What would you ask pensions minister Richard Harrington?

GunJack

I'd ask him why all the rules around all aspects of pensions (including the tax aspects) are so bl00dy complex.... it seems like they've all been created to allow all sorts of fiddles, dodges, etc. Why not simplify the flippin' lot??

(I consider myself lucky in that I have 2 DB pensions so thankfully am insulated from virtually all the shenannagins)

CourteneyFish

I would ask him why pension benefit from pre-1997 contributions is only increased at the whim of the company. To anyone drawing a pension now this represents a large portion of the total amount. A small percentage of companies and I have heard mainly American companies, have not paid an increase for years.

zagfles

SnowMan wrote: »

Given that some of those low paid workers who get no tax relief will be basic rate taxpayers in retirement, perhaps when their state pension kicks in, that would mean a tax disincentive to save in a pension.

Every £1 saved in the pension could really be worth 85p after allowing for the tax disincentive (allowing for 25% tax free cash and 20% tax on the rest when taken out). This compares with £1 saved in an ISA that is worth £1 after adjusting for tax.

Everybody else saving in a pension (for example through relief at source arrangements) gets the advantage of the 25% tax free cash so every £1 of after tax income saved in a pension is worth at least £1.06

Higher rate taxpayers who are basic rate taxpayers in retirement gain further with every £1 of after tax income saved in a pension worth £1.42 after allowing for tax relief, tax free cash and tax on money coming out.

Giving that higher rate taxpayer a tax incentive making their £1 worth £1.42 while denying that lower paid worker any tax relief making their £1 worth £1 (or in fact making their £1 worth 85p in the extreme case) doesn't seem fair to me.

So clearly there are big incentives to save in a pension denied to the category of lowest paid or part time workers I mentioned, who may even be tax disincentivised to save in a pension

But I'm interested in the Pension Minister's reply to this rather than discussing this here.

Yup good points, so an argument for this "anomaly" of "tax relief" where no tax is paid to be extended!

zagfles

CourteneyFish wrote: »

I would ask him why pension benefit from pre-1997 contributions is only increased at the whim of the company. To anyone drawing a pension now this represents a large portion of the total amount. A small percentage of companies and I have heard mainly American companies, have not paid an increase for years.

Because those were the rules at the time, you can't backdate changes like this as the company would have financed the pension based on the rules at the time. One of the reasons final salary schemes have been biting the dust over the last 20 years is the increased obligations places on them eg indexation.

robin61

1) Would the Government consider leaving pensions alone so that we are not going from one budget to the next wondering what new wheeze the Chancellor has come up with. That would mean we could plan with some amount of confidence that the rug isn't going to be pulled away.

2) are there any plans to increase the lifetime allowance.

jamesd

The lifetime allowance is to increase with CPI inflation from 2018, so it is planned to continue to drop in relation to earnings and income replacement rates, a form of fiscal drag.

The large and rapid decrease of the lifetime allowance is one of the three negative legislative risk issues that have disincentivised pension use for retirement income, at a time when measures like the pension freedoms have been very positive:

1. Increase in minimum normal pension age from 50 to 55 with minimal notice or transition time. Availability of resources and desire are the key determinants for when someone may plan to retire so this at best just pushed money away from pensions as well as adding planning uncertainty.

2. Rapid large and low notice decreases in lifetime allowance meaning that many will already have placed into pensions enough for growth to cause them to exceed the allowance.

3. The FCA minimal notice PS 16/12 ban on money withdrawn from pensions counting towards the high net worth assets threshold. As with the others the money is now trapped in the pension category even though at the time the money was placed into the pension at least 25% of it would not have been when withdrawn, so consumers will be harmed by being barred from investments that they planned to use for diversification and to some extend discouraged from pension use by the need to accumulate sufficient money outside pensions to qualify. Also unwelcome as an example of a silo mindset, treating pensions as a special case rather than part of an integrated retirement financial plan. The FCA seems to have rather missed the point of the word freedom in the context of pensions freedom and assumed that those who have committed substantial assets to retirement planning - a 60%+ savings ratio for the last eleven years in my case - will suddenly become stupid and reckless.

As an aside the assets HNW approach is daft as consumer protection measures go. Hit the magic £250,000 - say by being persuaded to mortgage a home in SE England - and you can now put all of the qualifying money into a forest green fuel investment scheme in the British Indian Ocean Territory and lose the lot. Better a lower threshold like £50,000 plus £7,000 per year until state pension age capped at £150,000 and a requirement to keep at least that much outside the investments covered by the restriction. Those numbers picked because modern drawdown rules for typical retirement duration will normally suggest around 6% of assets as income, so that topped up in due course by the state pension will protect sufficient assets to live indefinitely reasonably conservatively in much of the country, while preserving as much freedom as possible for diversification and keeping clear of benefits qualification thresholds. Not to live extravagantly, but this is about protection, not restricting choice beyond what is needed.

SnowMan

Question for the Pensions Minister

State Pension Age (SPA) is currently being reviewed in accordance with the once a Parliament review required by the Pensions Act 2014.

The Government had previously indicated that SPA would be set based on individuals spending no longer than a third (33.3%) of their adult life in retirement. The calculation to be used has been widely published (including on the gov.uk webite) since 2015 (see this thread) and has been used in Office for Budget Responsibility (OBR) documents and projections.

If SPA is increased on that basis then the review would mean that that SPA would increase to age 68 from around 2040 and to age 69 from around 2055*.

However as part of the SPA review, the Pensions Minister out of the blue on 16th November asked the Government Actuary to produce figures using a 32% of working lifetime proportion as well as the one third proportion (33.3%).

Using the 32% proportion would mean that the SPA increase to age 68 would happen 12 years earlier starting around 2028 and the increase to age 69 would happen 14 years earlier starting around 2041.

Given the full rate of the new state pension is about £8,000pa, does the Pension Minister accept that if he arbitrarily changes the proportion to 32% from 33.3% this is equivalent to a one off £8,000 tax on those born since about 1962?


*the Government Actuary Department will come up with the exact rounding to use but the formula is sufficiently precise that the room for error is only about one year

GunJack

^^^^^ good one, bet the answer would include the word "affordability"

atush

chiefie wrote: »

To help people cope with the ever increasing state pension age would the government allow early, but reduced, access to the state pension for those who would in doing so not require other benefit payments ?

The US govt does this with SS payments. You can access them early (62 in my case If want to) for a reduced payment.

SnowMan

Does anybody know what questions were put to the Pensions Minister, and what the responses were?