Osbourne's tax relief changes in the March budget

Malthusian

It is understood that the Treasury is also considering creating a separate system for workers in private stock market-linked schemes. These will no longer have curbs on the amount that can put into a pension over a lifetime. But there could be onerous restrictions on the amount that can be contributed to a nest egg in a single year.

If this bit was true it would be the first sign of sanity in regard to pension accumulation policy for years. Don't get me wrong, it would still be a kick in the teeth for entrepreneurs and the self-employed who have variable income and may want to make large contributions when business is good. But with a restrictive annual allowance and no lifetime allowance you would at least begin to know where you stand. And not have to worry about whether a contribution now will result in a 55% tax charge 30 years down the line after investment growth and inflation.

That is of course until the government decides to "simplify" things again and a lifetime allowance is re-imposed on all pension funds.

RickyB2000

saver861 wrote: »

On the other hand, many in their 20's/ 30's are much more aware of the need for pensions and planning for retirement than current 50 year olds were when they were 20.

Rent and mortgage existed 30 years ago also. Are those in their 20's less well off than current 50 year olds were then? It is subjective and can't ever be definitive but I do think the current 20 somethings will have a much more informative view of the 'future' than was the case back then. Thus the greater majority of younger people will be better prepared.

I think the big.difference is the size of contribution required. You 50 year old probably paid in 5% of their salary for asomething like a guaranteed 2/3 final salary pension. How much does your 20 / 30 year old have to pay in to get the same? I bet it is closer to 20%, with the associated risk (so should probably put more in). Partly depends on how generous an employer match they get as to how big a knock on take home they get.

Thicko2

When public sector pensions schemes were changed in the period 2010 to 2014, a key element was to raise more government income form member contributions. I had previously paid 6% contribution and this is now increased to 13.5%.

This is now of course paying for a CARE scheme, with the design of CARE schemes it is pretty clear that income related contribution %s are incoherent, and at worst a tax on higher income contributors.

In explaining the increases to members it was stressed to members that with the benefit of tax relief the actual levels of contribution post tax relief was actually much flatter across the income spectrum. Hence in the new scheme design existing levels of tax relief was seen as a constant.

It would be ironic that this argument is now likely to be made redundant and the inverse may well be the case, basic rate taxpayers gaining relief at 30% may well be benefiting twice.

With many public sector schemes having up to 15% member contribution rates, i think any such proposals will have a major impact on schemes sustainability. Current payments paid by current contributions, what happens if a large % of the biggest contributors decide to stop?

bowlhead99

Well, that DM article just gave us a whole load of other stuff to speculate about, but probably contains as much hard fact as a tabloid does about prospective football manager sackings and transfer market rumours. The line gets heavily blurred between what has been decided by treasury, what could be considered by treasury, what has been speculated on by an 'insider', what has been speculated by the journalist, their editor and of course what would make an interesting headline.

As someone without access to a DB scheme, my pension pot is going to be defined by what is contributed. If the govt wants to restrict my investment through this tax-efficient scheme called a 'pension', they can restrict what I can put in and get tax relief on. It does not make sense to then have an arbitrary pot maximum so that I have to invest in super-safe, non growth investments to avoid hitting it, or alternatively invest in super risky investments to be able to blast through the limit in the long term and be able to afford the tax. Being able to defer a portion of my current year income until I need it in retirement is useful, but capping the amount that can be contributed seems fair - it is what they do in other places such as USA for example.

For someone with a DB pension, it doesn't make sense to restrict the annual contributions because that involves a whole load of actuarial mumbo jumbo that means that my defined benefit might cost a lot or a little to my employer in a particular tax year, and it is bizarre to come chasing after me for tax some years when I just turned up to work as normal. It makes much more sense to restrict the size of the benefit at the end that can be taken tax free or at normal rates, rather than restrict the annual 'notional contributions' because it is after all a defined benefit scheme and not a defined contribution one.

But presumably there has to be some sort of interplay, because if someone working for the NHS has almost got themselves a million pound pot by the age of 50, they don't want to keep working for poor pay and great pension if they won't be allowed to properly access the pension over a million. So they might go get a different job where they get better pay and lesser pension and make private defined contributions. Could they then start maxing those contributions out every year for the next couple of decades, and end up with a lot more in their pot than someone who was exclusively in one type or the other? Remains to be seen.

I'll await the budget with baited breath but am getting a bit sick of the endless tabloid speculation and leaked insider comment. It'll be mildly amusing if they just say they'll leave it alone at the moment for business as usual, nothing to see here, move along now y'hear.

Thrugelmir

RickyB2000 wrote: »

Will it though? Perhaps to a 50 something heading into retirement. How many 20 / 30 year olds would see 10% extra in 40 years time worthwhile when they are paying extortionate levels of rent / morgatage today. Also, how many people actually trust pensions? No wonder the government had to introduce the workplace pension to force people to save.

I think the only people who really care are those heading into retirement and those with enough cash that tax effeciancy becomes a real concern. The rest just pay what their employer suggests and assumes it will be enough.

Agree, the budget deficit needs sorting. Doesn't stop it being a race to the bottom across the board in living standards (esp for young people).

I started my first pension scheme at 17 (on a very small scale) on my late fathers advice. Your post sums up the change of culture that exists today. All about choices. I made a choice to save. Probably less than people spend a month on their mobile phones today. Compounding is the key.

"Also, how many people actually trust pensions? "

Pensions are a wrapper that's all. How many people save anything at all for a rainy day?

bowlhead99

Thrugelmir wrote: »

"Also, how many people actually trust pensions? "

Pensions are a wrapper that's all. How many people save anything at all for a rainy day?

Well yes, quite. And as Colsten mentioned, we are all 'heading into retirement' so it is not just those in their 50s or with lots of cash for tax planning opportunities who should take an interest in what the rules are and how you can take advantage of them; because by the time you are 47 or 57 you have missed out on all the opportunity to be building up from age 17 and your problems are much more stark.

Still, I completely see where RickyB is coming from because the generalisations that, 'people don't trust pensions' or that, 'I thought whatever my employer puts in and makes me put in should be enough' or, 'I need to pay rent and mobile phone to function socially, I'll deal with pension later when I can afford it' have become generalisations because lots of us can see that's what people genuinely think, even though they should obviously think differently if they want a successful retirement.

The proportion of the population who hang out on money saving expert forums about savings, investment, retirement and pension are NOT the people who are in need of help making sense of it all or any encouragement. It is the 99.9% who need the guidance and incentive. For them, simply being told the government is being good to you and are willing to give you a bit of a bonus onto your salary that you can have in 40 years, as long as you put away this salary for 40 years... as long as the rules don't change in the meanwhile... is not massively appealing. So a flat rate 30% incentive for 20% taxpayers is not going to have people breaking down doors to contribute unless they already have the right mindset.

kidmugsy

EdSwippet wrote: »

Latest speculation from the DM linked below. The skies above 11 Downing St must surely now be a tangled mass of string and kite paper that entirely blot out all natural light.

dailymail.co.uk: Treasury looking at limiting lifetime allowance to £750,000 and restricting amount that can be put away each year

I can see a case for a uniform annual allowance - say £10k - if there is to be a uniform rate of tax rebate. I really can't see any case for a reduced LTA; I see a much better case for increasing or abolishing the ruddy thing. It is a discourager of pensions saving, and a penaliser of successful investment. If it is to be retained, let it be left alone at £1M: at least that's a memorable round number.

gadgetmind

kidmugsy wrote: »

I can see a case for a uniform annual allowance - say £10k

Quite a drop from £205k, via an ever changing list of numbers in-between!

We haven't yet seen the £1m allowance come into force, nor the AA taper down to £10k, so it seems mad to be contemplating more changes.

Don't they have better things to do?

saver861

bowlhead99 wrote: »

I'll await the budget with baited breath but am getting a bit sick of the endless tabloid speculation and leaked insider comment. It'll be mildly amusing if they just say they'll leave it alone at the moment for business as usual, nothing to see here, move along now y'hear.

I did think at the time of the Autumn statement when there was an expected announcement that did not happen other than it was 'being looked', that this either meant they had no clue what to do, or that there was some significant changes afoot.

We will find out soon pretty soon which way the he has swung!

gadgetmind

bowlhead99 wrote: »

I'll await the budget with baited breath

Um, it's "bated", which is short for "abated".

But I guess it depends on what you use for bait!