FT - Tories to raid tax relief pensions

kinger101

Albermarle said:

If they are going to deliver bad news to any group this is the budget to do it in, it will likely be a distant memory for many by the next time we are likely to have a GE in 2024, and with the large majority and the party pretty loyal to the man who delivered that at present they likely have the political capital to get it through, which won't necessarily be the case in a year or 2.

This is the correct view in my opinion. Apart from the free marketeers on the right of the Tories and tax and spend tendency on the left wing of Labour, everybody knows that public spending has to increase by a reasonable amount to improve social care etc and therefore some increased but not excessive tax increases are needed and this is the time to do it.

I think raising basic rate tax by 2 pence would be more effective.  This raises the £10 billion, without being a disincentive to savers.  But increasing any taxes while giving HS2 the go-ahead is unacceptable.

kuratowski

kinger101 said:

I think raising basic rate tax by 2 pence would be more effective.  This raises the £10 billion, without being a disincentive to savers.  But increasing any taxes while giving HS2 the go-ahead is unacceptable.

But that would require Boris to break his manifesto promise

kinger101

kuratowski said:

But that would require Boris to break his manifesto promise

But I thought the Tories loved keeping up traditions.

green_man

Surely the whole point of tax relief and pensions is that you don’t pay tax on money you put into the pot, you do pay tax on money you draw from a pot (with exception of 25% tax free) things are just going to get hugely complex if some people are paying on the way in as well.  Basically if HRT relief on way in is eliminated then there is little incentive for HRT payers to actually use a pension, many will just use an ISA or similar instead and money will just get diverted to other more tax efficient vehicles.

CSL0183

Nothing will happen. Flat rate of 25-30% doesn’t make sense for basic and higher rate taxpayer as the majority of tax relief will be from salary sacrifice schemes that currently offer 32/42/47% relief. (33/53/43/48% in Scotland in that order)

Figures of 20/25/30% relief would hit millions of us for the worse when 32% is the minimum on offer currently. 

The majority of people would see a drop and then there’s the question of double taxation. If it went full hog at 20% and people were losing their 42-53% relief then you would be paying max 33% just to put it into the pension only to then be hit with a further 20% minimum on withdrawal. Possibly more. What would be the point? Not very efficient. At the extremes there, 33% tax on the way in (if you fall in the Scottish 53% band) and then 40% withdrawal on the way out? Bonkers!!!

It would decimate the pension industry overnight as people would stop paying into their schemes, certainly not at the same levels anyway. These people would then more likely become a burden on the state later in life. If people did continue with their regular contributions then the economy will then suffer as people would have less spending power and would have to cut back. Less disposable income, slower growing economy. Less jobs, less tax revenue, more benefits and so on. 

Then there’s DB schemes to consider. Government pension schemes come
straight back onto the taxpayer. If employers lost the tax perks or it was regarded as a BIK that would also become a huge concern for employer contributions.  There would be widespread strikes if the government hit NHS/Military/Government schemes. Talk of removing the 25% tax free element? Seriously? Nope, again this would cause widespread fallout especially in the NHS and military. If nurses, teachers and servicemen are hit with another pension raid that will send shockwaves and the repercussion for the government will be extreme. 

The fact is, it doesn’t solve anything. People saving less, economy shrinking, widespread resentment for government with possible strikes up and down the country. Pensions in the military and NHS have only recently went under major overhaul, they will not do the same again. 

All in my opinion of course.
 

Boris has muted that it is or was his intention to raise the higher rate thresholds upto £80k. Although he has quietened on that recently. Yes, it would be costly but not as costly as you would think when pensions are concerned. Majority would then naturally fall into the 20% basic tax band. (Scotland excluded, where they would be hit with 53% tax)

Regardless, any such changes if they ever did see the light of day would take years of consultation. Not going to happen April 20, very unlikely April 21. Any changes would also be retrospective going forward, not back. So funds and schemes that currently do have the 25% tax free element will be protected. Any changes to that would be going forward, not back. Imagine the fallout in telling all those government workers that the 20- 30yrs getting a full pension in the military for example was then going to lose their 25% lump sum. 

Political suicide and end of the Tories. 

Triumph13

I see we have a couple of posters trotting out the old line that removing HRT relief will lead to more people having to rely on benefits it retirement.  I'm afraid if you are earning double the median income you shouldn't need help from the government to fund your retirement.  You most definitely shouldn't need more help than the lower paid get.
If the loss of relief means fewer people can retire early then that's painful for the individuals concerned, but good news as far as the public finances and the wider economy.  Anything that encourages people to work (and pay taxes) is good news.

ffacoffipawb

Higher rate taxpayer. £100 available.
Taken as salary they take home £58.
if pensioned they get £80 in pension due to reduced tax relief. when they retire they get £20 tax free plus £60 taxed at 20% if basic rate, so they get £68.
if higher rate in retirement they get just £56. Less than the take home available now. Why bother with the pension then?

Its possible they only get £75 in the pension and not £80, depending on how it works which would make the figures worse.

Of course employer contributions will also have to be considered as well otherwise a salary sacrifice option would bypass this change. And that is a completely new can of worms, eg public sector and other DB schemes.

CSL0183

Triumph13 said:

I see we have a couple of posters trotting out the old line that removing HRT relief will lead to more people having to rely on benefits it retirement.  I'm afraid if you are earning double the median income you shouldn't need help from the government to fund your retirement.  You most definitely shouldn't need more help than the lower paid get.
If the loss of relief means fewer people can retire early then that's painful for the individuals concerned, but good news as far as the public finances and the wider economy.  Anything that encourages people to work (and pay taxes) is good news.

I take it you are a basic rate taxpayer that is jealous of the relief that a higher rate taxpayer receives then? Why don’t we just have a fair flat tax rate then?

You are missing my point completely. Why would HRT save into pensions at all? 

Take the example below...
NHS senior nurse in Scotland, earns about £48k with allowances/shifts. Stuck firmly in Scotland’s 53% tax band. They receive 20% relief on their contribution and have to pay 33% just to put their money into their pension scheme. Few years later in retirement and worse case scenario (especially if the 25% tax free allowance is removed) a large withdrawal is made that then puts them back into that 53% tax bracket. (State pension inclusive)
So it’s cost 33% just to get it into the pension and it’s cost 53% to take it out of the pension. 

Remind me why this would be an incentive to save into a pension scheme? Of course this person would then become a burden on the state in later life as with no pension savings, how would you expect them to survive?

It doesn’t need to be the NHS nurse, it doesn’t need to use Scotland’s 53% tax bands. The same applies for 42%/43% higher rate taxpayers up and down the UK right now. Have to pay 22-23% just to get it into your pension and then 32/33% to get it back out. 

Pensions become less attractive and people naturally are put off. 

Government won’t risk that. Never happening. Political suicide. 

For basic rate payers up and down the country currently receiving 32-33% relief. Remind why a flat rate of 20-25% would be any good for them?

Gets even more complicated with devolved governments. If Westminster scrapped salary sacrifice schemes and set relief at a flat rate of 20%, how is this fair on Scottish taxpayers that pay 21%? Both governments would need to agree and the SNP and Tories don’t agree on anything. Just another hurdle for the government to overcome when thinking about pension tax relief. 

Triumph13

CSL0183 said:

Triumph13 said:

I see we have a couple of posters trotting out the old line that removing HRT relief will lead to more people having to rely on benefits it retirement.  I'm afraid if you are earning double the median income you shouldn't need help from the government to fund your retirement.  You most definitely shouldn't need more help than the lower paid get.
If the loss of relief means fewer people can retire early then that's painful for the individuals concerned, but good news as far as the public finances and the wider economy.  Anything that encourages people to work (and pay taxes) is good news.

I take it you are a basic rate taxpayer that is jealous of the relief that a higher rate taxpayer receives then? Why don’t we just have a fair flat tax rate then?

You are missing my point completely. Why would HRT save into pensions at all? 

Nope, I was a higher rate taxpayer for many years and always thought it was completely unjust that I could get a 41% return just by using a pension when the vast majority of people could only get a 6.25% return.  In the end I was doing even better than that because of salary sacrifice.
You are missing my point completely.  For earnings above the basic rate band there is no sensible reason why the government should be offering tax advantaged pension schemes.  A flat rate relief with an annual allowance of say £20k pa would meet all the public policy requirements of encouraging people to make their own basic provision for retirement (when added to state pension).  For anything people are rich enough to save above that (and that would have included me) then ISAs are a perfectly sensible vehicle.  For DB schemes you just need some mechanism to tax anything over the AA by reducing the amount accrued by the tax percentage and having the scheme pay over the tax then and there.

GunJack

From HMRC site:-

Band	Taxable income	Scottish tax rate
Personal Allowance	Up to £12,500	0%
Starter rate	£12,501 to £14,549	19%
Basic rate	£14,550 to £24,944	20%
Intermediate rate	£24,945 to £43,430	21%
Higher rate	£43,431 to £150,000	41%
Top rate	over £150,000	46%

How do you get that someone in Jockland pays 53% on a £48k salary??
Plus, NHS scheme is DB/CARE, so it makes even less sense...