FT - Tories to raid tax relief pensions

LHW99

Amoux said:

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 

Although fuel tax has been frozen since c. 2012, and prices are down a bit currently, so less of a hit than it could be. Also, with more electric cars, the total fuel duty take must be going down.

Paul_Herring

Also, with more electric cars, the total fuel duty take must be going down.

An extra tax on electric to power all those cars can't be much further down the, <koff>, road....

Amoux

EdSwippet said:

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

No it is not. Firstly the tax system may not be perfect but it is not perverse. People might disagree with the details of tax bands or rates, but it currently works exactly as intended in the sense that those who earn more pay more into the system. A concept which most people would agree with and believe to be fair. 

The pension system however is the complete opposite and is unprogressive. It gives higher tax breaks to those who earn more and have more means. More incentives to those who don't need it as much. 

MK62

I agree - pension tax relief is meant to encourage pension saving......fair enough.....but higher rate pension tax relief's main purpose now seems to be the avoidance of higher rate tax. 
I accept that higher rate tax payers wouldn't exactly be enthusiastic about losing higher rate tax relief, nobody wants to pay more tax - but more progressive measures are long overdue imho - should the government really be giving more tax relief to the better off? Should someone on £80k pa pay the same tax (and possibly NI too) as someone on £44k, simply because they shove 10x more into their pension?.........it won't be next tax year now, but eventually.......

Paul_Herring

but more progressive measures are long overdue imho - should the government really be giving more tax relief to the better off

It's not tax relief, it's tax deferral.

Should it cost more for 40%ers to put a quid into a pension than a 20%er? Currently it costs both £1 to put £1 in. Are you suggesting it should cost the 40% taxpayer more than £1 to put  £1 in?

EdSwippet

Amoux said:

EdSwippet said:

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

No it is not. Firstly the tax system may not be perfect but it is not perverse. People might disagree with the details of tax bands or rates, but it currently works exactly as intended in the sense that those who earn more pay more into the system. A concept which most people would agree with and believe to be fair. 

The pension system however is the complete opposite and is unprogressive. It gives higher tax breaks to those who earn more and have more means. More incentives to those who don't need it as much. 

Earlier in this thread, I pointed out that pension contributions are the only way for an earner to smooth out a bumpy earnings profile over a number of years, so as to achieve parity with a more plodding steady earner:

I look forward to hearing your argument for why somebody on a variable income, say £0 in year one and £100k in year two, should be forced to pay a much higher total tax bill that someone on a steady income of £50k in years one and two. Because as of now, the only way to balance these two out in the UK tax system is to use a pension.

I am still waiting for you to answer this.

Amoux

I look forward to hearing your argument for why somebody on a variable income, say £0 in year one and £100k in year two, should be forced to pay a much higher total tax bill that someone on a steady income of £50k in years one and two. Because as of now, the only way to balance these two out in the UK tax system is to use a pension.

I am still waiting for you to answer this.

I think it is perfectly justifiable. We have tax years and everyone is entitled to personal allowance each year. For one, it keeps things simple for the vast majority of people. No one is treated differently on this point. If you have literally no income in year 1 you have knowingly forfeited your personal allowance and a years worth of income in which you are assessed.

The tax system is not there to smooth out peoples bumpy earnings, and the pension system is not designed for that purpose either. Giving an extreme example is not in any way justifiable why higher rate tax payers should have more pension incentives, particulart when the main thrust of pensions is to avoid people becoming reliant on means-tested benefits in their retirement.

Paul_Herring

and the pension system is not designed for that purpose either.

It's designed to spread earnings from years when you're actually earning over to the years when you're retired and not earning. In order to do so, it taxes you on when you actually get those earnings at the prevailing rate, instead of when you're earning them.

EdSwippet

Amoux said:

I look forward to hearing your argument for why somebody on a variable income, say £0 in year one and £100k in year two, should be forced to pay a much higher total tax bill that someone on a steady income of £50k in years one and two. Because as of now, the only way to balance these two out in the UK tax system is to use a pension.

I am still waiting for you to answer this.

I think it is perfectly justifiable. We have tax years and everyone is entitled to personal allowance each year. For one, it keeps things simple for the vast majority of people. No one is treated differently on this point. If you have literally no income in year 1 you have knowingly forfeited your personal allowance and a years worth of income in which you are assessed.

The tax system is not there to smooth out peoples bumpy earnings, and the pension system is not designed for that purpose either. Giving an extreme example is not in any way justifiable why higher rate tax payers should have more pension incentives, particulart when the main thrust of pensions is to avoid people becoming reliant on means-tested benefits in their retirement.

Except this isn't a particularly extreme example. How about entrepreneurs, who may spend several years at low or zero salaries to build up a business that will later bring them a higher income?

A progressive tax system without the 'escape valve' of pensions for smoothing income will make it much more worthwhile for these folk to instead buckle down into a safe (government pensioned?) job, rather than create companies that will ultimately employ others and grow the country's economy.

If you aren't one of the folk gaining 40% or higher tax rate deferral on your own pension contributions, instead of whining that others are, maybe consider working more or gaining a promotion so that you too can then spread your higher lifetime tax over more years than is otherwise possible.

crv1963

badmemory said:

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.

I don't think that there a large numbers of large pots around to be inherited. I read this article in the Guardian- https://www.theguardian.com/money/2019/sep/28/uk-pensions-saving-retirement also I spoke with my NHS trust Pension Officer who told me in her experience the vast majority of NHS Pensions (DB) she deals with at the point of retirement are in the range of 4.5-5.5k. 

Too many pension savers don't think about them they just think box ticked, job done. When my wife and her colleagues were auto- enrolled one said to her "Brilliant I'll have a ball when I retire" to which my wife replied "Maybe you'll be able to get a couple of Costa coffees a month" poor woman thought starting at 50 paying in 5% was going to give her a champagne lifestyle at 67. When my wife told her that she had a SIPP and we were now paying 20% into it as well as auto enroll and were looking hard at upping this, as it still isn't enough saved, she was incredulous!

NHS Pension Officer also told me "vast numbers" of younger (under 30) staff especially females opt out because they simply don't believe that they need to save into it until their late 30s as they need to repay student loans, save a house deposit or as one told her- "What I pay into the pension would pay for my nails to be done each month and so I am leaving it!".

The lack of 1) interest and 2) understanding about it all is frightening, forum members are a tiny, tiny number. I don't know what the solution is.

Regarding the next budget I expect LTA to be raised significantly to provide headlines to show that the Tories are trying to tackle the Doctors difficulties in particular, the ethos will still be to encourage pension saving as a means to reduce the burden on the state as people age and have to pay towards their care. This time at this stage in the political cycle they can raise the tax burden probably with a qualifying statement about investment in infrastructure, people and trying to secure their position in the fallen red wall areas, they can afford to mainly ignore their Tory heartlands as they probably rightly think that they will never turn red.