Pension taper - what next?

kidmugsy

Surely employers should be able to come up with some alternative method of reward that avoids, or at least reduces, these problems. Or maybe they entrust such stuff to HR departments, which might explain a lot.

strickersuk

The taper allowance is one of the most stupid tax laws ever invented. I've just had a part time request turned down by my employer, if I keep working full-time then my limit will be £31k this year and around £28k next. My only other options are to leave or to quit my training position to get back below the threshold/adjusted incomes.

OJ32

Just re-awakening an old thread as the taper now means £4k per year rather than £10k!

Cus

Yes but it's a much higher yearly earnings now to hit this. If you are earning more than the £320k roughly a year that takes you to a £4k taper, then fill your ISA's, VCT's and other tax beneficial savings like wife pension, pay off the mortgage maybe.  If you continue to earn this amount for many years then the lack off tax relief for pensions won't be an issue when you retire..

r2i

If you're affected with newer threshold allowance (>312k taxable income =4k AA), then unfortunately you have only few options left such as ISA, LISA, VCT, & EIS
Could you ask your employer to give you company shares in kind and take reduced income ? I'm unsure but experts will guide you here. Could you go for any salary sacrifice schemes at work to reduce income below 300k to increase AA? 

OJ32

Cus said:

Yes but it's a much higher yearly earnings now to hit this. If you are earning more than the £320k roughly a year that takes you to a £4k taper, then fill your ISA's, VCT's and other tax beneficial savings like wife pension, pay off the mortgage maybe.  If you continue to earn this amount for many years then the lack off tax relief for pensions won't be an issue when you retire..

As I said in my first post in this thread this is obviously a nice problem to have but it is also an illogical problem. I can understand why the government brought the £40k cap in (ie to generate more tax than when you were allowed to contribute £255k per year which was clearly a lot and must have been costing a fortune to the government in reduced tax take) but why taper it down  below the cap. Is it not fairer and simpler to police to allow all high earners to save up to the same amount and shield the same amount in tax. The taper creates the perverse outcomes mentioned by StrickersUK above and my understanding is the reason it was changed again was to stop consultant doctors from being hit by it and just retiring. 

There must be far more people earning between £150k and £240k than there are earning more than £240k. Why not just make the cap say £39k instead of £40k and get rid of the taper. Hitting far more (still high earning) people for the tax on an extra £1k would probably cover the taper take, simplify the system and get rid of the perverse intensives. 

Alternatively make the lifetime allowance a cap on how much tax can saved by making contributions in to a pension over a lifetime rather than a tax on outcomes at the end of the saving period. That way everyone has the chance to save the same amount of tax. A low earner may not get the chance to save as much in any one year but equally they would use up less of their total allowance each year because they save at a lower marginal tax rate. A high earning younger person would use up their whole allowance quickly and then not be able to save any more for the rest of their life.  Ultimately both people would have the possibility of saving the same amount into their pension and high earners would no longer get more benefit from the pension system than everyone else.

As it stands someone earning a flat £240k per year for 40 years can contribute £1.6m to their pension saving £720k in tax but someone earning a flat £320k can only contribute £160k saving £72k in tax. 

Cus

Most experts agree that the taper and the LTA is unfair, but of course it hits a section of society that most people won't have sympathy for.
A flat tax relief rate for everyone, the same cap on the amount of contributions for everyone and remove the LTA please.  Sounds easy, but isn't.

jamesd

I'm not sure that most experts would agree. The taper is to direct pension tax relief to the lower earning parts of society, entirely in keeping with usual government policy. The lifetime allowance seems less fair because it adds tax to the benefits of pension contributions made long ago.

NottinghamKnight

Won't be much sympathy for those earning well into six figures having to pay a little (more) tax. There are other options for such individuals to shelter from tax if they are so motivated after all.