A Flat Rate of Tax Relief?

edited 30 November -1 at 1:00AM in Pensions, Annuities & Retirement Planning
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  • edited 13 October 2018 at 11:09PM
    ThrugelmirThrugelmir Forumite
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    edited 13 October 2018 at 11:09PM
    Issue for me is that all recent changes have disproportionately impacted dc savers where db get a softer ride

    Paying full rate employees national insurance contributions plus increased employee pension contributions. While receiving 1% pay rises. That's enough to chew on for a while. Takes time to digest.

    Employers are likewise having to fund scheme deficits from contributions on current employees. This money comes out of other budgets. There's a squeeze being applied. That isn't neccessarily visible.
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  • hugheskevihugheskevi Forumite
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    Paying full rate employees national insurance contributions plus increased employee pension contributions. While receiving 1% pay rises. That's enough to chew on for a while. Takes time to digest.
    The Annual Allowance has also hit higher earners in the public sector hard, particularly in conjunction with the post-2015 public service pension schemes. The Annual Allowance use of factor 16 makes no differentiation for the normal pension age, so members with normal pension ages of 65-68 have their pension valued as being worth the same as if it were paid at age 60 (the factor 16 having originally been based on analysis assuming the pension started at age 59).

    It is common to see younger (typically early to mid 40s) public sector employees having an Annual Allowance charge with their pension calculated as being worth 16 times the increase in annual pension, to then be offered Scheme Pays to pay the charge, but at a rate below 10 times the increase in annual pension when it comes to paying the charge (effectively doubling the charge if using Scheme Pays, or paying out of post tax income if paying HMRC direct).

    Due to the policy of abatement in the public sector, it is commonly not viable to stay in employment and commence pension early (as you may well do with a DC pension, crystallising to avoid LTA charge on future growth) unless hours are reduced. In many of the jobs affected by Lifetime Allowance considerations, part-time working is not viable due to the seniority level. So whereas the LTA gives a strong incentive to commence pension early, abatement prevents that in many cases in public sector, unless also leaving employment.
  • edited 14 October 2018 at 8:06AM
    chucknorrischucknorris Forumite
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    edited 14 October 2018 at 8:06AM
    triplea35 wrote: »
    https://www.bestinvest.co.uk/news/autumn-budget-pension-tax-relief-cut

    Having just read this article just wondering what people's views are on a possible flat rate of tax relief, possibly 30%. Is the article pure speculation?

    As a basic rate tax payer it seems fair to me. I may delay making this years lump sum contribution.

    It will be the end of future SIPP contributions from me, what is point of getting 30% tax relief when investing, but paying 40% (which I would be) when taking the pension out? OK the tax free lump sum (TFLS) would make it equal, but I might as well forget about pension and just simply invest. Tax free dividend income wouldn't be enough to encourage me to invest within a pension wrapper, there is also the risk that the TFLS might be removed or reduced at some point in the future.
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  • SterlingtimesSterlingtimes Forumite
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    It will be the end of future SIPP contributions from me, what is point of getting 30% tax relief when investing, but paying 40% (which I would be) when taking the pension out? OK the tax free lump sum (TFLS) would make it equal, but I might as well forget about pension and just simply invest. Tax free dividend income wouldn't be enough to encourage me to invest within a pension wrapper, there is also the risk that the TFLS might be removed or reduced at some point in the future.

    I understand this logic, but there is a capital gain to be made on the 30% even though it will be taxed later. There is also the possible benefit of tax-free inheritence of the pension where the pension owner dies before the age of 75.
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  • kidmugsykidmugsy Forumite
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    There is also the possible benefit of tax-free inheritence of the pension where the pension owner dies before the age of 75.

    That must surely be for the chop in the next few years.
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  • shinytopshinytop Forumite
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    So if something like this happens any views on timing? Immediate? From next FY? Would carry forward still apply? Or, putting it another way, should I be topping up the last 3 years now or can I wait until after the budget?
  • SnakeySnakey Forumite
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    A flat rate? No way could they get that all sorted out and ready to go overnight, even if they've been writing the legislation in secret.

    Even with "only" an AA change it's unlikely that they would tweak it halfway through the year as that would make it effectively retrospective in some cases - suppose you'd put in £40k on 6 April. They could split the year into a "before" and "after" although I can't see why they would want to (unless they were abolishing carry-forward, but I haven't heard anyone suggesting that will happen).

    Something as simple as an AA reduction could be brought in from next 6 April.

    I'm not rushing to do anything pension-related before the Budget.
  • atushatush Forumite
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    So Phil H says that pension tax relief is too onerous for him.

    So instead of messing about with LTA, and AA etc- the 2 birds with one stone approach is to disallow Salary sacrifice.

    More income tax, more national insurance.
  • michaelsmichaels Forumite
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    atush wrote: »
    So Phil H says that pension tax relief is too onerous for him.

    So instead of messing about with LTA, and AA etc- the 2 birds with one stone approach is to disallow Salary sacrifice.

    More income tax, more national insurance.

    But what of DB - do you just continue to value contributions as being worth much less than it would cost to buy an equivalent annuity?! Would that lead to providers being clever with products that claim to be DB when they are really DC to help people avoid tax?
    I think....
  • Triumph13Triumph13 Forumite
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    atush wrote: »
    So Phil H says that pension tax relief is too onerous for him.

    So instead of messing about with LTA, and AA etc- the 2 birds with one stone approach is to disallow Salary sacrifice.

    More income tax, more national insurance.

    Good luck coming up with a workable definition of salary sacrifice as distinct from ordinary employer's contributions.
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