Osbourne's tax relief changes in the March budget

BobQ

zagfles wrote: »

The consultation closed in September.
http://www.gov.uk/government/consultations/strengthening-the-incentive-to-save-a-consultation-on-pensions-tax-relief

We can rely on the Daily Mail to report the news then!

michaels

zagfles wrote: »

No, there's 2 or 3 PIP's this tax year! That's why there's the bigger allowance, see the technical note. But the current PIP ends on 5 April. No the "100% of relevant earnings" rule is completely separate from the AA rules. It uses the tax year.

Oops - I meant 16/17, somehow just finishing my 14/15 tax return has got me confused about which year we are actually in....

So for annual allowance rollover contributions are considered to have been made on the PIP date and are they then taken against the allowance for the tax year the pip falls in so a 15 December 14 PIP would mean all contributions from 16 Dec 13 to 15 Dec 14 would count against the 14/15 allowance?

zagfles

michaels wrote: »

Oops - I meant 16/17, somehow just finishing my 15/15 tax return has got me confused about which year we are actually in....

So for annual allowance rollover contributions are considered to have been made on the PIP date and are they then taken against the allowance for the tax year the pip falls in so a 15 December 14 PIP would mean all contributions from 16 Dec 13 to 15 Dec 14 would count against the 14/15 allowance?

Yes all contributions for a PIP count in the tax year the PIP ends.

fifer60

EdSwippet wrote: »

But -- by not taking FP16 -- I also lose 25% of £250k in LTA tax charge, on the reduction from £1.25m to £1m. This £63k loss more than outweighs 45% of any annual employer contributions.

I am in the same position. Natural sense would be to go to IP16, but I sat down and did my calculations and found that FP16 is potentially better because the 'free growth' potential outweighs the taxation under IP16 even with further accruals of employer contributions over a few more years of work.

This is just a rotten situation, I have identified this situation to my employer as a disincentive. My opinion is that I should be allowed to save for a pension, not forced to stop.

I don't like that this is a betting game where the outcome is my pension. The LTA is just plain difficult to manage, especially when the goalposts have been changed and changed again.

Also with recent market slides, IP16 levels could generally be lower than many have planned. Some will slip back below the £1m qualification level for IP16 and others will have lower IP16 levels than anticipated. All this means more potential tax take for HMRC at future crystalisations.

My best hope is that Osborne does away with LTA, or returns it to from where it came, but my instruction letter to implement FP16 will be written before March 18th ahead of payroll dates.

chucknorris

I've just realised something! I was waiting to see what happens to pension tax relief in the budget, and if a flat rate was introduced I would probably retire this year (as I will at least be a higher rate tax payer in retirement) and also end up paying (the equivalent of)60% tax whilst working.

But I have just worked out my taxable pension income in retirement based on various retirement dates. If I retire this year I just about reach the start of the 60% tax band, so there is another argument to retire this year now. If it makes sense for me to retire to avoid paying 60% tax while I'm working, the same logic must apply when I am retired, funny how this didn't occur to me before.

EdSwippet

fifer60 wrote: »

...Also with recent market slides, IP16 levels could generally be lower than many have planned. Some will slip back below the £1m qualification level for IP16 and others will have lower IP16 levels than anticipated.

I never was meaningfully in range for IP16, but am definitely outside it now, and unless something dramatic happens will remain so until April.

So for me the choices boil down to: keep working, take FP, and lose £63k (to pay for the chancellor's political ambitions); keep working, don't take FP, and lose around £12k/year (effective salary reduction due to take-or-leave employer policy); or retire early.

I have chosen the last of these. Whether or not it is the best choice is of course still an unknown because of all the pending possible changes that might (or might not) materialize in the March budget. In 35 years of working and pension saving I have never seen a more unstable situation for pension savers than the one that is unfolding now. I hope there is a special circle of hell reserved uniquely for George Osborne, because he deserves one.

coyrls

EdSwippet wrote: »

I have never seen a more unstable situation for pension savers than the one that is unfolding now. I hope there is a special circle of hell reserved uniquely for George Osborne, because he deserves one.

I agree. I retired a year ago. I don't need to start taking my pension yet but I'm taking my PCLS now to avoid any cap imposed in March (I don't think it's likely but I'm not taking the risk). I will then apply for FP2016, when it becomes available in July. Neither of these actions were in my plan only a couple of years ago.

madeinireland_2

I'd like to go for FP16 but currently I'm not expecting a voluntary redundancy scheme from my employer until May or June next year so will probably end up with IP16 as pension is likely to be worth about £1.075m.

I will then have to manage my pension taking date to ensure my pension remains below the IP16 number I get - unless anyone has any bright ideas.

hugheskevi

Interesting to read of the several posts of folk planning to retire in response to pension changes.

It does demonstrate how many disincentives to work are being built into the system - higher rate tax [£43,000], child benefit taper [£50,000], personal allowance withdrawal [£100,000], annual allowance taper [£110,000 taxable plus pension input], additional rate tax [£150,000], annual allowance charges [£40,000 pension input], lifetime allowance [£1m pension value], reform to pension tax relief [presumably would affect those receiving £43,000+], and so forth. When combined with ways to avoid some of these that are only available to some and not all (pay via dividends, salary sacrifice, renegotiate remuneration package) it does seem the whole taxation system needs simplification - the tax system should not have series of cliff-edges to discourage people from working combined with random advantages for those fortunate enough to be able to benefit - it is nonsense that some have more pension incentives due to the payroll system their employer operates (salary sacrifice, and the net pay vs RAS issue for low earners).

Personally I'm much too far from retirement for early retirement to be a consideration, but similar to gadgetmind I hope to reduce working time. I don't have a great desire to work 4 days or such-like, but I do like to travel, and if I can arrange with my employer a working pattern something like 9 months of work then 3 months of unpaid leave that would be ideal to minimise tax burdens (I have no carry-forward left after this year, so pensions are not good for avoidance anyway). I'm just starting to arrange this for 2017/18.

I doubt many would have sympathy, these are first world problems, but as others have said before, why bother to do more work than necessary if it is just going to put you the wrong side of a cliff-edge. Many of those affected by changes of this type are in a position where they do not need 100% of their income, so considerations of work incentives (and particularly marginal incentives to work at certain income levels) need to be taken seriously when formulating tax policy.

kidmugsy

hugheskevi wrote: »

it does seem the whole taxation system needs simplification - the tax system should not have series of cliff-edges.

The contrast with Mr Osborne's elimination of cliff-edges in Stamp Duty Land Tax is striking. Maybe he should progress from being The Great Pension Liberator to The Great Tax Simplifier, even if it involves binning some complications that were his own doing.

Mind you, there wouldn't be many votes in the logically attractive removal of some of the tax benefits of owner-occupied housing.