Osbourne's tax relief changes in the March budget

Bootsox

In today's Sunday Times, the three 2016 pundits were suggesting the following (somewhat paraphrased by myself):

Thomas Becket: system is already complex enough as it is, suggest 2016 "will be one of no action".

Brenda Kelly: changes may discourage people saving for pensions, hence chancellor will "row back on previous statements (to restrict pension savings)".

Garry White: Osborne will "blink and leave it [pensions] unchanged" (as per climb down on tax credits).

Which seems a fairly consistent message across the three of them.

saver861

Bootsox wrote: »

In today's Sunday Times, the three 2016 pundits were suggesting the following (somewhat paraphrased by myself):

Thomas Becket: system is already complex enough as it is, suggest 2016 "will be one of no action".

Brenda Kelly: changes may discourage people saving for pensions, hence chancellor will "row back on previous statements (to restrict pension savings)".

Garry White: Osborne will "blink and leave it [pensions] unchanged" (as per climb down on tax credits).

Which seems a fairly consistent message across the three of them.

Well maybe - on the other hand, the time to make unpopular changes in a new government would be years two and three in the hope they are forgotten by the time the next election comes around.

peterg1965

From a selfish perspective, I am very concerned about the impact of any major changes in pension legislation this year. As a 50 year old, and having made my financial plans based on the current rules (albeit changed and tweaked over the years), I have a lot of skin in the game here. I have a SIPP, as does my wife, and I pay in a fairly hefty sum each month and take advantage of the HRT relief, my wife gains from the basic rate and is unlikely to pay tax in retirement.

I also have a relatively new occupational scheme (DC) which makes use of salary sacrifice, as does my company Share Incentive scheme.
Significant change will cause me to reconsider my plans to pay off a very large IO mortgage, which I had aimed to do in 5 years.

The only positive is that I have a DB pension (AFPS) already in payment, so I guess that is as safe as can be expected, so I am grateful for that.

Here's to a nervous 2.5 months wait until Budget day!

EdSwippet

OldBeanz wrote: »

The present incentive for 40% tax payers to stuff their pensions is obvious. You could have a couple both earning £80k and by paying the max into their pensions still claim child allowance.

Isn't that a problem with the way child allowances work, rather than a problem with pensions?

At their core, pensions are just a way to defer salary (and the associated tax on that salary) from the year in which it is earned into one in which it is needed and spent. It is very hard to see what is philosophically objectionable about that. One could -- and folk may well, if the flat rate relief comes to pass and the rate is set too low -- achieve the same objective and outcome simply by working half time for ten years as 'semi-retirement', instead of working full time for five years followed by five years of retirement.

robin61

peterg1965 wrote: »

From a selfish perspective, I am very concerned about the impact of any major changes in pension legislation this year. As a 50 year old, and having made my financial plans based on the current rules (albeit changed and tweaked over the years), I have a lot of skin in the game here. I have a SIPP, as does my wife, and I pay in a fairly hefty sum each month and take advantage of the HRT relief, my wife gains from the basic rate and is unlikely to pay tax in retirement.

I also have a relatively new occupational scheme (DC) which makes use of salary sacrifice, as does my company Share Incentive scheme.
Significant change will cause me to reconsider my plans to pay off a very large IO mortgage, which I had aimed to do in 5 years.

The only positive is that I have a DB pension (AFPS) already in payment, so I guess that is as safe as can be expected, so I am grateful for that.

Here's to a nervous 2.5 months wait until Budget day!

I feel the same way as you do about it.
Maybe any changes could also provide you with some opportunities. So for example if there was a flat 30% tax relief you could start putting more into you wife's pension. 30% tax relief and potentially little or no tax paid in retirement for her sounds quite good. Just keep your eye on things and change your plans if you need to.

zagfles

EdSwippet wrote: »

Isn't that a problem with the way child allowances work, rather than a problem with pensions?

Or maybe it's not a problem at all, as per your first sentence below...

At their core, pensions are just a way to defer salary (and the associated tax on that salary) from the year in which it is earned into one in which it is needed and spent. It is very hard to see what is philosophically objectionable about that. One could -- and folk may well, if the flat rate relief comes to pass and the rate is set too low -- achieve the same objective and outcome simply by working half time for ten years as 'semi-retirement', instead of working full time for five years followed by five years of retirement.

There's nothing 'philosophically objectionable' about it at all, except perhaps to the odd thick left-winger.

The problem is that the govt have a budget deficit they need to close, and cutting pension tax relief to those who are unlikely to be claiming benefits in retirement (such as higher rate tax payers), while at the same time giving those who might well be claiming benefits in retirement (eg those on low pay) extra encouragement to save in a pension, is a win-win from the chancellor's coffers point of view.

It's also politically advantageous particularly from a Tory govt as its taking off the rich and giving to the poor - something to throw back at the "all Tories do is help their rich mates" type simpletons.

chiefie

robin61 wrote: »

I feel the same way as you do about it.
Maybe any changes could also provide you with some opportunities. So for example if there was a flat 30% tax relief you could start putting more into you wife's pension. 30% tax relief and potentially little or no tax paid in retirement for her sounds quite good. Just keep your eye on things and change your plans if you need to.

Good idea and I'm planning to do that if it comes to it.

peterg1965

robin61 wrote: »

I feel the same way as you do about it.
Maybe any changes could also provide you with some opportunities. So for example if there was a flat 30% tax relief you could start putting more into you wife's pension. 30% tax relief and potentially little or no tax paid in retirement for her sounds quite good. Just keep your eye on things and change your plans if you need to.

That thought had already crossed my mind, which, is indeed a potential opportunity. Although my wife was probably intending to finish work (NHS) at some point in the next few years, if she does that will restrict the amount we can pay in. It's probably what happens to salary sacrifice that could be more pressing for me.

It would be so good, for me if changes are bought in gradually instead of the big bang approach. thereby protecting people who are close to the critical age of 55.

RickyB2000

To guess, i could see the following happen:

1) tax pension contributions as normal up front (eliminate salary sacrifice and the ability to reduce taxable income for things like child benefit)
2) Provide a credit to the pension that is a % of the contribution (flat rate relief, all pensions work like SIPPs, claiming the credit back. Government gets the cash up front to spend and only credits it back a few months later)
3) Introduce a tax free lump sum allowance. High enough that most people won't be affected, but low enough to net additional tax from bigger pots - e.g first £25k tax free. Allowances were popular last year.

robin61

RickyB2000 wrote: »

To guess, i could see the following happen:

1) tax pension contributions as normal up front (eliminate salary sacrifice)
2) Provide a credit to the pension that is a % of the contribution (flat rate relief, all pensions work like SIPPs, claiming the credit back. Government gets the cash up front to spend and only credits it back a few months later)
3) Introduce a tax free lump sum allowance. High enough that most people won't be affected, but low enough to net additional tax from bigger pots - e.g first £25k tax free. Allowances were popular last year.

If the PCLS was taxed surely it wouldn't be at the marginal rate there woukd be lots of people paying 40 or even 45 % tax. Personally I would only take what was tax free and I would buy extra pension within my DB scheme and for my DC scheme again I would only take the tax free amount. So there would be no immediate net gain for the Government. Sure I would pay tax on a larger pension but they would be waiting a long time to get it.