Pensions and paying for Covid

GibbsRule_No3.

It seems the Sunday papers are speculating on how Rushi will pay for Covid and Pensions are being mentioned, along with tax hikes and second home payments.
I fully understand that Triple Lock might go for the State Pension but wondered what else he might have in store? Is it likely that those already on Pensions (except for the investments not going up) are not likely to be as impacted as those still paying into them, for future retirements?
I now consider myself a full Pensioner because I am in receipt of my State Pension, sad I know, but that was my marker. Eve though I am still working until April out of choice, to gain a bit of extra spending money for the full retirement. I know at present what I get every month from two final salary pensions (yes I know I’m lucky but I was low on the work level, so they are not huge) and the SP that I am in a comfortable place with enough for my rent, council tax, bills and food. The extra months work and now paying into a Stakeholder Pension, that I was using as a savings account to pay for U.K. holidays in the first, say 10-15 years of retirement, if my health hold out that long, with  friends of the same age and pension state. Are these likely to be impacted or have I missed the bullet? 

westv

I read 40% tax relief will be abolished so everybody will get 20%. When is the next budget anyway?

El_Torro

Making tax relief for payments into pensions less generous has been discussed for years. Maybe COVID is reason enough to implement the change now.

i think it’s very unlikely that Defined Benefit pensions and State Pensions already in payment will be cut. Other countries have done it before, for example Greece. The UK would have to be in pretty dire straits to consider doing it though.

molerat

The morning news interviews seemed to angle it at the more wealthy so I would expect, as has been rumoured many times before, it is what can go into pensions tax free that will likely be looked at.  So anything that gets tax relief above basic rate.  It was said that a range of measures is thrown out there to gauge the response and hitting pensioners never goes down well (with all but a few posters on here).

Filo25

I think this is likely the time that higher rate tax relief finally does go after the many previous rumours of its demise didn't materialise. Might not be implemented immediately but likely announced this year at least.

Will be interested to see how that is implemented for public sector DB schemes.

Albermarle

On the other hand there was comment that most of the 'tax bombshell' was just a softening up exercise for some modest changes.
Due to the very weak state of some parts of the economy it seems to be the consensus that it is not the right time for big tax hikes , although the 40% tax relief on pensions is clearly a potential easy target .

NedS

If they want to axe HRT relief on pensions then presumably they will also need to abolish salary sacrifice too.

It does seem to make sense, as it will only target the more wealthy (higher earners) and will effectively allow the Treasury to collect more income tax without actually raising taxes. Higher earners will lose a tax perk, which will put them back in line with lower earners (basic rate tax payers) whereby saving into a pension is a method of tax deferment rather than tax avoidance.

Also, by keeping the 25% tax free withdraws, everyone retains a small tax benefit.

zagfles

Albermarle said:

On the other hand there was comment that most of the 'tax bombshell' was just a softening up exercise for some modest changes.
Due to the very weak state of some parts of the economy it seems to be the consensus that it is not the right time for big tax hikes , although the 40% tax relief on pensions is clearly a potential easy target .

It is also something that could stimulate the economy - it would discourage higher earners from saving in a pension and so possibly encourage them to spend more.

LHW99

zagfles said:

Albermarle said:

On the other hand there was comment that most of the 'tax bombshell' was just a softening up exercise for some modest changes.
Due to the very weak state of some parts of the economy it seems to be the consensus that it is not the right time for big tax hikes , although the 40% tax relief on pensions is clearly a potential easy target .

It is also something that could stimulate the economy - it would discourage higher earners from saving in a pension and so possibly encourage them to spend more.

Yes perhaps, although higher earners are a segment of society who frequently have good accountants to help them invest their money wherever in order to pay the lowest amount of tax. And unfortunately changing pension rules (unless with a long time frame) gives the impression that "the Government changes the rules so often it's not worth saving into a pension" to those at the lower end with less financial awareness, which is not IMO the way to go.

MDMD

NedS said:

If they want to axe HRT relief on pensions then presumably they will also need to abolish salary sacrifice too.

It does seem to make sense, as it will only target the more wealthy (higher earners) and will effectively allow the Treasury to collect more income tax without actually raising taxes. Higher earners will lose a tax perk, which will put them back in line with lower earners (basic rate tax payers) whereby saving into a pension is a method of tax deferment rather than tax avoidance.

Also, by keeping the 25% tax free withdraws, everyone retains a small tax benefit.

If they did scrap SS and introduce (Say) a flat 20% or even 30% this would also have a hidden / stealth tax charge on BR taxpayers who currently get 32% on the combined IT and NI with HR taxpayers getting 42%. Not sure how it would work in practice to distinguish between a “genuine” employer contribution and a Sal sac employer contribution either. Would they have mandatory maximum employer contributions? Or tax employer contributions in the same way as employee?

There’s then the question on how to tax the employer element of DB pensions - they will have to acknowledge and address the apparent inequality or they will soon get the headlines in the Daily Mail of the Civil Servants and MPs getting a better deal out of it than everyone else.

Marcon

El_Torro said:

Making tax relief for payments into pensions less generous has been discussed for years. Maybe COVID is reason enough to implement the change now.

i think it’s very unlikely that Defined Benefit pensions and State Pensions already in payment will be cut. Other countries have done it before, for example Greece. The UK would have to be in pretty dire straits to consider doing it though.

The UK is in dire straits and things will only get worse with the second wave of COVID.