Budget Autumn 2017 Pension Tax Relief

Anonymous101

I didn't realise that back in 2010 when they increase the minimum age you could draw your pension from 50 to 55 that they did it in such an unsophisticated way.

I suppose the possibility that they'll do similar again should put a greater emphasis on saving through taxed income for those wishing to retire in their 50's or sooner.

Personally I struggle with the idea of paying 40% income tax. I don't see the point in working any harder or longer when after Tax and NI i'm only getting half of what I've earned. Recently I've overcome this through paying more and more into my pension however if either the tax relief on higher rate contributions changes or the minimum age increases it may be that more people decide earning more just to pay more tax isn't working for them.

With an aging population and growing welfare bill its in the governments interest to ensure as many people as possible are saving for retirement and have sufficient funds to see them out. It'll be interesting how they think they can achieve this.

tony4147

Anonymous101 wrote: »

Personally I struggle with the idea of paying 40% income tax. I don't see the point in working any harder or longer when after Tax and NI i'm only getting half of what I've earned. Recently I've overcome this through paying more and more into my pension however if either the tax relief on higher rate contributions changes or the minimum age increases it may be that more people decide earning more just to pay more tax isn't working for them.

With an aging population and growing welfare bill its in the governments interest to ensure as many people as possible are saving for retirement and have sufficient funds to see them out. It'll be interesting how they think they can achieve this.

My thoughts exactly, if the relief were to reduce from 40% down to 30% then I think i would seriously look at stopping paying into a pension and would divert my contributions into something like an ISA wrapper, at least then I would have more flexibility to take my money when I wish and as much as I wish without any tax implications on withdrawals.
The ISA / Pension argument would be much closer than it is now.

robin61

Anonymous101 wrote: »

Personally I struggle with the idea of paying 40% income tax. I don't see the point in working any harder or longer when after Tax and NI i'm only getting half of what I've earned. Recently I've overcome this through paying more and more into my pension however if either the tax relief on higher rate contributions changes or the minimum age increases it may be that more people decide earning more just to pay more tax isn't working for them.

Yes. Some people will change strategy if the rules change. I wonder how many high earners have opted for an earlier retirement because of the lifetime allowance and as a consequence pay less tax and no NI.

Anonymous101

robin61 wrote: »

Yes. Some people will change strategy if the rules change. I wonder how many high earners have opted for an earlier retirement because of the lifetime allowance and as a consequence pay less tax and no NI.

Completely agree. Every individual has to look at their situation and work out the cost vs benefit of either earning more or continuing to work. I often think the government don't give people enough credit for reacting to their policies. There calculations are based on everyone doing the same thing after they've made the same thing less valuable.

Anonymous101

tony4147 wrote: »

My thoughts exactly, if the relief were to reduce from 40% down to 30% then I think i would seriously look at stopping paying into a pension and would divert my contributions into something like an ISA wrapper, at least then I would have more flexibility to take my money when I wish and as much as I wish without any tax implications on withdrawals.
The ISA / Pension argument would be much closer than it is now.

Absolutely, especially as you're taking the risk out of pension planning as much as possible. Once you've earned it its yours and hopefully can't be influenced by policy changes. Of course there are other implications of having large amounts of savings vs pensions but the biggest factor for me is maintaining the flexibility and not being at the whim of government.

If tax relief were to reduce i'd certainly change my strategy. My pension contributions would reduce just to what my company matches and the rest invested into my S&S ISA.

tony4147

Very silly if he plays around with the tax relief, people will change strategy and may go down the SS ISA route, and then people could go out on a whim and purchase a Lambo etc and run out of money.
At least with the pension there are tax implications and people might think twice as to how much they withdraw.
No doubt if anything changes in the budget it will be another plan that hasn't been fully thought through

Malthusian

We can safely assume the rise in the minimum age to take benefits will happen - the only reason it isn't law yet is because there are so many years before there's any need to do the paperwork.

As others have said, last time it was a cliff edge, but most people who have enough money to retire at 50 usually have enough non-pension savings they could spend to bridge the gap. And if you turned 50 before April 2010, you could take your pension via income drawdown, taking tax free cash only and reinvesting the tax free cash in your own name, to avoid losing the chance to do so after April 2010.

Anonymous101

Malthusian wrote: »

We can safely assume the rise in the minimum age to take benefits will happen - the only reason it isn't law yet is because there are so many years before there's any need to do the paperwork.

As others have said, last time it was a cliff edge, but most people who have enough money to retire at 50 usually have enough non-pension savings they could spend to bridge the gap. And if you turned 50 before April 2010, you could take your pension via income drawdown, taking tax free cash only and reinvesting the tax free cash in your own name, to avoid losing the chance to do so after April 2010.

When does the State pension age increase 2028? So 10 years... That should be enough time for anyone with aspirations of retiring at age 55 or shortly afterwards to make plans to save via taxable savings sufficiently to bridge the gap.

The problem is the notice given by government, by the sounds of it at the last increase it was shorter notice even though it had been mentioned previously... and that was a much larger raise. 5 years is a long time to have to work on because you can't get to pension savings you planned to be able to access.

westv

Anonymous101 wrote: »

I didn't realise that back in 2010 when they increase the minimum age you could draw your pension from 50 to 55 that they did it in such an unsophisticated way.

You're sounding a bit like WASPI!

lisyloo

I wonder how many high earners have opted for an earlier retirement because of the lifetime allowance and as a consequence pay less tax and no NI.

This will include people like GPs, dentists.
A bad decision IMO to incentivise people to retire early or disincentivise them from continuing to work if you prefer.