FT - Tories to raid tax relief pensions

Triumph13

kinger101 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.

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.  

I'm not accusing people of being trolls, I'm pointing out a piece of faulty logic that turns up regularly on here.  People making the leap from 'this will make pensions unattractive for some, relatively wealthy people' to 'no-one will pay into a pension and everyone will be on benefits'.   

According to the Scottish Government only 7.7% of adults pay the 41% rate.  A better figure might be the UK one of 13.7% of taxpayers (as opposed to all adults) who pay HRT.  That will be skewed by people already retired, but, however you slice it, the fact remains that the great majority of the population do not ever earn enough to pay HRT and these are quite obviously the ones who are really at risk of ending up on benefits in retirement.

The argument you make about the tax relief being really your own money that HMRC aren't taking / your own income that you are deferring is a completely different point.  It is an idea with a lot of sense behind it and one which I would never say was 'wrong' - although I might argue that other ideas of fairness outweighed it.

CSL0183

Triumph13 said:

kinger101 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.

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.  

I'm not accusing people of being trolls, I'm pointing out a piece of faulty logic that turns up regularly on here.  People making the leap from 'this will make pensions unattractive for some, relatively wealthy people' to 'no-one will pay into a pension and everyone will be on benefits'.   

According to the Scottish Government only 7.7% of adults pay the 41% rate.  A better figure might be the UK one of 13.7% of taxpayers (as opposed to all adults) who pay HRT.  That will be skewed by people already retired, but, however you slice it, the fact remains that the great majority of the population do not ever earn enough to pay HRT and these are quite obviously the ones who are really at risk of ending up on benefits in retirement.

The argument you make about the tax relief being really your own money that HMRC aren't taking / your own income that you are deferring is a completely different point.  It is an idea with a lot of sense behind it and one which I would never say was 'wrong' - although I might argue that other ideas of fairness outweighed it.

Slightly skewed figures you are quoting there. Yes 7.7% of Scottish adults pay the 41% rate but 45% of Scottish adults pay no income tax at all. No point quoting non taxpayers. 

Currently there are 2.46m Scottish taxpayers out of approximately 4.45m Scottish adults. 351k of this 2.46m currently pay HRT which equates to 14.2% of the Scottish tax base . As the thresholds are continually frozen thousands are moving into the higher 53% taxation band each year. Scotland have a higher proportion of HRT payers than anywhere else in the U.K. primarily due to the lower threshold bands. Figures are a year old now too as these were for the 2019/20 analysis rather than the 2020/21 year. Last year U.K. moved to £50k, Scotland remained at £43.4k

The positives of this is of course pension relief. Those in or around this band are receiving a whopping 53% tax relief currently. If you are earning around the £50k mark, salary sacrifice yourself down to the £43,430 threshold and receive 53% relief on £6,570 worth of pension and pay no HRT.

zagfles

CSL0183 said:

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? 

Ah yes, the usual "slippery slope" argument. Can't make change A as totally unrelated change B might then happen.

Double taxation is already here, the LTA, the AA. Closely related to pot/pension levels where you'd pay higher rate tax in retirement. Flat rate could mean both can be abolished.

The govt have promised to fix 2 problems with the pension system, the AA taper affecting the NHS, and the "net pay" trap affecting those on low incomes. A flat rate tax relief/rebate with the abolision of the AA & LTA would fix both, whilst also probably raising tax revenues for Boris's promised spending splurge.

bowlhead99

Triumph13 said:

I'm not accusing people of being trolls, I'm pointing out a piece of faulty logic that turns up regularly on here.  People making the leap from 'this will make pensions unattractive for some, relatively wealthy people' to 'no-one will pay into a pension and everyone will be on benefits'.   

I don't think posters are saying that genuinely no-one will pay into a pension and everyone will be on benefits - that's a straw man.

I do agree with the poster earlier pointing out that the more you remove tax planning opportunities for higher income people to elicit yet more of the tax take from them rather than the lower income people, "the concern of course is that it does leave the UK ever more dependant on its higher earners for its tax take, something which has been a growing trend for a while, as the IFS recently pointed out the UK is a pretty low tax economy for its lower and medium earners by European standards, it isn't so much for higher earners. I'm sure that can still be pushed a bit further but there is always a limit"

People making lots of money do pay the vast majority of income tax and when the burden is shifted even more towards them to fund the rest, it's something that is very difficult to ever move back in the other direction because if you take a '1 vote per person' poll on whether they would like the 5, 10 or 20% with the highest income to pay less tax and have the other 95, 90 or 80% redistribute the bill between them, you are not going to get a result that favours the people who bring home most of the bacon.

The will of 'the people' is pretty much always going to be that they would prefer someone other than themselves to pay the bill if at all possible. I don't particularly feel that a a rule which says 'invest your income to take as a pension in later life and pay tax on it then instead of now' is a particularly unfair or abhorrent concept if everyone gets to use it, particularly if you put an annual cap on it so that higher income people can't stuff hundreds of thousands into the scheme every year, and taper the annual limit downwards if you earn £150k+. And they do have such limits. So I don't really think the system currently needs change.

Of course, I would say that, because I earn (or have the potential to earn) over £50k a year so must be one of them rather one of us.

westv

How long before the 25% tax free lump sum is mentioned somewhere in a newspaper!

woolythoughts

I know Railways workers are paranoid the government will come after their tax free lump sum from their DB scheme (old BR workers - new ones don't get the same benefits).

If they do try to go after the lump sum, there will be transport chaos as the drivers and guards will all work out together.

MK62

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?

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. 

The tax bands in Scotland have been implemented by the government the Scots voted in......if Scots don't like it, they can exercise their democratic rights in 2021 and vote them out. However, I don't see much complaint about the 19% starter band, the free prescriptions, free university education, free personal care etc etc.........
As to whether a flat rate 20% would be fair on Scotland's 21% tax payers - it would be about the same fairness as on the 19% taxpayers.......Scots pay less tax on earnings up to £27000pa (and get all the "free" stuff too)......why is that fair on tax payers in the rest of the UK? Can't have it both ways.........

Salary sacrifice, as it pertains to pensions, is an anomaly in the system - it's a distortion which should have been corrected years ago.........it's nothing more than an NI avoidance scheme, which, in practice, is not available to everyone, so, at least imho, it should be stopped - regardless of whether HR tax relief is removed/restricted, or a flat rate introduced. 

CSL0183

zagfles said:

CSL0183 said:

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? 

Ah yes, the usual "slippery slope" argument. Can't make change A as totally unrelated change B might then happen.

Double taxation is already here, the LTA, the AA. Closely related to pot/pension levels where you'd pay higher rate tax in retirement. Flat rate could mean both can be abolished.

The govt have promised to fix 2 problems with the pension system, the AA taper affecting the NHS, and the "net pay" trap affecting those on low incomes. A flat rate tax relief/rebate with the abolision of the AA & LTA would fix both, whilst also probably raising tax revenues for Boris's promised spending splurge.

Not disagreeing. However, looking at the demographics. What % are affected by double taxation / AA and LTA at the moment? Less than 1% at a guess, probably more in the region of 0.5%?

Around 70% of pension schemes utilise the salary sacrifice method. The majority of us are receiving a minimum of 32% tax relief. HRT a bit more. 

If you replace this with a flat rate of 20-25%, who benefits exactly? Tens of millions of us are receiving 32%+ at the moment. 

It would lose the government the next election. 

Mistermeaner

item i would like to see addressed is the inherent unfairness in the current system between how DB and DC is treated - primarily the way that annual allowance and lifetime allowance limits are tested
Using X20 on an index linked guaranteed for life DB pension, complete with spousal benefits is just ridiculous - X40 would be more inline with what a DC pot can buy on the open marker
Not really pensions related but somewhat linked is the likewise unfairness in the way child benefit is withdrawn above income levels - tested on one individual in the household rather than joint income. A person earning 60K gets to keep just 6K of their income above 50K and receives no child benefit. Someone on 50K with 3 kids gets 5K tax free - i.e. earning 10K more per anum leaves you just 1K better off - thats not right.
Would also want to see all of the silly tapers and withdrawals removed - there must be a fairer and more equitable way of doing this!

Paul_Herring

cfw1994 said:

I’ve often wondered if there is a middle ground to this: give tax relief at 30% to ALL.

[...]

Thoughts?

Wonderful idea. Until future governments decide to fiddle with that number until it's under 20%. And basic rate income tax is over 20%. So everyone gets taxed twice on the same money even before more gets snaffled by VAT and excise duty as it's spent.