Budget 2017

westv

Surprised there isn't a thread yet.
Surely somebody wants to claim an end to the 25% lump sum.

k6chris

OK, I'll bite.......Increase in the 20x multiplier used to value DB pensions as part of the war against the Baby Boomers who got everything for free and who are spending their "generous private pensions" on on cruises and sports cars, whilst the younger, povety stricken, "working generations" can barely afford stale bread....? Reference will be made the LTA of "one million pounds" using an Austin Powers type voice, to make it sound like a huge limit. This change will come into effect 1 day before I plan to retire.

jamesd

Yes, for parity with DC pensions normally used in the private sector the CETV, without under-funding adjustment, should be used to value DB schemes for the Lifetime Allowance.

This would also close the tax loophole where a person would pay the LTA charge if they transferred out but not if they stayed in DC.

Rather than the actual minimal risk nature of DB the Government Actuaries Department used a mixture of investments roughly comparable to a balanced managed fund as part of the calculation of the DB value to use.

However, there's a problem with this approach. The CETV depends on the investments used by the scheme. That can vary from the extremely low risk "future tax revenues" to gilts or equity mixtures. To treat all DB members the same for the same level of guaranteed income some standardised assumed investment mixture would be needed. Given the dominance of the public sector in current DB schemes something along the lines of "future tax revenues" risk should be used to avoid favouring those in private sector schemes with a lower value.

Protests from groups such as doctors should be expected, since they would then be subject to the same large LTA charges that those in DC schemes at similar income levels face to purchase the same level of guaranteed benefits. The cost of removing their DB tax subsidy could easily be hundreds of thousands of Pounds. Of course the real issue there is just that the LTA is now too low and catches even those who want a relatively modest £25,000 a year guaranteed income (assuming a high 2.5% annuity rate).

bowlhead99

westv wrote: »

Surprised there isn't a thread yet.
Surely somebody wants to claim an end to the 25% lump sum.

Don't forget eliminating 40% tax relief on pension contributions.

That's been 'speculated' about most years since I've been on this site (a decade plus). Make sure you max it out this year because it could be the last chance you ever have! It must be true because investment firms are recommending you load up a SIPP with them now!

[yes I know the allowance has come down from £200k to £40k and even lower for the fewer than 1% who have over £150k of salaries ; but the scaremongering is always directed at the mainstream users of the site - they have been warned of an potential adverse change, and then entirely unaffected, every year that I can remember being on here]

jerrysimon

k6chris wrote: »

OK, I'll bite.......Increase in the 20x multiplier used to value DB pensions as part of the war against the Baby Boomers who got everything for free and who are spending their "generous private pensions" on on cruises and sports cars, whilst the younger, povety stricken, "working generations" can barely afford stale bread....?

I will bite too. Born 1960 and have a public sector DB pension but I doubt it will stretch to cruises and sports cars, not that I would want either of those.

Always been in the public sector, whilst I have watched others go out to the private sector to get company cars and increase their salaries by 50% or more.

I appreciate the tide has changed re pensions and private sector salaries, but I chose to remain in the public sector for the long hall, because of the poetential benefit of a DB pension.

Jerry

ex-pat_scot

We can argue the detail, and I certainly will, but the headline message will undoubtedly be the direction of travel. Pensions, in their traditional guises, are seen as ripe for the picking at the moment. The government wants tax revenues today, not many years in the future, and current approach to pensions saving defers this tax revenue for them.


It's typical short-term thinking, but nevertheless the government is still trying to look for ever more inventive ways of finding sources of revenue without raising the headline rate of income tax.
As such, I expect this and future budgets to be broadly trimming back on the features and benefits of pension saving.


In no particular order, I expect:
- a discussion on flat rate relief. (not its introduction yet. That's for next year)
- no indexation of allowances or limits
- promotion of the LISA and ISAs as savings vehicles






The things they should be tackling are some of the inherent unfairnesses in the system. These are legion, but include:
- high marginal rates of tax (eg withdrawal of personal allowance at £100,000)
- taxing families as a family unit, rather than as individuals. THis means that families are free to divide their labour without having to forego personal allowances
- combining the income tax and NI into a more honest tax charge
- doing away with the "NI stamp". NI has not been hypothecated for pensions and health for decades, so we should move away from any pretence that it (NI) is ringfenced for these purposes.
- making it easier for low earners to earn entitlement to the state pension
- commit to indexing tax thresholds in future
- get rid of LTA if we are keeping the Annual Allowance. LTA encourages wrong behaviour (discourages saving early on, for continuing to work when pot exceeds LTA etc)
- set up a UK DC scheme (similar to Netherlands) - where massive economies of scale can help maximise returns and minimise costs
- move all public sector gradually onto DC (funded) schemes. This would be controversial (just a bit), but would encourage transparency. At the moment there is a plethora of fudges with unfunded schemes, uncosted future government obligations etc.
- remove the AA restriction for high earners. It is hugely complex and nothing more than a clear attack on the wealthy, without any rationale.
- allow higher (or unrestricted) pension contributions in the 3 years before retirement. This is the time that people traditionally would maximise their pension contributions, when their other financial obligations (family, mortgage) gradually decrease, but the AA now restricts that ability
- stop messing about with minimum retirement ages. If someone has sufficient to retire, then why force them to continue until some arbitrary date? If there is the risk of premature depletion of retirement funds (and frankly the 25% PCLS would be a prime candidate for such an accusation), then a mechanism could be put in place to manage this.
- State Pension Inequality. Needs sorting. We need a clear mechanical calculation, transparent, that links SPA to longevity / mortality statistics for the UK (eg "33% of your expected life will be spent in retirement, therefore your SPA is 68" or whatever). We need to set clear principles around how this process is set and reviewed.
Don't differentiate between sexes. Don't geographically segregate.
- tax statements. We are now "customers" apparently. Or "clients" or some such, of the state. I would very much like one clear statement each year from the government, delivered via HMRC, that states the following:
1. THANK YOU FOR PAYING TAX of £xx. It might seem trivial, but it would be a huge cultural move to recognise the contributions of those of us who are paying in to the system.
2. It needs to clearly state how much state income has been generated by your activity, ie including tax, ers and ees NIC.
3. A statement of where it is being spent. (they'd never disclose this though!)
4. a confirmation of the achievement of another year's pension entitlement ("NI stamp")
5. a reminder of projected SPA
6. a summary of the number of years' accumulated state pension achieved, with a projection of future accrual and what that would provide overall at SPA.
7. links to FSCS, MAS, TPAS etc for futher information, support, calculators etc.


(all the above information exists and is held by HMRC. it is only the political will that is missing to enable it).
WHilst a lot of the above information can be obtained from .gov sites, it is a powerful message to provide it all in one place alongside the annual calculation of tax and tax code. That way, noone can complain that they did not know their retirement age etc...

Carolinemjs

What is the likelihood of there being any change to deferred pensions?
Should I do this before the budget in order get the current benefit?

xylophone

but I chose to remain in the public sector for the long hall ,

You like a bit of exercise on the way to your office?:)

jamesd

It's unlikely that anything will change for deferred pensions. It's unlikely that there will be much that hasn't already been announced.

marlot

If the chancellor is sensible, he'll recognise that the civil service and employers have enough to do coping with Brexit. A rational approach would be to change almost nothing.

Scrapping the LTA gets my vote - I know several GPs who are planning to retire imminently as they are up to the LTA and feel they may as well go.

jamesd

jerrysimon wrote: »

I will bite too. Born 1960 and have a public sector DB pension but I doubt it will stretch to cruises and sports cars, not that I would want either of those.

Always been in the public sector, whilst I have watched others go out to the private sector to get company cars and increase their salaries by 50% or more.

I appreciate the tide has changed re pensions and private sector salaries, but I chose to remain in the public sector for the long hall, because of the poetential benefit of a DB pension

A good argument for eliminating defined benefit pensions in the public sector, just as has largely now happened in the private sector.

One policy objective of the recent public sector pension changes was to improve the ease of movement between public and private sector. While career average helps with that a fair bit the difference between DC and DB remains huge.

One thing neither you, those in private sector DB nor those in DC can really have planned for is the massive LTA tax differential between the two when the LTA was introduced and then cut to affect guaranteed income levels even below £25k a year, but only for DC at that low level, it's £50k for DB.