FT - Tories to raid tax relief pensions

Triumph13

The IFS conveniently ignores tax paid by the beneficiaries when they withdraw the money.  There is also an advantage to the exchequer in encouraging people to keep hold of their loot, in the hope of a favourable IHT treatment, in a place where it will be accessible to pay for later life care rather than that burden falling on the state.  
Having said that, I do think there is no sensible reason for the tax free if you die before 75 rule.  I also worry what the country will look like in a few generations in terms of rising inequality between those who have inherited pensions and those who haven't.

DairyQueen

Triumph13 said:

The IFS conveniently ignores tax paid by the beneficiaries when they withdraw the money.  There is also an advantage to the exchequer in encouraging people to keep hold of their loot, in the hope of a favourable IHT treatment, in a place where it will be accessible to pay for later life care rather than that burden falling on the state.  
Having said that, I do think there is no sensible reason for the tax free if you die before 75 rule.  I also worry what the country will look like in a few generations in terms of rising inequality between those who have inherited pensions and those who haven't.

To be fair I think the report mentions that beneficiaries pay income tax if the pension is inherited after the deceased had reached the age of 75.

It isn't just those who will/will not inherit pensions. There are already inequalities between those who have/have not inherited property.

It seems that, over time, pensions will become as much of an issue as property in the residential care debate. The government needs to bite the bullet and address the issue of paying for later life care as a matter of urgency. 

ManMadeWays

That IFS paper pretty much sums up my retirement/IHT planning. Apart from planning to die before 75 of course .

I am however willing to give up HRT Pensions relief in exchange for a decent rise in the LTA.

No vested interest of course

But seriously, the only reason I took my CETV and did all this WAS to give my kids a deposit for housing and a headstart at a pension as housing costs are so high here in SE London, and pension provision by employers struggles to get over 3%, I felt I had to make sacrifices for them.

And with both of us working from the age of 15 1/2 non stop we feel we've paid enough blooming tax and NI thank you very much. Dammit I think I will just go part time for the last few years and reduce my Tax and NI bill by 60% in protest !

Edit: From that IFS Paper

"A relatively small group of very well-off taxpayers already pays a large share of tax, reflecting both the structure of the tax system and the unequal distribution of resources. Income tax payments are highly concentrated, with over a quarter of revenue coming from just 0.6% of the adult population (300,000 individuals with incomes over £150,000 per year) and almost half of revenue coming from 3% of adults  (Ie 1,500,000 !) in 2017–18" 18

18 Source: Tables 2.4 and 2.5 of HMRC Statistics, https://www.gov.uk/government/collections/income-tax-statistics-and-distributions, with population aged 16 or over at 53.5 million in 2017 from table MYE2 of Office for National Statistics, Population Estimates for UK, England and Wales, Scotland and Northern Ireland: Mid-2017,

pip895

A very interesting Quote DairyQueen - The tax free before 75 is clearly in their sites and I must admit I cant see why it was ever thought a good idea.  
I am a little concerned that pensions will be brought inside the estate without removing the taxable element though - that could mean that as little as 36% of the SIPP funds could be usefully passed on - quite unfair to those who did not benefit from the big tax breaks on the way in!  I transferred out of a DB pension and IHT benefits were quite a big part of the equation so I will be a bit miffed if all advantage evaporates.  
On the other hand as it stands neither OH or I are touching our SIPPs - which in a way doesn't make much sense as we are retired and they are supposed to be providing for our retirements...   

Filo25

Times reporting that the plan to restrict higher rate tax relief to 20% has been shelved in the face of opposition from Tory MPs and realisation that it would actually be pretty challenging to implement in a short period of time.

RuleTheWorld

good news.

we can keep this thread for next year

badmemory

As a lot more people have pensions now than did a few years ago, then surely more people are likely to inherit than in the past?  We need to remember that whilst some people had DB pensions many more didn't, especially women.

Amoux

I wasn't expecting higher tax relief to be scrapped. Too many self-serving tories would be up in arms. Instead they are floating the idea of rising fuel duty - that would be a nice way to hit low-to-middle income earners the most. Surprise, surprise. 

It doesn't change the fact that we have a perverse pension system that gives more tax break incentives to those who have more means to fund their retirement. The costs of which are huge and rising year on year. 

Anonymous101

Amoux said:

I wasn't expecting higher tax relief to be scrapped. Too many self-serving tories would be up in arms. Instead they are floating the idea of rising fuel duty - that would be a nice way to hit low-to-middle income earners the most. Surprise, surprise. 

It doesn't change the fact that we have a perverse pension system that gives more tax break incentives to those who have more means to fund their retirement. The costs of which are huge and rising year on year. 

Agree with this post.
As much as personally I wouldn't like the scrapping the relief on the higher rate I do think it would be a much fairer system.

EdSwippet

Amoux said:

It doesn't change the fact that we have a perverse pension system ...

... which is an entirely natural consequence of a perverse tax system that produces extreme tax rates for spikes in income.