual and lifetime allowances are calculated there should be at least a rough equivalence of treatment between DB and DC, and at the moment there isn't.

And as for my own repeated question: I still have no idea how DB pensions should best be treated in the sort of pension reform that Mr Osborne is presumably considering. Nor, come to that, how salary sacrifice might be treated, though I think that may be an easier one, maybe.

GunJack

kidmugsy wrote: »

And as for my own repeated question: I still have no idea how DB pensions should best be treated in the sort of pension reform that Mr Osborne is presumably considering. Nor, come to that, how salary sacrifice might be treated, though I think that may be an easier one, maybe.

why not leave DB alone unless the employee earns over, say, 80-90k a year? Could that work within the possible reforms?

As for sal sac, what about restricting it to, say, 10% of salary to prevent a lot of the abuses of the system whilst not bashing low & modest earners? That way, if people want to throw 20/30/etc. % of salary into pension, they can't too artificially reduce their "salary for tax & benefits purposes" but can put more into a separate PP but by a conventional (e.g. direct debit/SO) method after it's been income-taxed....