Will The Lifetime Allowance Be Abolished?

michaels

MichelleUK wrote: »

The problem with this though is taxing it on the way out, unless they said that all pensions are taxed at 25% on the way out. Otherwise a 40% taxpayer would pay 15% on the way in and 40% on the way out, totalling 55%, making it all a bit pointless to save for a pension in the first place.

But why do we need to give tax incentives to encourage the richest to save more for a pension, they will be all right regardless, if we are going to give tax breaks surely they should go most to the low and middle income earners who might otherwise be a burden on the state?

Personally I would rather it was the lta that was limited rather than the aa as the aa allows for flexibility for thise who get temporary higher earnings to save the extra in their pension whereas the lts only impacts those who have already benefited considerably from the allowance.

Perhaps there should be a 'maximum amount of pension tax releif' claimable over a lifetime that counts contributions and capital gains and that once the allowance is used there is no further pension tax releif available?

kidmugsy

Thrugelmir wrote: »

How many people pay 40% tax on their retirement income?

I know two who do and a third whom I assume to. Plus more, I dare say, more skilled at keeping their mouths shut.

Come to think of it, all those doctors retiring because their DB pensions were hitting the LTA: they must be in this category too. So add on a few more to my list.

kidmugsy

michaels wrote: »

But why do we need to give tax incentives to encourage the richest to save more for a pension, they will be all right regardless, if we are going to give tax breaks surely they should go most to the low and middle income earners who might otherwise be a burden on the state?

I'm not convinced there's a good case for any pension tax break at all. Tell people they are ruddy adults and they'd better save for their old age.

Every "tax break" is paid for by another taxpayer. Abolish tax breaks and taxpayers will be left with more money to save in a way that suits them.

LadyTC

At the Lta limit then the pension will be worth £50k per year, and many of those will be use to earning significantly more.

But surely its not £50K. There's been so much talk about what the withdrawal rate should be these days and to me 5% seems too high. We use Retireeasy for our planning and in their last newsletter there was an excellent piece about safe withdrawal rates and they were saying that a 4% figure has been used in the States for many years but over here they quoted different research that suggested the correct number should be between 2% and 3% over a 30 year period! If you take 3% then only £30k p.a. would be under the LTA so we are not neccessarily talking about the rich here!

bigadaj

LadyTC wrote: »

At the Lta limit then the pension will be worth £50k per year, and many of those will be use to earning significantly more.

But surely its not £50K. There's been so much talk about what the withdrawal rate should be these days and to me 5% seems too high. We use Retireeasy for our planning and in their last newsletter there was an excellent piece about safe withdrawal rates and they were saying that a 4% figure has been used in the States for many years but over here they quoted different research that suggested the correct number should be between 2% and 3% over a 30 year period! If you take 3% then only £30k p.a. would be under the LTA so we are not neccessarily talking about the rich here!

£50k will be correct for those with public sector db schemes, this is by definition from the rules and the Lta.

For people with DC scheme then it probably translates as £35k, and probably less if the real value wants to be retained.

Triumph13

michaels wrote: »

But why do we need to give tax incentives to encourage the richest to save more for a pension, they will be all right regardless, if we are going to give tax breaks surely they should go most to the low and middle income earners who might otherwise be a burden on the state?

Personally I would rather it was the lta that was limited rather than the aa as the aa allows for flexibility for thise who get temporary higher earnings to save the extra in their pension whereas the lts only impacts those who have already benefited considerably from the allowance.

Perhaps there should be a 'maximum amount of pension tax releif' claimable over a lifetime that counts contributions and capital gains and that once the allowance is used there is no further pension tax releif available?

I agree with you that it doesn't make sense to give large 'tax breaks' to those earning enough to be able to save for their retirement from taxed funds, I don't agree that the LTA is a sensible way to achieve this though. The simplest way to handle people with erratic earnings is to increase the carry forward period. A £20k AA with a 5 or 6 year carry forward would do that job nicely.
As well as scrapping the LTA I would remove DB pensions from the AA regime entirely, but at the same time ban DC contributions for anyone who is also an active member of a DB scheme as these are just an unnecessary extra tax break for people who are already getting excellent pension provision.

peterg1965

I cannot see there being any revolutionary change, in my opinion. The political climate, and the Govt, is too fragile for that. I can see some minor tweaking around pension ‘rules’ but not too much else. Precedent also indicates that a period of consultation is called for before major pensions change, so this could be an option.

Any moves to restrict or radically alter tax relief on contributions are both politically sensitive and also complicated to implement quickly. Mr Hammond needs to find savings and I think the sensible way forward would be to restrict the AA to £30k and what about stopping the ability to ‘carry forward’ AA. I have never really understood why this has not been removed before. It will effect DB pensions, particularly for those who accelerate quickly up pay spines though, but numbers affected will be very small.

I for one, will probably be very close to, or most likely definitely a HRT player in full retirement. I (selfishly) am banking on the Tories keeping their promise to raise the HRT threshold to £50k by 2020, this will help me enormously. Fortuitously for me, my DB pension started in 2015 and was measured against a £1.25M LTA but I am carefully monitoring my SIPP and Company D.C. to keep below the current limit.

I do believe that people of my age/generation (I’m 52) are fortunate and the pensions ‘drawbridge’ seems to be being pulled up right behind us/me.

We will have to wait and see what Wednesday brings, maybe there will be a view hints tomorrow on the Marr show.

fred246

kidmugsy wrote: »

The LTA has arbitrary and nasty knock-on effects, including (it would seem) encouraging a fair few NHS doctors to retire early.

Oh dear no doctors left to run the NHS. Ah well the NHS wasn't working you see. Time for privatisation. That's what the tories are up to. Close down the NHS without having being seen to have done it.

kidmugsy

fred246 wrote: »

Oh dear no doctors left to run the NHS. Ah well the NHS wasn't working you see. Time for privatisation. That's what the tories are up to. Close down the NHS without having being seen to have done it.

Oh, fred, you're being a chump. It's not a plot, it was just George Osborne being a chump too.

In the whole history of the NHS the only government that's cut expenditure in real terms was the Labour government of the late 70s.

Thrugelmir

kidmugsy wrote: »

I know two who do and a third whom I assume to. Plus more, I dare say, more skilled at keeping their mouths shut.

Come to think of it, all those doctors retiring because their DB pensions were hitting the LTA: they must be in this category too. So add on a few more to my list.

That's still a very small % of the population.