Budget

zagfles

PensionTech wrote: »

You will be no differently off. I assume that your pension contributions together with your AVC take your earnings to below the HR threshold. As the HR threshold is rising, you will still be under it. The same amount will go into your pension as before and you will pay the same tax as before (well, slightly less tax actually as the BR threshold is also rising very slightly, but that is not what you appear to be asking about). You may experience less thrill in the knowledge that your pension contributions are helping you to avoid HR tax, but there is no actual financial change to your circumstances.

Depends whether the AVC is paid by sal sac or "net pay". If by "net pay" then the rise in the HRT threshold will mean more NI, as the NI upper earnings limit is aligned with the HRT threshold. If by sal sac then there is no difference.

zagfles

beanie414 wrote: »

Hi and ty for quick reply.My AVC comes out of my pay before tax is taken out so seems I would be better off thanks.

Do you mean £50k is your pay after the AVC has come out? In which case yes you'll be better off as you're already paying 40% tax, so you'll pay 40% tax on less of your pay because of the HRT threshold rise. You'll pay more NI but extra 10% NI compared to a 20% tax saving on the rise in threshold.

hyubh

AlanP wrote: »

Thought that was only unfunded Public Sector schemes so not applicable to LGPS for example?

LGPS employer rates unaffected indeed, though transfer values (determined centrally not locally) will slightly increase. The also-announced forced conversion of all schools to academies will have more effect 'on the ground'.

jamesd

zagfles wrote: »

Yes but there is therefore more tax to pay when you take it out!! It makes absolutely no difference to the end result!

Wrong. The pension has the 25% tax free lump sum and people have a personal allowance that is higher than their state pension. Both mean that for the pension there is more tax relief paid on the way in than tax taken on the way out even when salary sacrifice is not used.

When salary sacrifice is used the pension is better for the whole amount because the national insurance is saved in the pension and not paid when taken out, while the LISA doesn't get this benefit at all.

Similarly the pension has an advantage for:

1. Those paying in at higher income tax rates than they will be at when taking money out.
2. Those who save child benefit or other payments like child care provision by using the pension to reduce their effective gross income.
3. Those who want the money between ages 55 and 60 under current rules for both.

jamesd

zagfles wrote: »

Already heavily caveated eg "assuming BR taxpayer in work and in retirement".

Your caveats need to include things like ignoring the tax free lump sum that always make the pension better (unless you posit higher income tax rate in retirement than when paying in). And the salary sacrifice potential benefit. And the employer matching potential benefit. And the retaining of other benefits potential benefit. Or put more simply, you caveats are chosen to fix the result by eliminating the truth of the comparison.

It's easy: the pension reliefs beat the LISA reliefs and the pension offers the better deal. In all practical cases. Because the 25% tax free lump sum is there in all practical cases.

zagfles

jamesd wrote: »

Your caveats need to include things like ignoring the tax free lump sum that always make the pension better (unless you posit higher income tax rate in retirement than when paying in). And the salary sacrifice potential benefit. And the employer matching potential benefit. And the retaining of other benefits potential benefit. Or put more simply, you caveats are chosen to fix the result by eliminating the truth of the comparison.

You're talking complete rubbish. The TFLS is already accounted for. The (employee) NI saving in sal sac is already accounted for. That's what started this conversation!

Use of any remaining PA isn't, so caveated, as with other stuff mentioned like death benefits. But people often have other pensions which would use up their PA in retirement. And obviously the pension is a better deal if you get matching employer contributions, also tax credits/child ben potential savings (though we were talking basic rate tax payers). But of course the LISA has benefits such as access before 55 is allowed, you can use it for a house deposit and keep the govt top-up.

There's a variety of factors you need to consider. But purely in terms of tax relief/bonus, LISA and pension via sal sac (with no employer top-up) work out to the same end result for someone who's a basic rate taxpayer now and who will already have enough income to use up the PA in retirement. Other factors such as access, death benefits etc could swing the decision one way or the other.

Not sure if the LISA would count as capital for means tested benefits - given the govt are clearly trying to market it as a retirement savings vehicle it would seem sensible if they excluded it from any capital/savings tests in benefits.

It's easy: the pension reliefs beat the LISA reliefs and the pension offers the better deal. In all practical cases. Because the 25% tax free lump sum is there in all practical cases.

Again, rubbish. Take a basic rate taxpayer with a choice of paying into a personal pension (so no NI relief) or a LISA.

They get the same tax relief/bonus, assuming no peripherial issues etc. Put £4000 in, and it becomes £5000.

But when taking it out, 100% of the LISA is tax free, only 25% of the pension is tax free!

So LISA can easily beat pension relief in some circumstances.

jamesd

zagfles wrote: »

You're talking complete rubbish. The TFLS is already accounted for. The (employee) NI saving in sal sac is already accounted for. That's what started this conversation!

What I'll do is run a range of calculations for the various cases that I end up thinking of to cover a broad range of cases to show which one can win and when.

zagfles wrote: »

Not sure if the LISA would count as capital for means tested benefits - given the govt are clearly trying to market it as a retirement savings vehicle it would seem sensible if they excluded it from any capital/savings tests in benefits.

None of the documents except perhaps the consultation mentions this at all so there's no reason at present to think that there is any exemption from the normal rules.

zagfles wrote: »

So LISA can easily beat pension relief in some circumstances.

Yes, it can.

robin61

Interesting article here about the LISA.
http://money.aol.co.uk/2016/03/18/steve-webb-lifetime-isa-means-working-until-you-drop/

Some good points made.

Rich2808

robin61 wrote: »

Interesting article here about the LISA.
http://money.aol.co.uk/2016/03/18/steve-webb-lifetime-isa-means-working-until-you-drop/

Some good points made.

Yes - but it always of course ignores the elephant in the room - high house prices!

If young people didn't have to spend so much of their earnings servicing a mortgage - or rent - they would be able to save an awful lot more towards their pensions and retire earlier.

But the over 40s run the system - and could never admit what the problem is as if it was addressed they would lose out!

A bit like that woman complaining about losing tax credits on question time. No one noted her comment she barely had enough money to pay her rent - maybe her tax credits aren't too low but her housing costs are too high.

Solve housing - solve pensions.

robin61

Rich2808 wrote: »

Yes - but it always of course ignores the elephant in the room - high house prices!

If young people didn't have to spend so much of their earnings servicing a mortgage - or rent - they would be able to save an awful lot more towards their pensions and retire earlier.

But the over 40s run the system - and could never admit what the problem is as if it was addressed they would lose out!

A bit like that woman complaining about losing tax credits on question time. No one noted her comment she barely had enough money to pay her rent - maybe her tax credits aren't too low but her housing costs are too high.

Solve housing - solve pensions.

Yes it's a big problem. I have noticed in our town in NW Kent we are starting to see the ripple effect from London I can' t believe some of the house prices and the cost of renting is crazy as well.