Pension ISA

Pincher

It does not exist, but they were talking about it:

http://www.professionalpensions.com/professional-pensions/news-analysis/2417167/why-the-industry-is-fearful-of-isa-taxation-of-pensions

Current pension system

EET - exempt, exempt, Taxed


Pension ISA

TEE - Taxed, exempt, exempt

with possible top-up from the state.


Obviously, you need to have some extras to distinguish it from regular ISAs. For example, extra contribution allowance, but not allowed to withdraw until 55. To encourage trickle drawdown that will last, they could give you a drawdown top up. E.g. the state gives you 5% when you drawdown, up to £10,000. You can draw down £30,000 if you wish, but £500 top up is the most you get each year.


Just wondering whether people would prefer an ISA approach.
I would.

Obviously, people getting higher rate tax relief wouldn't like it, but it looks like higher rate pension relief is under threat anyway.

I wonder what the effect would be on the pensions industry.
Edinburgh could become a ghost town. Oil revenue running out, pensions industry disappear, they could become the Mexicans coming over Hadrians Wall if they split.

bigfreddiel

I think I would go for a pension ISA, because, you've paid the tax so when it comes to taking an income in the future it's tax free and will not affect any other taxed income or taxable benifits.

Right now I get my state pension and on top of my other pensions I lose 20% straight away, may even be 40% if my part time earnings go up a tiny bit!

So think about the future, pay 20% now on the way in while you can afford it, and in 30 or 40 years time that tiny pot will have grown to a sizeable sum and it's all tax free.

Also no limit on the size of an ISA, but there is on a pension fund.

Of course the rules will change but the ISA option wins for me if I were starting again.

Hope that helps, and another analogy, it's a bit like paying tax when you place a bet rather than on the winnings!

Good luck fj

kidmugsy

bigfreddiel wrote: »

pay 20% now on the way in while you can afford it, and in 30 or 40 years time that tiny pot will have grown to a sizeable sum and it's all tax free.

What on earth makes you confident that in 30 or 40 years time the tax-free status will have survived? Do you really expect no Labour governments, or desperate Conservative governments, in that time?

bigadaj

kidmugsy wrote: »

What on earth makes you confident that in 30 or 40 years time the tax-free status will have survived? Do you really expect no Labour governments, or desperate Conservative governments, in that time?

Well the convention is that changes shouldn't be retrospective but certainly no guarantees.

Removing a tax exemption when drawing down would be fairly extreme, but as we've already seen raising the age for access could easily occur with increasing life expectancy.

MoneySavingUser

Pincher wrote: »

It does not exist, but they were talking about it:

Pension ISA

TEE - Taxed, exempt, exempt

with possible top-up from the state.

It sort of exists. Whilst it can also be used to purchase a first home - this is essentially what a Lifetime ISA is.

Put in £4,000 of taxed money get £1,000 bonus added. Growth and withdrawal is then exempt.

It is quite possible a future govt. will get rid of pensions as they stand and have us just use Lifetime ISAs.

Whilst there is no limit on the size of an ISA there is a contribution limit of £20,000 overall and the LISA is limited to £4,000 compared to the £40,000 pensions annual allowance.

bigfreddiel

kidmugsy wrote: »

What on earth makes you confident that in 30 or 40 years time the tax-free status will have survived? Do you really expect no Labour governments, or desperate Conservative governments, in that time?

Of course that could happen, but tinkering with the pension pot size, tax free lump sum, tax allowance is more likely in my opinion.

So as in today's world hedge your bets, ISA and traditional pension, but adjus the mix to suit

But I still tend towards an ISA pension or just an ISA

And of course Labour is a non starter now and will be for many decades!

Cheers fj

Rich2808

kidmugsy wrote: »

What on earth makes you confident that in 30 or 40 years time the tax-free status will have survived? Do you really expect no Labour governments, or desperate Conservative governments, in that time?

Exactly - we are trillions in debt with no sign of the deficit disappearing now for some time if ever, a low wage economy with millions reliant on welfare handouts like tax credits and housing benefit to make ends meet even if working, a demographic timebomb and an ever rising population placing pressure on infrastructure and housing.

Almost at every budget in recent years there have been cuts to the annual allowance or lifetime allowance, moves from RPI to CPI pensions uprating, threats to reduce tax relief (which only got dropped in March due to the referendum) and constant rumours that the 25% tax free lump sum might be capped or go.

If you get the tax relief upfront you know you have it - and as we have seen with Osborne, Darling and Brown they can quite happily tinker with pension rules at any time.

But the government know they can get away with it because unlike say housing very few members of the public understand pensions or pay much attention until they get very close to retirement.

Pincher

MoneySavingUser wrote: »

It sort of exists. Whilst it can also be used to purchase a first home - this is essentially what a Lifetime ISA is.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/508117/Lifetime_ISA_explained.pdf


All very well if you are 18 to 40.

If you are 40 years old, and you save £4,000 a year, the Treasury will have to give you £20,000 when you turn 60.

It sounds like the 25% is not payable yearly, so the £1,000 is not growing from year two. The whole thing sounds like a post dated cheque, hoping the economy will pick up speed so they will have money in twenty years time to pay the plucky saver.

They won't let me have it, because they will have to pay out in seven years time.

Should have called it Club Med 18-30 Special, so they have 30 years before they have to pay out.

sandsy

Basic rate taxpayers as well as higher rate tax payers benefit from the existing pension system due to the personal allowance.

Say you contribute £80k over a lifetime. Ignore investment returns.
In an ISA, you would drawdown £80k, say, £10k a year for 8 years tax free at age 55.

In a pension, you'd have £100k to drawdown but drawing at the same rate, you can withdraw £10k a year for 10 years with no tax, due to the personal allowance.

Pincher

sandsy wrote: »

In a pension, you'd have £100k to drawdown but drawing at the same rate, you can withdraw £10k a year for 10 years with no tax, due to the personal allowance.

The 25% lump sum first, presumably, then £10k a year.
So, about eight years to draw down £100k tax free. All dependent on having no other income.

The ISA route means that you can have an income stream, and have full flexibility on drawdown. If you were 18~40, you also get the 25% top up ( £1,000 for £4,000 paid into Life Time ISA ). Not ME, of course. :mad:

Don't forget the inheritance angle. 55% tax if you hop it when over 75:eek: