Brown's £500 NI/tax grab and pensions

EdInvestor

Dithering_Dad wrote: »

they both get the exact same pension

Their SERPS/S2P pension will be higher, though probably most higher-paid people are contracted out and won't get one. S2P is being "flattened out" over the next few decades however, so that the lower-paid, carers etc get more and the higher paid less.

Dithering_Dad

Their SERPS/S2P pension will be higher, though probably most higher-paid people are contracted out and won't get one. S2P is being "flattened out" over the next few decades however, so that the lower-paid, carers etc get more and the higher paid less.

I could be wrong (this government has a real mania for changing tax/NI/pensions) but I thought S2P was capped at earnings up to 30k? So both in the example would receive the same S2P as they are both earning over 30k?

donaldtramp

May be worth noting that once you put money into a pension you can't get it out until you are aged 55 and then only 25%.The rest of the capital eventually gets taken by the life company who pay some of it back to you as income and pocket the rest.:(

I thought there were ways round this by putting pensions in trusts or taking income drawdown instead?? (relatively new to this pensions lark)

Just putting your cash into a pension does not save it from national insurance - just income tax. NI is calculated on your full salary, not salary minus pension contributions.

But I would be opting out of NI contributions and therefor whatever measly amount the government will give me when I'm retiring. I'd rather invest that into a personal pension by opting out of NI contributions altogether. That would be much preferable to me rather than paying another tax(As I see it).

I think it is just another tax. A great amount of public sector pensions are paid direct from Council tax. I was astonished when I found this out. So what's the burden going to be as we deal with the aging population? (But this is a different argument altogether!)

Cheers
DT

donaldtramp

Their SERPS/S2P pension will be higher, though probably most higher-paid people are contracted out and won't get one. S2P is being "flattened out" over the next few decades however, so that the lower-paid, carers etc get more and the higher paid less.

How does this work Edinvestor??

DT

EdInvestor

Dithering_Dad wrote: »

I could be wrong (this government has a real mania for changing tax/NI/pensions) but I thought S2P was capped at earnings up to 30k?

It's a bit higher.

http://chieneandtait.co.uk/pdf/statepension.pdf

Donalt Tramp:

See above for more info on S2P. You don't "opt out" of NI contributions if you decide to contract out of S2P.What happens is the Govt pays rebates into your contracted out pension scheme.

However most people are now advised not to contract out because the rebates are too low to replace the amount you will get if you opt in and anyway contracting out will be abolished for most pensions in 2012.

Some people still prefer to contract out though because it's more flexible when you come to take the pension - you can start at age 55, rather than in late 60s, you can take 25% tax free cash, and in theory you can do income drawdown up to age 75 (though in practice this is not available for small contracted out pensions which are not yet allowed in SIPPs.)After age 75 at this stage either the insurance company or the tax man will confiscate the remains of your drawdown after the second death.

donaldtramp

Very informative edinvestor. Looks like I'll just have to take this new tax grab and lump it.

Thanks Mr Brown!!

jamesd

donaldtramp, it's not as bad as it seems because there is the reduction in the basic rate of tax that offsets the higher NI contributions and the same group of people are the ones who benefit most from that reduced rate. You should really look for one of the 2007 budget calculators to see the combined effect. Still a loss for those between the UEL and higher rate tax but it's less than it seems.

This Scottish Widows article has a nice illustration of the way contracting out rebates increased for those under 52 and decreased, often substantially, for those over 52, between 2006/7 and 2007/8 due to the five year review.