Osbourne's tax relief changes in the March budget

RickyB2000

robin61 wrote: »

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.

No, no big immediate gain per person. It would probably be more like 25% tax free up to a maximum of £25k. So yes, you would in essence only be allowed to take up to 25k as tax free lump sum. But if millions of people take extra pension, then all those little bits are providing tax year after year, which they wouldn't have got otherwise. If they drawdown, they may draw more to make up for the reduction in tax free cash which is more tax again. Of course, it would have some negatives. An impact on how much retirees are spendings, people running out of money quicker, people building pots to pass on as inheritance etc

robin61

RickyB2000 wrote: »

No, no big immediate gain per person. It would probably be more like 25% tax free up to a maximum of £25k. So yes, you would in essence only be allowed to take up to 25k as tax free lump sum. But if millions of people take extra pension, then all those little bits are providing tax year after year, which they wouldn't have got otherwise. If they drawdown, they may draw more to make up for the reduction in tax free cash which is more tax again. Of course, it would have some negatives. An impact on how much retirees are spendings, people running out of money quicker, people building pots to pass on as inheritance etc

Taking a large PCLS and paying a load of tax on it would be like someone in drawdown now taking a massive slice of their pension all in one year. You would have to be pretty desperate to get your hands on the money quickly.

I have a couple of years at the most (I hope) to work. I was thinking about piling a load of money into my AVC next year and maybe the year after if I am still there and partially funding it through cash savings. However I will be waiting to see what gets announced in March before deciding what to do. If something like this happens I might not be wanting too much tied to pensions.

RickyB2000

robin61 wrote: »

Taking a large PCLS and paying a load of tax on it would be like someone in drawdown now taking a massive slice of their pension all in one year. You would have to be pretty desperate to get your hands on the money quickly.

I have a couple of years at the most (I hope) to work. I was thinking about piling a load of money into my AVC next year and maybe the year after if I am still there and partially funding it through cash savings. However I will be waiting to see what gets announced in March before deciding what to do. If something like this happens I might not be wanting too much tied to pensions.

Well, I hope that I am wrong as well - it isn't based on anything, just my thoughts of what they could do. They may just reduce the percentage tax free (wasn't it 50% sometime ago). They could offer people the ability to protect their tax free lump sum if already exceeding a new threshold. They may set the max limit very high (like 100k). They may leave it alone.

Thrugelmir

zagfles wrote: »

The problem is that the govt have a budget deficit they need to close,

Apply to the same to any topic you choose. Savings \ cost reductions need to be found across the board. Providing it's done in an even handed manner then change is high likely. As will win populist support.

hyubh

hugheskevi wrote: »

The LGPS scheme (and the unfunded schemes) remains perfectly viable

Hmm, a very generous CARE rate, very strong protections for long term members, and (in many cases) mounting deficits would suggest otherwise. Overall employer rates for most councils got past 20% of payroll many years ago, and admission body rates for long-term third- or private sector employers are frequently well north of that.

(and £54,000 isn't particularly high)

Might not be for you, but it is both for the population at large and membership profile of most LGPS funds - I'd wager only the Environment Agency's active fund is an exception.

historically the public sector has relied on good pensions as a key recruitment and retention tool.

Even if we assume that generous pension arrangements are a crucial recruitment tool, it is quite a jump, I think, to assuming that only generous pure-DB pension arrangements are so. I would be surprised, for example, if the USS' upcoming hybrid structure leads to a mass exodus of professors to industry... though time will tell (if the hybrid USS proves a success I hope the government will take note).

I think it would be possible to use a scaled-up CETV-type estimate system.

Not that it's an argument against as such, but in LGPS-land this would lead to a slight anomaly with the government's new public sector exit payments cap, would it not? Namely, that the employer strain charges to be included in the latter will be (are) determined using fund-level assumptions (like employer rates), whereas a 'scaled-up CETV-type estimate system' would (like CETVs), presumably use scheme-level ones. Or would the analogy be with CETVs in a private sector scheme, where given a lack of a distinction between 'scheme level' and 'fund level', a CETV is calculated on fund-level assumptions...?

saver861

hyubh wrote: »

Hmm, a very generous CARE rate, very strong protections for long term members,.

I'm not quite sure how you expect the LGPS should be run. They have gone from final salary to CARE. They have tided up the ill health options so not nearly as easy to get. Its likely that many of those in the LGPS will, on average, be some of the lowest paid.

Mr Osborne keeps saying he want's to ensure people save enough for old age. Currently only 40% are paying into an occupational pension and that's with the current 'generous' tax relief. I'm not sure how the 40% translates to LGPS, but I'm guessing it will be roughly relative.

saver861

Thrugelmir wrote: »

Apply to the same to any topic you choose. Savings \ cost reductions need to be found across the board. Providing it's done in an even handed manner then change is high likely.

I'm not so sure they are concerned about doing things in an even handed manner.

Thrugelmir wrote: »

As will win populist support.

I'm very sure they are concerned about popular. The top of every politicians agenda is to get his/her face on tv with and be seen to be giving out goodies. They will near die for it - regardless of how they can achieve it. But, that's their job!!

hyubh

saver861 wrote: »

I'm not quite sure how you expect the LGPS should be run.

I could waffle on for England that topic, but I'm not sure how interesting it would be for other forum participants

They have gone from final salary to CARE.

Doesn't mean much, given the generosity of the CARE revaluation rate.

They have tided up the ill health options so not nearly as easy to get.

Not sure what you're referring to? CARE didn't change anything particularly here. The big public sector scheme cleanup of ill health retirements in recent times was firefighters in the mid-2000s (the effect was pretty dramatic).

Its likely that many of those in the LGPS will, on average, be some of the lowest paid.

Unclear what statement of mine you are disagreeing with on that point...? That said, if career-long, low-earning members of the LGPS end up with a total pension (scheme + state) that is nearly, or even more than, their final salary, would you think that the result of sensible policy-making...?

Currently only 40% are paying into an occupational pension and that's with the current 'generous' tax relief. I'm not sure how the 40% translates to LGPS, but I'm guessing it will be roughly relative.

Not at all - auto-enrolment ensures a much higher figure.

kidmugsy

Won't a huge aspect of further pension reform be the question of whether or not there is retrospective legislation i.e. whether new rules will apply only to new contributions? It wouldn't be very hard to freeze the law on anything currently called a money purchase "pension" but prohibit future contributions, while introducing some device with a new name - e.g. a Retirement Investment Account - with new rules, for new contributions.

What to do about DB pensions is another matter. Close 'em all to further contributions?

saver861

hyubh wrote: »

I could waffle on for England that topic, but I'm not sure how interesting it would be for other forum participants

OK then ... maybe not!

hyubh wrote: »

Doesn't mean much, given the generosity of the CARE revaluation rate.

I don't know what the direct difference is between the 2008 policy and the CARE policy but it has to be an overall saving for the scheme.

hyubh wrote: »

Not sure what you're referring to? CARE didn't change anything particularly here. The big public sector scheme cleanup of ill health retirements in recent times was firefighters in the mid-2000s (the effect was pretty dramatic).

I meant the clean up on ill health from the changes a number of years ago. Nothing to do with CARE. The ill health scheme was being abused somewhat.

hyubh wrote: »

That said, if career-long, low-earning members of the LGPS end up with a total pension (scheme + state) that is nearly, or even more than, their final salary, would you think that the result of sensible policy-making...?

Well you are mixing two different items there. Their LGPS pension will still be relative to their salary. However, low paid workers have a higher state pension return. So, if they did end up with near equivalent of final salary it would be as a result of the proportion of state pension. The state pension could more than 60% of someone's salary on minimum wage.

hyubh wrote: »

Not at all - auto-enrolment ensures a much higher figure.

Well the 40% is the figure I read in a recent report somewhere. I don't know if that data was from pre-auto enrolment or not.