Sigh. CPS's Michael Johnson's pre-budget pension reform calls. Again.

EdSwippet

MK62 wrote: »

It's probably in the interests of anyone not receiving higher rate pension tax relief ...

Not really. The report's proposed 'remedy' at the top of page 7 is a 'bonus' rate of 25% capped at £2,500. This is exactly equivalent to the current 20% tax relief on a £10k annual allowance. So basic rate taxpayers below or at this level will gain nothing.

However... basic rate taxpayers wanting to put anything more into a pension, perhaps from a bonus or layoff package, will lose out. Basic rate taxpayers in salary sacrifice schemes will lose out -- they may be currently getting an effective 32% tax (plus NI) relief rate on pension contributions. And of course, higher rate, additional rate, and effective 60% rate taxpayers will lose out by progressively larger degrees.

I can't see any real new incentive to save in this. I can however see several pretty large new disincentives to saving for retirement for many people in it, though.

Bimbly

westv wrote: »

Centre for Policy Studies apparently.

Thanks Westv! I immediately thought Crown Prosecution Service. So I did a google and Google thought so too.

We now return you to your scheduled debate...

Snakey

This question is only semi-related but, does anybody who works in/with the industry happen to know, how much of a lead time would be required in order for companies and pension funds (and their software providers, if not in-house) to change their systems to cope with e.g. a flat-rate relief applied to employer and employee contributions alike (which I assume is what a rule change would need to look like in order to be workable - not much point if people can avoid it wholesale by switching to a salary sacrifice scheme)?

Suppose something got announced in the Autumn Statement, for instance, with legislation presumably following later this year/early next year. When would it realistically be brought in?

MK62

EdSwippet wrote: »

Not really. The report's proposed 'remedy' at the top of page 7 is a 'bonus' rate of 25% capped at £2,500. This is exactly equivalent to the current 20% tax relief on a £10k annual allowance. So basic rate taxpayers below or at this level will gain nothing.

However... basic rate taxpayers wanting to put anything more into a pension, perhaps from a bonus or layoff package, will lose out. Basic rate taxpayers in salary sacrifice schemes will lose out -- they may be currently getting an effective 32% tax (plus NI) relief rate on pension contributions. And of course, higher rate, additional rate, and effective 60% rate taxpayers will lose out by progressively larger degrees.

I can't see any real new incentive to save in this. I can however see several pretty large new disincentives to saving for retirement for many people in it, though.

Clearly the 25% flat rate bonus on £10k isn't going to fly (nor I think would any proposal where there are no winners), but he did also suggest 50% on the first £2k and 25% on the rest (the bonus being limited to £2500pa with unused bonus being able to be carried forward for 10 years).
That would mean a bonus of £2.5k on an £8k contribution - quite a lot of winners there.

That's a bonus rate of 31.25%....equivalent to tax relief at 23.8% on a £10500 gross contribution.
On a more conservative £4k contribution, the bonus would be £1500....equivalent to tax relief at 27.3% on a £5500 gross contribution.
On a £2k contribution the bonus would be £1000, equivalent to tax relief at 33.3% on a £3000 gross contribution

On the flip side though, there would of course be losers.....

232607

MK62 wrote: »

It's probably in the interests of anyone not receiving higher rate pension tax relief, or those not putting more than about £12500pa into their pensions.......as their relief, or "bonus" might well increase.....I suspect that's a large majority of the population too tbh.

I don't particularly agree with some of his proposals, but I think he has a point about the current pension contribution tax relief system not really doing what it's supposed to.
Higher rate relief and NI avoidance in the form of salary sacrifice arrangements are things which probably should be "visited" by the chancellor - using that as an excuse for a massive tax grab should be ruled out, but it should be looked at before any rate increases in income tax, NI, or VAT are considered.....

Just saying....

I have to agree that Sal sac is the big one for me. It stands out as not being right.
I have a lot of work colleagues on about £50K who put themselves on NMW as they approach retirement & live off savings thus avoiding tax & most of NI.
I'm currently "filling my boots" whilst it's still there but if this was a tactic used by multi nationals or multi millionaires they'd be uproar and the Daily Mail would be advocating a flogging.
It's not even as though it's available to the lesser off as they're either on or around NMW. It's pretty much the reserve of the middle class.

LHW99

IMO the lifetime allowance is unhelpful in addition to the annual allowance. It just tends to penalise people who have invested well / luckily and discourages the higher paid from working beyond 55

michaels

232607 wrote: »

I have to agree that Sal sac is the big one for me. It stands out as not being right.
I have a lot of work colleagues on about £50K who put themselves on NMW as they approach retirement & live off savings thus avoiding tax & most of NI.
I'm currently "filling my boots" whilst it's still there but if this was a tactic used by multi nationals or multi millionaires they'd be uproar and the Daily Mail would be advocating a flogging.
It's not even as though it's available to the lesser off as they're either on or around NMW. It's pretty much the reserve of the middle class.

The only thing being, apart from the tfls, most of these contributions will almost certainly be taxed at 20% on drawdown, the same as the tax saved on the way in so it is mostly income tax deferred rather than avoided. The ni is of course avoided but that is only 12%.

kidmugsy

michaels wrote: »

The only thing being, apart from the tfls, most of these contributions will almost certainly be taxed at 20% on drawdown

You are an optimist. I expect that basic rate will be at least 25% in the next dozen years - though there will doubtless be some relabelling to try to disguise the fact.

Malthusian

kidmugsy wrote: »

You are an optimist. I expect that basic rate will be at least 25% in the next dozen years - though there will doubtless be some relabelling to try to disguise the fact.

Merger of national insurance and income tax anyone? Reduce income tax for those of working age, increase tax on pension income. Sell it to the media as intergenerational fairness.

Conventionally it would be politically unthinkable, but a hypothetical Corbyn government would be able to push it through; they wouldn't be worried about losing grey votes as they wouldn't have any. And on the other hand, a post-May Tory Government would be able to push it through. they wouldn't be worried about losing grey votes as they aren't going to vote for Corbyn.

Joey_Soap

Being a simple soul, is it not at least partly true also that younger people entering the work force simply cannot afford to pay as much into pensions? With a decade of zero pay increases, creeping inflation, stealth taxation, record house price to salary ratio, student loans, demise of defined benefit plans, etc etc..... You don't have to be a brain surgeon to understand why pension saving is not where it should be.