FT - Tories to raid tax relief pensions

Thrugelmir

Scrap HRT relief and increase the annual contribution allowance in line with inflation or to £50k. Likewise increase the maximum annual allwance for non taxpayers to £5k. 
Pension savings benefit not only from tax relief. Changes need to be made that are equitable to everyone. Ultimately a good pension provision for everyone reduces the burden on the taxpayer. . 

zagfles

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?

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. 

Your example makes no sense. How is it 53% on the way out? Are you including NI? You realise that NI isn't charged on pension income, right? And it's contrived anyway.

As to why a HRT payer would save into a pension, why wouldn't they? As long as they can avoid HRT in retirement, it's still a big tax incentive. 25/30/33% or whatever relief on the way in and 15% on the way out (accounting for the PCLS).

The disincentive to have a pension worth more than around £50k pa is there already, as a pension at around that level would breach the LTA.

afis1904

GavB79 said:

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. 

Maybe instead help people who actually need it?

badmemory

I am obviously getting old!  I keep thinking of Maggie back in the late 70s.  We will reduce income tax!  The I'm alright Jack crowd jumped on board & certainly ignored all my warnings about if something goes down too much (as it did) then something else which would cost them way more would go up, which it did.  Almost doubled VAT.  History just keeps on repeating itself & people just never learn.

CSL0183

GunJack said:

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...

Think about it before diving in. 

Because in “Jockland” National insurance contributions are 12% upto the U.K. rate of £50k. (National insurance not devolved) So tell me what rate of tax “Jocks” pay between £43,430 and £50,000?

This 53% tax band has just been frozen in the Scottish budget so if the bands are increased, even by inflation next month in the U.K. budget, that 53% tax band grows. It’s affecting many in the NHS and elsewhere right now. At just £50k income, Scots are paying an additional £1,544 in tax currently. (English rate of tax between £43,430 and £50,000 is 32%, in Scotland, its 53%)

In addition, any changes to pension tax relief would need consent from the Scottish Parliament as if England set a flat rate at 20%, how would that be fair on Scotland’s 21% basic rate taxpayers?

The good thing here, relations between Westminster and SNP are poor and this certainly wouldn’t get Scottish parliament approval. It’s just another hurdle for implementation. There would have to be different reliefs offered to devolved administrations (Wales devolved too)

And again, what benefit would a flat rate of 20/25/30 do for a basic rate taxpayer who currently receives 32-33% tax relief through salary sacrifice? You would be punishing both basic and higher rate taxpayers.

Tories would lose the next election as a result. 

ffacoffipawb

CSL0183 said:

GunJack said:

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...

Think about it before diving in. 

Because in “Jockland” National insurance contributions are 12% upto the U.K. rate of £50k. (National insurance not devolved) So tell me what rate of tax “Jocks” pay between £43,430 and £50,000.

But NI isnt paid on pension income.

CSL0183

zagfles said:

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?

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. 

Your example makes no sense. How is it 53% on the way out? Are you including NI? You realise that NI isn't charged on pension income, right? And it's contrived anyway.

As to why a HRT payer would save into a pension, why wouldn't they? As long as they can avoid HRT in retirement, it's still a big tax incentive. 25/30/33% or whatever relief on the way in and 15% on the way out (accounting for the PCLS).

The disincentive to have a pension worth more than around £50k pa is there already, as a pension at around that level would breach the LTA.

Scotland’s 53% tax band (41%+12%).
Yes, you’re correct, it would only be 41% and wouldn’t incur further NIC only the marginal rate of tax at the time. 

If they can mess with tax relief so that they create double taxation, the next thing to go would be the 25% tax free element. Would anyone realistically believe that this would still be there in retirement 20/30/40/50 yrs down the line? 

CSL0183

ffacoffipawb said:

CSL0183 said:

GunJack said:

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...

Think about it before diving in. 

Because in “Jockland” National insurance contributions are 12% upto the U.K. rate of £50k. (National insurance not devolved) So tell me what rate of tax “Jocks” pay between £43,430 and £50,000.

But NI isnt paid on pension income.

I was answering a question about Scotland’s 53% tax band. Yes, as pointed out in the post above, at withdrawal, it would be 41% (as you quite rightly identified that NIC are not payable on pension income)

Still, with a 53% marginal tax band and a 20% flat relief idea, it would cost a Scottish taxpayer 33% just to put money into their pension scheme. There’s then a potential of 41% taxation on the way out. 

marlot

But NI isnt paid on pension income.

Not at the moment.  Several thinktanks have proposed it though - usually under the banner of 'simplifying the tax system'

kinger101

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.

Very nice of you to accuse people of being trolls because they share a different viewpoint from you.  Perhaps you should acquaint yourself with forum rules.

Many people of higher rate tax aren't earning a fortune.  Perhaps £60K.  They've got to the salary late in life, and don't presently have an enormous pension pot.  There's a limited amount from their salary that can go into a pension, as they have a mortgage, children and travel costs pay for.  The reduction in tax relief will mean their pot at retirement will be smaller, so they'll have either have to risk higher drawdowns, or live off less in retirement.  If that pot runs out, people will be more reliant on the state.  Once the money has gone, it's gone.

FYI, the tax system is essentially a system of tax deferral.  They're putting their own earned money into the scheme to benefit from timing differences.  The government isn't funding their retirement.  If we want to talk about the government funding retirement, perhaps we can start looking at the the final salary pension schemes of the private sector.