A Flat Rate of Tax Relief?

edited 30 November -1 at 1:00AM in Pensions, Annuities & Retirement Planning
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  • michaelsmichaels Forumite
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    So lets assume I was 54 and going to retire at 55.

    I could take 10k income this tax year and receive 6800 net.

    Alternatively I could sal sac 10k+1380k employers contribution all over the AA and pay out £2276 extra income tax from savings

    As of this year I would have £6800 post tax income plus £2276 tax bill less = £9076 cost of sal sac.

    Next year I have £11,380k in my pension pot I can draw down paying 15% tax (25% tfls, the remainder taxed at 20%).

    11380 x 85% = £9673 so I have given up £9076 now for £9673 in 12 months time.

    Does that make sense?
    I think....
  • Triumph13Triumph13 Forumite
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    michaels wrote: »
    So lets assume I was 54 and going to retire at 55.

    I could take 10k income this tax year and receive 6800 net.

    Alternatively I could sal sac 10k+1380k employers contribution all over the AA and pay out £2276 extra income tax from savings

    As of this year I would have £6800 post tax income plus £2276 tax bill less = £9076 cost of sal sac.

    Next year I have £11,380k in my pension pot I can draw down paying 15% tax (25% tfls, the remainder taxed at 20%).

    11380 x 85% = £9673 so I have given up £9076 now for £9673 in 12 months time.

    Does that make sense?
    That does indeed make sense - and gives you a marginally better return than a normal 20% taxpayer without access to sal sac making contributions below the AA!
    I'm in a similar situation with the LTA. Because my employer shares 6% from their NI savings and because I won't be a higher rate tax payer in retirement I end up with an effective tax rate of 36.4% on anything I contribute over the LTA vs 42% if I took it as cash.
  • michaelsmichaels Forumite
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    I can't help noticing that pensions keep being mentioned every time budget revenue increases are mentioned and I can't help thinking that there must be something putting this into the minds of commentators....
    I think....
  • westvwestv Forumite
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    michaels wrote: »
    I can't help noticing that pensions keep being mentioned every time budget revenue increases are mentioned and I can't help thinking that there must be something putting this into the minds of commentators....


    Guesswork and the need to say something.
  • Triumph13Triumph13 Forumite
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    michaels wrote: »
    I can't help noticing that pensions keep being mentioned every time budget revenue increases are mentioned and I can't help thinking that there must be something putting this into the minds of commentators....

    And the fact that rather than write a new article it's much simpler to just reprint what you wrote last year. And the year before. And the one before that...
  • EdSwippetEdSwippet Forumite
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    michaels wrote: »
    I can't help noticing that pensions keep being mentioned every time budget revenue increases are mentioned and I can't help thinking that there must be something putting this into the minds of commentators....
    And from looking at all but one of the budgets of the past decade, the fact that the government believes that there is no policy that cannot be paid for by squeezing pension savers yet again.
  • ex-pat_scotex-pat_scot Forumite
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    Sad to say that I have a feeling this time will be different.
    There seems to have been more of a deliberate effort to reframe HR tax relief on pensions in the summer, into "unfair giveaway to the rich".










    Sadly few people understand pensions, never mind tax relief, and it is easy to misconstrue as some sort of great wheeze for "Tory chums".


    The last few years have been pretty tough on the high earners, in spite of the general press, and there's no sentiment to change that.


    On the other hand, "wealthy" have not been impacted.


    All the tinkering since 2008 has really been on income taxes, not on capital / non income (apart from Stamp Duty).
  • crv1963crv1963 Forumite
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    michaels wrote: »
    I can't help noticing that pensions keep being mentioned every time budget revenue increases are mentioned and I can't help thinking that there must be something putting this into the minds of commentators....

    I think that PH has little room for making any huge changes, the votes in the commons aren't in his favour the DUP threatening to scupper his budget, his own side threatening to do so too. Commentators are just that, he'll put any difficult decisions into the long "post brexit" grass.
    CRV1963- Light bulb moment Sept 15- Planning the great escape- aka retirement!
  • AlexlandAlexland Forumite
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    Part of the game in getting people to quickly accept the proposed budget changes is making people thankful they are not as bad as they were lead to believe they could have been.

    Alex
  • edited 28 October 2018 at 12:52PM
    Filo25Filo25 Forumite
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    edited 28 October 2018 at 12:52PM
    The current specualtion seems to be halving the annual allowance, with maybe pushing the taper to lower incomes as well, although if the AA goes down to 20k and we still taper to 10k it makes the impact more muted anyway.

    If that went through it would pretty much kill any chance of me having a semi comfortable earlyish retirement.

    Looks like I chose a bad time to start earning enough to put more sizeable amounts into my pension, and to get hit with a 62% marginal rate (a change to the taper could even make it worse), might just investigate the possibility of going part time, just doesn't seem worth the hassle to work your backside off when you see so little of the benefit yourself.

    Supposedly also looking at abolishing the carryforward of Annual Allowance, wouldn't be a shock if that was brought in with immediate effect, to avoid people stuffing their pensions this year before the new rules would kick in
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