FT - Tories to raid tax relief pensions

GavB79

This would hit me for £200/month, which is a lot to me.  One way to soften the blow would be to increase the HRT threshold as Boris said he would, but seems to be reneging on.  Up it from 50k to 60k and least some of it is offset?
But I presume more people pay 40% tax than claim it back through pension contributions so probably not a money saver.

My employer pension is LGPS so no opportunity to pay more through salary sacrifice there.  I pay into a separate SIPP to get the HRT relief. 

zagfles

lisyloo said:

When you say this time? You mean for 6th April? !!!!
thats not a lot of notice.
i can only change my pension contributions at certain times of year so I don’t think my company would be able to react before April.

or did you mean announced now for future tax years?

Not for this April, that would far too short notice, but they could announce it from Apr 21 or a consultation. In the short term, some interim measure like increasing the AA taper threshold.

zagfles

Albermarle said:

zagfles said:

I think something might happen this time. There are at least 2 problems the govt have promised to sort, the AA taper for high earners and the net pay trap for low earners (where they don't get tax relief cos they don't pay tax).

Both could be solved with a flat rate relief at 25% but paid as a RAS style top up for everyone, so eg if you have a personal pension, you pay £75 net and that's topped up by £25 by HMRC, similar to now but a bit more generous, or if you're in a net pay scheme, instead of your £100 contribution reducing your taxable income and giving you £20 back, you pay £75 net and that's topped up by £25 in the same way as RAS. Taxable income is not reduced by the contribution. That would solve the "net pay" trap and also give a greater incentive to basic rate taxpayers to contribute more.

Employer contributions are always the issue with flat rate relief - the pure solution would be to make them a taxable benefit and subject to the same RAS top-up, but that would be ridiculously complicated, particularly for DB schemes. A simpler way would be to simply limit employer contributions/DB accrual to a reasonable high level, similar to the most generous DB schemes. At say 1/40th accrual for DB and 40% of taxable income for DC. Very few pension occupational schemes are more generous than that. Anything more generous is allowed but becomes a taxable BIK. 

So there would be scope for limited sal sac to retain a bit of the higher rate relief, eg someone in a DC scheme with 10% employer conts could sal sac about 21%, but it would prevent excessive contributions and as such the AA would probably no longer be needed.

Even better, the LTA would no longer be needed. Currently the LTA "penalty" for most people is 15% - the difference between 40% tax relief and the 55% AA charge (or 25% income charge combined with 40% tax, which makes 55%). Well, with flat rate, exactly the same "penalty" applies. If you end up on higher rate tax in retirement, you pay 40% tax when you only got 25% relief. Same 15% penalty. So the higher rate threshold takes over from the LTA as the disincentive to build up a very large pot.

The system simplified, no AA, no LTA. So the doctor's AA taper issue solved. Higher earners can still get a limited amount of higher rate relief through sal sac, low earners get more tax relief. The PCLS should still be limited at about £260k, perhaps frozen at that level forever as it's pretty generous.

Very good ideas to make the system simpler and fairer,  but it is not clear whether these types of changes will bring the government more revenue , which presumably is the main motivation. 

ISTR the break even flat tax relief rate is over 30%, so setting it at 25% should raise revenue, although with a little scope for higher rate relief through limited sal sac it will be a bit less. It could also raise revenue by not reducing taxable income, or adjusted net income, which means people won't be able to use pension contributions to increase tax credits, benefits, student loans, PA taper etc.

Filo25

The loss of HRT relief would be brutal for me, Currently caught out by the personal allowance taper, so end up paying, I think, 62%  of marginal rate on tax plus NI.

So if this happened I would have a situation where pension contributions wouldn't really be worthwhile given tax status in retirement, and at the same time I would only take home an extra 38% of the amount foregone. Realistically would probably finish any chance of early retirement.

If I'm going to be working until I'm 67 I may as well see if its possible part time and get my earnings down to 100k

fun4everyone

This would be a good thing and round of applause for the Tories if they actually have the balls to go through with this.

Imagine if it had been Corbyn that had got in and done this, the wailing and screaming from the masses on here would have been amazing.

zagfles

fun4everyone said:

This would be a good thing and round of applause for the Tories if they actually have the balls to go through with this.

Imagine if it had been Corbyn that had got in and done this, the wailing and screaming from the masses on here would have been amazing.

If Corbyn had got in there'd have been wailing and screaming about far more serious issues than pension tax relief. But we no longer need to worry about that.

The Tories have a track record of clobbering higher earners pensions, the reduction of the AA from £255k under Labour to £40k, the reduction in the LTA from £1.8M under Labour to £1M, the AA taper for those on £110k+. So no-one should be surprised if they now target higher rate relief.

SonOf

You can tell we are coming up to budget time.  Every newspaper will be printing theories about what IS going to happen when in reality they have no clue.   Lots of left and right leaning think tanks will also promote their ideas and the media often presents the left leaning ones as Labour policy and the right leaning ones as Conservative policy despite being nothing of the sort.
There have been years when the the media have printed 10 or 20 things you WILL see in the budget and not one of them occurred.  

ffacoffipawb

SonOf said:

You can tell we are coming up to budget time.  Every newspaper will be printing theories about what IS going to happen when in reality they have no clue.   Lots of left and right leaning think tanks will also promote their ideas and the media often presents the left leaning ones as Labour policy and the right leaning ones as Conservative policy despite being nothing of the sort.
There have been years when the the media have printed 10 or 20 things you WILL see in the budget and not one of them occurred.  

You said that last year. 😀

SonOf

ffacoffipawb said:

SonOf said:

You can tell we are coming up to budget time.  Every newspaper will be printing theories about what IS going to happen when in reality they have no clue.   Lots of left and right leaning think tanks will also promote their ideas and the media often presents the left leaning ones as Labour policy and the right leaning ones as Conservative policy despite being nothing of the sort.
There have been years when the the media have printed 10 or 20 things you WILL see in the budget and not one of them occurred.  

You said that last year. 😀

And probably the year before and year before that.... in any incarnation.     

Albermarle

Realistically would probably finish any chance of early retirement.

If I'm going to be working until I'm 67 I may as well see if its possible part time and get my earnings down to £100K 

If you have a salary well over £100K and can't retire until 67 ( whatever the pension tax rules are ) then you must be spending it like water, and you can't blame the government for that .