Osbourne's tax relief changes in the March budget

hugheskevi

I recall a poster on this site who was a younger person, considering putting in some decent contributions. This was a few years ago. I suggested that in his plans he needed to take account of the LTA reducing/being frozen. He said that his expectation was that it would go up over time and it wasn't a concern.

But the constant reductions lead to the real problem that nobody has much idea of what the amount will be in the future. The worst case scenario is that in the future contributions are heavily taxed - and due to automatic enrolment rules most people will not be in a position to negotiate a restructured remuneration package, and their choice will either be lifetime allowance charges or opt-out. That has to discourage folk from making pension contributions, unless they have an incentive...higher rate relief is a good incentive but with such high levels of policy change risk it is far from compelling.

I think many will say Lifetime Allowance issues are a good problem to have, and be unconcerned as it only affects higher earners. But with limits frozen/reducing over time, the drag means that over a 50 year working life, the impact is dramatic and affects almost everyone making reasonable pension saving decisions and experiencing reasonable salary escalation.

Which means that younger people - which really has to be measured in terms of distance from minimum pension age, and arguably 40 is quite young in those terms - are taking quite a risk making pension contributions that don't benefit from an employer contribution...the risk being that by making those contributions they significantly reduce the value of employer contributions in the future (as those future pension contributions will be diminished in value by generating a LTA charge).

It is nonsense that a 'lifetime' allowance has been tinkered with so many times in a short period. Whilst things inevitably change over time, pensions are being made a casino with the rapid policy changes. It is hard to say what the best course of action is, managing investment volatility is one thing, second-guessing frequent and significant policy changes is impossible to mitigate when the ability to crystallize pensions is many years away.

RickyB2000

Maybe WASPI should get involved. Anyone 10 years or less from retirement were expecting to be able to make contributions under current rules. Changes have screwed up some people's planning. The government should put them back into the same position as before.....

MARTYM8`

RickyB2000 wrote: »

Maybe WASPI should get involved. Anyone 10 years or less from retirement were expecting to be able to make contributions under current rules. Changes have screwed up some people's planning. The government should put them back into the same position as before.....

Alternatively you could argue they have had 30+ years to take advantage of the tax reliefs.

Never sure why there is never any thought to offering protection to those most affected - the young? They are going to lose far more if they are higher rate taxpayers.

I do accept however that this endless tinkering with the pension system is not good. I expect the 25% tax free lump sum will go soon or be capped at a miniscule rate - another thing a lot of people were relying on.

Of course no one things of taxing unearned wealth - house price growth.

gadgetmind

MARTYM8` wrote: »

Never sure why there is never any thought to offering protection to those most affected - the young?

This is why I'm encouraging our daughter to apply for overseas placements/electives, keep her mind open to where in the world she works, and spread the risk regards under which systems she has pension investments.

Keeping our work and workforce globally mobile is the best way to prevent governments from taking the mickey. Set tax too high, punish saving for retirement too much, and see skilled workers leave.

I'm not sure why HMG are currently trying to make the UK very attractive to the unskilled yet undesirable to the skilled, but it's certainly influencing immigration and emigration.

saver861

MARTYM8` wrote: »

I expect the 25% tax free lump sum will go soon or be capped at a miniscule rate - another thing a lot of people were relying on.

I don't think it will go completely but I think there would be a good chance it will be capped for sure.

MARTYM8` wrote: »

Of course no one things of taxing unearned wealth - house price growth.

Well it is in a form via inheritance tax.

Mind you, one time you could get tax relief on mortgage payments!!!

Snakey

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

Indeed! There's so much stuff "on the table" that there must be no space to put the Pret platters.

I note the misleading "and" in the headline - the former restriction is only for DB schemes, and the latter is only for DC schemes. Interesting! This is the first pseudo-leak that's actually dealt with the issue of the two different types of pot. Does this mean it's less likely to be some b0ll0cks made up down the pub?

Restricting contributions is the simplest way to avoid all the problems with salary sacrifice (certainly easier than flat rate relief/post-tax contributions with an uplift), and as such would enable it to be brought in pretty quickly.

I see these proposals would also remove the LTA for DC schemes.

I am impressed that they have actually got the implications of flat-rate relief right: "This would mean every £1 paid into a pension costs a higher rate tax payer more than a basic rate tax payer". Well done.

robin61

saver861 wrote: »

I don't think it will go completely but I think there would be a good chance it will be capped for sure.!

Of all the things he could do I reckon messing around with the PCLS would be the most unpopular and probably the most unfair. Let's say someone has had 20% tax relief but then pays 20% tax on their pension. The 25% tax free element is the main benefit and they have been investing in the belief they will get this. Many will be relying on a lump sum and removing it retrospectively would be rightly seen as unfair. This would be unpopular with pretty much everyone whereas at least some of the other things he could do will have winners and losers.

However it' s not impossible. If they do this I would not take a lump sum at all or I would restrict it to what was tax free. So there would be no immediate benefit to the government not from me anyway. The sods would have to wait for years to get their tax.

RickyB2000

I am still not 100% sure he will do any changes this time around (or nothing radical). Whip everyone up into a frenzy and then go "well I could have made these nasty changes but I didn't". Everyone will then be breathing a sigh of relief they won't notice some other nasty change.

Otherwise, the only asset worth buying is a primary residence. It seems to be the only asset they are willing to offer breaks on. Pour all your money in watch it grow tax free (no doubt at 50% per year) and downsize to release the capital. Who needs first time buyers......

BobQ

If these suggestions are true, combined with all the recent changes Osbo has made, it will be very ironic that the opprobrium heaped on Gordon Brown's changes by Government supporters will be trivial compared with these changes.

The reduction in LTA would presumably be accompanied by an exemption for those who have already exceeded that limit, providing further reasons for the younger generation to claim they are being treated unfairly we their elders.

BobQ

"The Government has launched a wide-ranging consultation into cutting pension tax relief.

Read more: http://www.dailymail.co.uk/news/article-3414867/Not-New-plot-raid-pension-pot-Treasury-looking-limiting-lifetime-allowance-750-000-restricting-away-year.html#ixzz3yI6GomiY
Follow us: @MailOnline on Twitter | DailyMail on Facebook "

It does not seem to be on the Government consultations pages of https://www.gov.uk