Treasury Select Committee on Household finances (inc retirement saving)

jsinc

https://publications.parliament.uk/pa/cm201719/cmselect/cmtreasy/565/56502.htm

Section on Saving for retirement - discussing tax relief, LISAs, self-employed auto enrolment and more:
https://publications.parliament.uk/pa/cm201719/cmselect/cmtreasy/565/56508.htm#_idTextAnchor048

Don't know if their report will make a difference or why Steve Webb remains a go-to authority, but worth a read.

Drp8713

I disagree with a lot of that.

The LISA is a great investment vehicle, it should not be scrapped.

All they need to do is get rid of the 6% penalty and let you contribute until 60 rather than 50 and its perfect.

kidmugsy

"individuals that pay income tax": I see that they've given up demanding a command of English for recruits to the civil service.


"I would scrap all pensions tax relief, including employer NICs rebates. ... I would introduce a bonus structure that is an incentive disconnected from your tax-paying status; I would also bring down the annual allowance from today's £40,000, which is irrelevant to virtually everybody in the country, to a number between £8,000 and £10,000. I would abandon the lifetime allowance as a quid pro quo, because it is essentially manna from heaven for consultants and does not do a great deal for everybody else."

So he's arguing that any taxpayer subsidies to retirement saving should no longer be via pensions but instead by what is effectively a souped-up LISA, with the annual £5k gross replaced by (say) £10k gross (and presumably without a house-buying connection? Or maybe leave that alone?).

Meantime money or rights accrued in existing pensions presumably pootle along, modified only by the scrapping of the silly LTA.

BUT what would happen to existing DB schemes? Presumably they'd get closed to further accruals. I can't see the civil servants and MPs settling happily for that.

There is a rational case for his proposal, though. Why should taxpayer subsidy for retirement saving be related to your income? I go further: why should there be taxpayer subsidy for retirement saving at all?

My own first move, were I an MP, would be to study how it's done in Singapore.

dunstonh

The lifetime allowance on pensions was brought in to combat the golden handshakes given by big companies when getting rid of their directors. They were paying in large amounts to the pension to avoid tax and NI. Initially, only around 50,000 people were captured by the lifetime allowance. Then it took on a new life to start hitting a greater proportion of the public. Often people who are not actually money wealthy but pension wealthy because their scheme was good.

The lifetime allowance/annual allowance situation is completely daft and complicated in its current form.

The LISA is a messy tax wrapper that needs to change. Trying to merge housebuying for first time buyers with a retirement vehicle whilst keeping the amount so low that it is not commercially viable to offer means it does need to change.

EdSwippet

kidmugsy wrote: »

Why should taxpayer subsidy for retirement saving be related to your income?

Because tax rates are progressive, meaning that pension saving is the only current way to smooth lumpy income out over a number of years.

Without smoothing, £120k earned in year 1 and nothing in year 2 is far less worthwhile to an individual than £60k earned in each of two years. Pensions allow these two situations to partially equalise, so that the harder or more productive worker is not demotivated to the point of giving up by confiscatory tax rates.

kidmugsy wrote: »

My own first move, were I an MP, would be to study how it's done in Singapore.

Singapore's top income tax rate is 22%, and the country has no inheritance or capital gains taxes.

I would take that in a heartbeat, but my guess is that you won't be offering that part of things, only the 17% compulsory contribution to a Central Provident Fund.

kidmugsy

EdSwippet wrote: »

Because tax rates are progressive, meaning that pension saving is the only current way to smooth lumpy income out over a number of years.

Without smoothing, £120k earned in year 1 and nothing in year 2 is far less worthwhile to an individual than £60k earned in each of two years.

That's a good argument against income tax being progressive - it's not really a good argument for the taxpayer subsidy on retirement saving being based on income.

If people want a tax system that is progressive overall it might be more sensible to look at consumption/expenditure taxes rather than income tax.

EdSwippet

kidmugsy wrote: »

That's a good argument against income tax being progressive - it's not really a good argument for the taxpayer subsidy on retirement saving being based on income.

Oh, sure. I would certainly take flat pension tax 'relief' in exchange for flat income tax rates any day of the week.

But that is not what is being discussed. Decoupling pension saving tax incentives from actual tax rates and moving to flat pension tax 'relief' alongside current high and progressive income tax rates is just one more disguised and dishonest tax rise for higher earners.

Morphoton

The comment on pension tax relief in the report seems to me to be disingenuous as it implies that most of the tax relief reduces the amount of tax paid by high earners. This is incorrect.
Data from HMRC (2016/17) in the article linked below:
Total pension tax relief £38.6bn. Of which:
£18.0bn Employers - Occupational schemes
£4.6bn Employees - Occupational schemes
£5.1bn Employers - Private Pensions
£2.4bn Employees - Private Pensions
£0.7bn Self Employed
£7.9bn Investment income of pension funds.

Therefore only £7.7bn (20%) is actually employees+self employed tax relief.

https://www.moneymarketing.co.uk/issues/22-march-2018/rachel-vahey-pension-tax-relief-tweaks-start-bite/

jsinc

Drp8713 wrote: »

I disagree with a lot of that.

The LISA is a great investment vehicle, it should not be scrapped.

All they need to do is get rid of the 6% penalty and let you contribute until 60 rather than 50 and its perfect.

Was just posted for info, but my personal opinion is also mixed.

I have a LISA but generally agree with their analysis there. I benefit from tax relief but don't fundamentally agree with Government (the public) offering pension tax relief at all, nor mandated auto-enrolment into private schemes. Assessment of State Pension uprating is complicated but like most social issues think it's a matter of relative prioritisation.

Seabee42

The current tax system for pension contributions is deliberately complicated and could do with some simplification. I am not against everyone in the country having money purchase benefits (if the contributions are reasonable) it would even out the difference between public and private sector but it also does not fit into our benefit system.


Everyone in the country then being able to take all there benefits as cash or be at the mercy of the very many bad companies selling SIPPs at very reasonable cost to make them rich would seem to be a problem stored up.


NB there maybe decent SIPPs out there I seemed to come into contact with the others.

Paul_Herring

§111:

The 20% tax relief is equivalent to a 25% bonus from the Government -- free money.

But, it's not free money. Or a 'bonus from the government.'

It's money you had before the government stuck its hands into your payslip before you received it.,

It's like saying: "because the government didn't tax me on my ablutions this morning, I've saved £100 today..."