March budget

Generali

Mistermeaner wrote: »

Saving any sort of meaningful dc pot is hard enough as it is. Will they expect employers to make up the gap?

No idea. It's a blatantly obvious tax increase though. How can you justify a subsidy of 2.5x for rich savers (i.e. £40 becomes £100 simply because it's been saved in a particular way)? It's nuts.

The Aussie system of enforced pension saving is the way forward.

Mistermeaner

Also how would it work with salary sacrifice?

For simple maths say my salary is 50k and I sacrifice at 20% I put 10k a year into my pension. Currently this just goes in as 10k (plus employer contributions) but is a simple 10k.

I then pay income tax on 40k. It's as if I never earned 50k. However I have in essence had 20% tax relief on 3k and 40% tax relief on 7k (for simplicity assuming 40% tax kicks in at exactly 43k)

If pension tax relied is straight 20% I assume then that of the 10k sacrificed 7k of it would be taxed at 20% so only 8.6k would go into my pension (3k + 80% of 7k)

That's quite a kick in the knackers.

Mistermeaner

Generali wrote: »

No idea. It's a blatantly obvious tax increase though. How can you justify a subsidy of 2.5x for rich savers (i.e. £40 becomes £100 simply because it's been saved in a particular way)? It's nuts.

The Aussie system of enforced pension saving is the way forward.

True but it's still taxable on the way out

Closing the 25% tax free lump sum would be fairer

Generali

Mistermeaner wrote: »

Also how would it work with salary sacrifice?

For simple maths say my salary is 50k and I sacrifice at 20% I put 10k a year into my pension. Currently this just goes in as 10k (plus employer contributions) but is a simple 10k.

I then pay income tax on 40k. It's as if I never earned 50k. However I have in essence had 20% tax relief on 3k and 40% tax relief on 7k (for simplicity assuming 40% tax kicks in at exactly 43k)

If pension tax relied is straight 20% I assume then that of the 10k sacrificed 7k of it would be taxed at 20% so only 8.6k would go into my pension (3k + 80% of 7k)

That's quite a kick in the knackers.

I've no idea how a future Government might implement policy.

I can say that in Aus it works thusly:

I earn $109,500. Of that, my boss puts $9,500 into a DC pension scheme for me and I get $100k.

I then have to pay taxes totaling $24,947 plus $2,000 'Medicare levy'.

I can take some more of that $100,000 and pay it into my superannuation account. If I do that, rather than paying 37% tax on my marginal income I pay 15% tax up to an extra $15,500 going into my super. If I take $10,000 a year and put it into my super account I get $8,500 to save and the Government takes $1,500. If I'd decided to spend that money on cocaine instead I'd have had $6,300 to spend in disposable income.

However, whether I decide to put my money into my super account or my cocaine account I still earn $100,000 for the purposes of everything else in my life: I don't get to 'do a michaels' and claim benefits because I save in a particular way.

Mistermeaner

What's the deal with withdrawing from your super annuaation account?

Generali

Mistermeaner wrote: »

What's the deal with withdrawing from your super annuaation account?

That's where it starts getting complicated. Assume you're 60 and not terribly unwell (think metastatic cancer unwell not chronic arthritis). Also assume you worked in the private sector all your life.

If you put money into your super up to the $25k low tax rate or it was put there by your employer you can take a one-off amount of $195k out tax free and take as much of the rest as you want paying your marginal tax rate on it. For our friend earning $100,000 a year, her marginal rate is probably 37% so if she decided to take $250,000 out of her superannuation account she'd pay $0 on the first $195,000 and 37% on the $55,000.

The rest of the money you take out of your super untaxed. In Aus you pay tax on the money going in to your pension but not on it coming out again if you're a normal person. Rich people and people that save loads basically go the other way around.

However if you work in the public sector your money goes in to super tax free (yeah, bloody public sector right?). What's more they get up to 17% of their income put into super rather than the paltry 9.5% us private sector mugs get. However, once they step off the public sector gravy train, i.e. retire, they pay tax on all of the money that comes out of their super at the marginal tax rates for the year.

cells

You've all got this wrong.
Kid 1 is because you don't know any better kid 2 is because kid 1 needs a friend to play with and kid 3 is the pension and insurance

chucknorris

I can't see anything happening in 2016, if there are changes, they will most likely be implemented in 2017. My pension contributions keep me out of the 60% marginal tax band, if the revisions resulted in pension contributions no longer reducing taxable earnings, then I'd probably reduce my hours, which isn't necessarily a bad thing, as I'll get more time to do what I like doing.

I had recently decided to probably work on until my state pension age (66), which would be another 8 years from now, but as they say 'man makes plans and the chancellor laughs'.

Mistermeaner

chucknorris wrote: »

I can't see anything happening in 2016, if there are changes, they will most likely be implemented in 2017. My pension contributions keep me out of the 60% marginal tax band, if the revisions resulted in pension contributions no longer reducing taxable earnings, then I'd probably reduce my hours, which isn't necessarily a bad thing, as I'll get more time to do what I like doing.

I had recently decided to probably work on until my state pension age (66), which would be another 8 years from now, but as they say 'man makes plans and the chancellor laughs'.

Chuck if I was you I would quit tomorrow. Travel the world. And Don't mean a long holiday I mean absorb yourself into the culture of the places you go.

You have enough to live independently to a very high standard. You have no dependents and most importantly you have (I think) your health and fitness.

Plenty of time when you get old for walking up and down the river throwing balls for pooches.

Just my view

chucknorris

Mistermeaner wrote: »

Chuck if I was you I would quit tomorrow. Travel the world. And Don't mean a long holiday I mean absorb yourself into the culture of the places you go.

You have enough to live independently to a very high standard. You have no dependents and most importantly you have (I think) your health and fitness.

Plenty of time when you get old for walking up and down the river throwing balls for pooches.

Just my view

You are of course right, I know what you are saying makes sense, but I actually like my job, I know I suggested working on until I'm 66, but a significant part of my decision to work on for now, is that my wife who is only 46, still works. She is making noises about retiring in 3.5 years when she is 50, that would trigger my retirement, as her retirement would allow us to go away in the winter.

We plan to winter in Spain/Algarve, but the thing that I really enjoy is running/hiking with my dog, in the morning, then going for a walk (more of a stroll) with my wife (and dog), nothing better on a warm day, and stop for lunch somewhere. That's what I tend to get up to in the summer now anyway (when outside the university semesters), as my wife has started to take 3 months unpaid leave in the summer. We are really looking forward to exploring Spain, two regions that I want to look at are the Costa De La Luz and the Tabernas desert (Almeria region). So travelling the world wouldn't be my thing.

Anyway if the pension tax relief revision is particularity poor for me, that would also trigger my retirement too, it was only a very marginal decision to work on beyond this September anyway.