Osbourne's tax relief changes in the March budget

rpc

So if you include direct employer pension contributions for calculating tax relief, how do you deal with funded DB scheme liabilities and, more challenging, unfunded public sector DB schemes?

If the employer contribution is set too low to cover all of the benefits, the employer (or government) fills the gap. That's an employer contribution but will never appear on a payslip.

How to further put the boot into DC schemes while letting DB schemes (and particularly unfunded public sector ones) off lightly.

Rich2808

rpc wrote: »

So if you include direct employer pension contributions for calculating tax relief, how do you deal with funded DB scheme liabilities and, more challenging, unfunded public sector DB schemes?

If the employer contribution is set too low to cover all of the benefits, the employer (or government) fills the gap. That's an employer contribution but will never appear on a payslip.

How to further put the boot into DC schemes while letting DB schemes (and particularly unfunded public sector ones) off lightly.

I believe there is one public sector DB scheme where the employer contribution rate is over 35 per cent but employees pay only 5 per cent. Let's just say this is the most strike prone organisation in the country! Their employees can still retire at 60 on full benefits and their pensions are still updated by RPI.

How are they going to deal with DB schemes in terms of this or will it only apply to DC.

http://www.standard.co.uk/news/transport/cost-of-gold-plated-transport-pensions-soars-to-16-billion-8626828.html

Triumph13

rpc wrote: »

So if you include direct employer pension contributions for calculating tax relief, how do you deal with funded DB scheme liabilities and, more challenging, unfunded public sector DB schemes?

If the employer contribution is set too low to cover all of the benefits, the employer (or government) fills the gap. That's an employer contribution but will never appear on a payslip.

How to further put the boot into DC schemes while letting DB schemes (and particularly unfunded public sector ones) off lightly.

I like the idea that was floated the other day of managing DB schemes via an LTA.
If you stick with the current idea of a 25% charge on LTA excess that will be used for income then you could put a regime together without too much difficulty that avoids 'visible' tax bills. Once someone is over the LTA then if say their post inflation pension accrual for the year is £1,000 pa then the scheme has to reduce it to just £750 pa and pay the £250 times a set multiplier over as tax.

zagfles

rpc wrote: »

So if you include direct employer pension contributions for calculating tax relief, how do you deal with funded DB scheme liabilities and, more challenging, unfunded public sector DB schemes?

If the employer contribution is set too low to cover all of the benefits, the employer (or government) fills the gap. That's an employer contribution but will never appear on a payslip.

How to further put the boot into DC schemes while letting DB schemes (and particularly unfunded public sector ones) off lightly.

It would have nothing to do with actual contributions for DB. It couldn't, realisticly. There'll be a forumula to work out the "taxable benefit" of the contribution in a similar way to other taxable benefits, or how the PIA is calculated.

gadgetmind

My prediction is that current taper comes in as planned, budget has woffle about consulting and intentions, but any actual changes are 2-3 years away, or more.

Putting in place some of what's been suggested will take longer than the new state pension, and that's been rattling around for years.

zagfles

Triumph13 wrote: »

My bet is on a change from either 5 April 2016 or 2017, probably the latter if major payroll changes are needed, but with anti-forestalling legislation effective from the budget day modelled pretty well exactly on the 2009 rules ie no increases of contribution rates. It's a bet I'm taking up by opening a separate private pension and banging in the maximum for 40% relief before budget day. I agonised long and hard on this one as a) I lose out on salary sacrifice NI savings on this, and b) if he goes for a further reduction in LTA I may be stuffed, but I think the balance of probabilities this time around is very clearly in favour of a reduction in tax relief % and/or a big reduction in the annual allowance - hopefully coupled with a scrapping of the LTA for DC schemes.

I'm wondering whether for DC, the simplest idea to restrict tax relief would be to carry on down the road the govt have already started on - tapering the AA depending on tax band.

They've already done it at the 45% band, they could, say, reduce the AA to £15k for basic rate taxpayers, and taper the AA down to £12k for incomes over £50k, which is their stated target for the HRT threshold. Retain full marginal relief and in addition, give an extra 12% relief for basic rate taxpayers.

This would broadly give everyone just about the same max tax relief, a bit under £5k. But no urgent payroll changes needed. Sal sac not an issue, basic rate taxpayers would already get 32% relief via sal sac. If they pay through net pay then they can claim an additional 12% relief, and if they earn below the PA they can claim an extra 32% via some mechanism, which could be claimed direct from HMRC, perhaps just in the short term while setting something up via payroll at leisure.

Personal pensions reclaim 32% relief, higher rate taxpayers eligible to claim an additional 8% but lower AA.

Also scrap the LTA for DC, with a one-off check that people are not already over it.

For DB - scrap the AA, but set a new lower LTA, say around £750k. For those in both DC and DB, the DC conts would reduce the LTA by say 2% pa if the full AA is used, and proportionatly less if it's part used.

Transition for the LTA by working out the proportion of current LTA used by DC only, and deducting that from the new LTA which is now for DB only.

Yes it's not totally fair between DC and DB, but it isn't now, and like we've seen with the new state pension where there are all sorts of anomilies, I think the govt will sacrifice fairness for simplicity.

I'm not sure of the fiscal equation for something like the above - whether the amount saved from HRT payers who now make big contributions would be much greater than the amount lost to provide extra relief for basic rate taypayers not using sal sac, but there's several parameters that can be tweaked...

BobQ

Does the alignment of the pension input periods with end of tax year add a further complication to the anticipated landscape, in that it will be a little problematic to determine the value of the increased pension benefits at year end in order to see the scope for in year contributions?

hyubh

Rich2808 wrote: »

I believe there is one public sector DB scheme where the employer contribution rate is over 35 per cent but employees pay only 5 per cent. Let's just say this is the most strike prone organisation in the country!

Name it.

(I am confident you cannot.)

Spidernick

I can easily see the AA being reduced still further (possibly with the removal of the lifetime allowance). Compared to US 401K plans our annual limits will still look very generous to many people:

http://www.money-zine.com/financial-planning/retirement/401k-contribution-and-catch-up-limits/

In the US the employer 'matching' amounts also tend to be a lot lower in the UK and are rarely as good as 1:1.

However, whatever happened to encouraging people to save for their retirement?:(

EdSwippet

Spidernick wrote: »

Compared to US 401K plans our annual limits will still look very generous to many people...

Worth noting that the limits shown in the article you linked are only for individual contributions.

An employer can put in as much as they want, up to a combined limit of $53k in 2016, and $59k for those over age 50. That's around £32k and £35k respectively. Superficially, not that far from current UK levels, then.

The tricky part for most will be persuading their employer to match at these levels. Matching is generally 50c on the dollar, so even though the US annual limits are comparable it is probably going to be harder to reach them. The self-employed will have an easier time with this than will normal wage slaves.