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Lib Dums propose capping PCLS at £40k

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  • Why has it take the original poster over three months to advise this info, it was in the press in mid September 2018.

    Probably because it didn't hit the headlines then, either; it's the first I've heard of it as well, and I usually notice stuff like this...
    Conjugating the verb 'to be":
    -o I am humble -o You are attention seeking -o She is Nadine Dorries
  • hugheskevi
    hugheskevi Posts: 4,586 Forumite
    Part of the Furniture 1,000 Posts Photogenic Name Dropper
    The average pension pot depending what publication you read is around £50,000. Therefore the matching 25% tax free amount would be £12,500. It sounds logical to me that their figure of capping the tax free amout to £40,000 would only affect 25% pension pots is a logical assumption.
    The best data source for aggregate pension wealth is the Wealth and Assets Survey.

    Table 6.5 at this link shows the 3rd quartile of total private pension wealth holdings (excluding zero holdings) among individuals aged 55-64 is £270,000.
  • That's an interesting spreadsheet. However if you look at 6.8, pots not yet in payment, your median DC for age 55-64 is £26,200, which is absolutely shocking, as is a 3rd quartile of £78,000! I wonder if the data takes account of the sum of all pots held by an individual? Statistics are a minefield to draw a conclusion from.
  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
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    That's an interesting spreadsheet. However if you look at 6.8, pots not yet in payment, your median DC for age 55-64 is £26,200, which is absolutely shocking, as is a 3rd quartile of £78,000! I wonder if the data takes account of the sum of all pots held by an individual? Statistics are a minefield to draw a conclusion from.

    A generation who have not contributed enough to fund their own retirement. Over 20 years since Mr Brown brought about the closure of many company DB schemes. While auto enrollment hasn't been in force long enough to make any sizable impact. Of course many shunned pensions for the riches offered by BTL. Only time will tell the entire picture.
  • kidmugsy
    kidmugsy Posts: 12,709 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    The Lib Dems propose capping PCLS af £40k ...

    When a cap on the Tax-Free Lump Sum is imposed (and it will be, which is why that nice Mr Brown changed its name to Pension Commencement Lump Sum), it will - I predict - be as part of a major upheaval justified as dealing with financial calamity.

    It would be foolish, mind: the existence of the TFLS is probably about the only advantage of pensions that is known to The Man On The Clapham Omnibus.

    Or, someone subtle could bring it in by the scenic route e.g. freeze the amount of the TFLS while letting the total LTA drift up with inflation. A nice burst of 1970s inflation and Bob's your uncle!
    Free the dunston one next time too.
  • Or, someone subtle

    Not a politician then... :rotfl:

    I'm still waiting for the final push to do away with tax relief and have a flat rate of 33%/20% under the guise of "it's not fair that higher rate tax payers be able to defer their tax, when everyone else can defer their tax as well."

    Which, in subsequent years, will be reduced to 17.5%, 15%, 12.5%, 10%, which all those calling for the former, seem to not realise/conveniently forget the latter....
    Conjugating the verb 'to be":
    -o I am humble -o You are attention seeking -o She is Nadine Dorries
  • dunstonh
    dunstonh Posts: 120,158 Forumite
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    If you look at the cost of pensions to the treasury in lost tax/tax reliefs then the tax-free lump sum is a relatively small hit.

    Tax relief costs £25bn a year
    Salary sacrifice has risen significantly to £16.9bn a year
    Tax free growth within pensions is £7.9 bn a year

    25% tax free cash is estimated to only cost the treasury a little over £2-3bn a year.

    Salary sacrifice has been the biggest growth area as a cost to the treasury. That has grown from a few billion in the 90s to nearly £17bn today. Mostly because of auto-enrolment.


    Currently, tax-free cash is effectively capped to £257,500 (25% of lifetime allowance). So, restricting it further by a monetary amount or withdrawing it altogether would hit those on lower incomes more than those on higher incomes.

    Tax-free cash also benefits the economy. Its hard to measure this but typically it is used heavily for debt reduction and capital purchases. If the 25% TFC was removed, people would just take less as a lump sum and spending could reduce which could then hit the economy and lower tax in there.

    It would also be very unpopular politically. All to raise just several billion targetting lower to medium earners. I suspect the LibDems haven't thought this one through.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • dunstonh wrote: »
    If you look at the cost of pensions to the treasury in lost tax/tax reliefs then the tax-free lump sum is a relatively small hit.

    Tax relief costs £25bn a year
    Salary sacrifice has risen significantly to £16.9bn a year
    Tax free growth within pensions is £7.9 bn a year

    25% tax free cash is estimated to only cost the treasury a little over £2-3bn a year.

    Salary sacrifice has been the biggest growth area as a cost to the treasury. That has grown from a few billion in the 90s to nearly £17bn today. Mostly because of auto-enrolment.


    Currently, tax-free cash is effectively capped to £257,500 (25% of lifetime allowance). So, restricting it further by a monetary amount or withdrawing it altogether would hit those on lower incomes more than those on higher incomes.

    Tax-free cash also benefits the economy. Its hard to measure this but typically it is used heavily for debt reduction and capital purchases. If the 25% TFC was removed, people would just take less as a lump sum and spending could reduce which could then hit the economy and lower tax in there.

    It would also be very unpopular politically. All to raise just several billion targetting lower to medium earners. I suspect the LibDems haven't thought this one through.

    What about people with pension mortgages? Currently on track to pay off mortgage, suddenly a large shortfall. Breach of human rights blah blah blah?
  • hyubh
    hyubh Posts: 3,744 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    I'm still waiting for the final push to do away with tax relief and have a flat rate of 33%/20%

    Encouraging private saving amongst the less well off seems a reasonable policy goal to me.
    Which, in subsequent years, will be reduced to 17.5%, 15%, 12.5%, 10%, which all those calling for the former, seem to not realise/conveniently forget the latter....

    Maybe, maybe not. Taxes can go up and down, and change what they are charged on, over time - relief on pension contributions disappearing completely wouldn't imply the overall tax burden has gone up, it would depend on the wider context (and probably, the particular situation of the individual).
  • The full motion passed at the Lib Dem Conference was -

    Conference notes the proposals in the spokesperson's paper, Promoting a Fairer Distribution of Wealth, and calls for:

    1 - Equalising the tax treatment of income from wealth and income from work by: abolishing the separate capital gains and dividend tax-free allowances and instead taxing these through the income tax personal allowance; aligning capital gains and income tax rates while introducing a basic inflation or "rate of return" allowance; abolishing capital gains forgiveness at death, which creates an incentive to hold on to assets to avoid paying tax.

    2 - Streamlining the taxation of intergenerational transfers by: abolishing inheritance tax and instead taxing recipients at income tax rates and bands of £250,001 to £500,000, £500,001 to £1 million, and above £1 million; ensuring that all transfers - not just those made at or near the giver's death - are subject to tax; giving each person a generous £250,000 lifetime tax-free allowance, and exempting small annual gifts below a specified amount and all transfers to spouses and charities.

    3 - Reforming the current regressive system of pension tax relief by: introducing a flat rate of 25% on pension contributions and abolishing employee National Insurance payments on those contributions, substantially boosting incentives to save among lower earners while reducing relief for higher earners; limiting the current tax-free lump sum people can withdraw from their pension pots from 25% to £40,000, reducing tax relief for the wealthiest pensioners while leaving 75% of drawdowns untouched.

    4 - Making the taxation of residential property fairer by: immediately introducing additional higher bands to make council tax more progressive; reviewing the case for replacing council tax with a simple percentage-based annual property tax based on up-to-date valuations, as is the case in most other developed economies and as recommended by the OECD, Resolution Foundation, IFS and IPPR.

    5 - Revenues from higher wealth taxation to be allocated to a combination of: lower taxes for young people and low earners; increased investment in infrastructure and education; an independent, professionally managed Citizens' Wealth Fund, which by investing in assets would earn an annual rate of return that could be used to boost public spending or be returned to citizens in the form of an annual dividend.
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