MSE Poll: Should pension tax relief be halved to 20% for higher earners?

Former_MSE_Karl

Poll started 17 October 2017

Should pension tax relief be halved to 20% for higher earners?

Pensions are a powerful tax break – allowing and encouraging people to save for retirement from PRE-TAX salary – at a cost to the Treasury of an estimated £35bn/yr. In simple terms…

For each £100 saved it only costs a…

- Basic 20% rate taxpayer (salaries c. £11,500+) £80 from their pay packet
- Higher 40% rate taxpayer (salaries c. £45,000+) £60 from their pay packet
- Top 45% rate taxpayer (salaries c. £150,000+) £55 from their pay packet

Some argue this is fair as everyone simply saves on paying income tax, others say higher earners do better as their tax gain is at least double. One idea mooted for the Autumn Budget is everyone just gets a 20% tax break, ie, a cut for higher earners, and a saving to the Treasury of over £10bn/yr.

Do you think pension tax relief should be cut for higher rate taxpayers?

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tgroom57

MSE_Karl wrote: »

Should pension tax relief be halved to 20% for higher earners?

No. Previous governments have butchered the State pension system with the result that for any kind of pension -including any certainty as to when you might actually receive it- you are now all advised to get your own.

So no. This idea of DIY pensions still hasn't taken off yet - vis the TV commercials of everyone ignoring the Pension thing, and to start taking it apart before it's taken hold surely spells doom.

I have no problem with higher rate tax-payers getting a better deal - when they come to draw pension they will surely pay tax on it still, besides never living long enough to spend the pot. Meantime, their pension savings are surely the only investment money powering the economy.

I'd leave things as they are. I'd like to draw a line in the sand in that the govt of the day can (and did) mess around all they like with the State Pension, but not with the DIY pensions. But I think pension tax relief will eventually go the way of mortgage interest tax relief.

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funguy

No - we should be encouraging people to save for their pensions. It is already taxed when collected so you cannot tax it twice! If taxed at 20% on way in, it should not be taxed when received on the way out...

Lorian

No. people should be encouraged to save for their pensions.

And if they do change it, it will be political suicide for the Tory party.

ic

Nope leave as. The system is fair, I'll be proud to pay tax to the grave if I've saved enough to achieve that!

pollypenny

20% for all seems fair. After all pension income will be taxed in most cases.

batrachophagus

As far as I know, for a tax return things are either allowable deductions or not.


I would be a 40% tax payer if I didn't fund my pension. Because I do my income drops below the 40% threshold and I pay 20%. How would 20% relief work?


e.g. Salary £50k, Pension £10k, Taxable £40k - £11.5k Personal allowance = £5.7k Tax

Kavajo

No - higher rate payers are already penalised too much. They lose the personal allowance completely and there is a child benefit charge. It would be more to the point to smooth out the burden so that there are no income bands where tax payers face an extremely high marginal rate for any increase in income. And don't forget there is another 2% for National Insurance.

batrachophagus

pollypenny wrote: »

20% for all seems fair. After all pension income will be taxed in most cases.

A pension is simply deferred salary - if you want to part tax it on the way in, you should part tax on the way out as well, and have destroyed the basic premise of pensions in the process.


Sounds like it could introduce another tax cliff-edge* like married couples allowance, removal of child benefit, and withdrawal of personal allowance.


* e.g. someone using married couples allowance earning £45,001 owns £230 more tax than someone earning £45,000 i.e. has to pay 23,000% on the last £1 earned (known as the "marginal rate").

batrachophagus

Kavajo wrote: »

No - higher rate payers are already penalised too much. They lose the personal allowance completely and there is a child benefit charge. It would be more to the point to smooth out the burden so that there are no income bands where tax payers face an extremely high marginal rate for any increase in income. And don't forget there is another 2% for National Insurance.

You may be thinking of Top rate payers (currently 45%). Higher refers to 40% tax-payers and so starts at £45k this tax year, well below the personal allowance cliff-edge.


It isn't an additional 2% National Insurance (unless you mean the historic SERPS change). NICs drop from 12% to 2% for income above 45k for employed people.


I entirely agree about high marginal rates.

brendon

Pensions are not "tax-free" as many people seem to think. You pay tax on the way out, since a pension is to provide income post-retirement. It makes sense that INCOME tax is used to tax income! In this sense, the pension "tax relief" is no relief at all - it is just putting a higher or additional rate taxpayer in a fair position.

It makes as much sense as moving tax relief for basic rate taxpayers to below the personal allowance (i.e. 0% relief). Most people would agree this is illogical.