Pension tax raid being touted again

NedS

dunstonh said:

... Although it was quite funny seeing large numbers of limited company directors moaning about it thinking they were self employed when they are not.

That depends which Gov department you ask. HMRC treat company directors as employees whilst DWP treat them as self employed.

Malthusian

badmemory said:

I was trying to remember the first time I read about removing the 40% (extra 20%) tax relief on pension contributions on here, it has got to be at least 10 years.  Still hasn't happened.  It would affect too many of their mates.  I hardly think that will happen as they have been handing out contracts for large amounts to those self same mates.  If any of the changes effect people on over £75k/a I will be very surprised.

Most of their mates are either in public sector schemes or offshore. The biggest problem with abolishing higher rate relief from the Government's perspective is the headlines in the Daily Mail and Times a year later saying "Pensions crisis warning as savings plummet by 80%".

The other problem is the loss of tax receipts. Pensions tax relief increases Government tax receipts for the exact same reason that people put money into pensions in the first place. People save money in pensions, invest it in the world economy, it grows free of tax and then finally they can withdraw and spend a larger amount than if they'd spent the money as soon as they earned it. Likewise the Government gets higher tax receipts from that larger sum of money (income tax, VAT, death taxes) than if they'd collected tax from a smaller amount of money as soon as the taxpayer earned it.

Claims that pension tax relief cost the Government money are an example of failing the marshmallow test, just as not saving into a pension is.

That particular kite has certainly been flying for at least ten years. Probably 14, since pensions simplification in 2006 and the introduction of much clearer rules on how much you could put in each year. It was slightly before my time, but I believe that was the point at which people started consciously considering the question "how much can I shovel into my pension", rather than the amount you put into your pension being determined automatically by your terms of employment.

Anonymous101

Malthusian said:

badmemory said:

I was trying to remember the first time I read about removing the 40% (extra 20%) tax relief on pension contributions on here, it has got to be at least 10 years.  Still hasn't happened.  It would affect too many of their mates.  I hardly think that will happen as they have been handing out contracts for large amounts to those self same mates.  If any of the changes effect people on over £75k/a I will be very surprised.

Most of their mates are either in public sector schemes or offshore. The biggest problem with abolishing higher rate relief from the Government's perspective is the headlines in the Daily Mail and Times a year later saying "Pensions crisis warning as savings plummet by 80%".

The other problem is the loss of tax receipts. Pensions tax relief increases Government tax receipts for the exact same reason that people put money into pensions in the first place. People save money in pensions, invest it in the world economy, it grows free of tax and then finally they can withdraw and spend a larger amount than if they'd spent the money as soon as they earned it. Likewise the Government gets higher tax receipts from that larger sum of money (income tax, VAT, death taxes) than if they'd collected tax from a smaller amount of money as soon as the taxpayer earned it.

Claims that pension tax relief cost the Government money are an example of failing the marshmallow test, just as not saving into a pension is.

That particular kite has certainly been flying for at least ten years. Probably 14, since pensions simplification in 2006 and the introduction of much clearer rules on how much you could put in each year. It was slightly before my time, but I believe that was the point at which people started consciously considering the question "how much can I shovel into my pension", rather than the amount you put into your pension being determined automatically by your terms of employment.

I must admit if the higher rate tax relief was withdrawn I would immediately slash my contributions from current 50% of salary to 6%. A total change of strategy from using pensions and the primary savings vehicle to using using ISA's.
I've not crunched the numbers but I suspect for the sake of £12k per year possible tax increase I would pay for the next 4 or 5 years (say £40k) the long term tax loss could be in the region of £80-100k.

Paul_Herring

I must admit if the higher rate tax relief was withdrawn I would immediately slash my contributions from current 50% of salary to 6%. [and use ISA instead]

I'm not so sure. I'm on SS, and not only would I need to take the 25% PCLS into consideration, but also the NI. And when the news was in the Sunday Times, quoting a flat 30% rate of relief, I worked out that I might actually be better off on my current level of contributions with that rate to the tune of an extra £500/m net in my pay, keeping my contributions the same (~£40K taking me through the 40% barrier down to near minimum wage.)

But then again, I'm only a couple of years off a planned transfer of savings from pension to ISA's anyway, to fund retirement->55.

zagfles

Anonymous101 said:

Malthusian said:

badmemory said:

I was trying to remember the first time I read about removing the 40% (extra 20%) tax relief on pension contributions on here, it has got to be at least 10 years.  Still hasn't happened.  It would affect too many of their mates.  I hardly think that will happen as they have been handing out contracts for large amounts to those self same mates.  If any of the changes effect people on over £75k/a I will be very surprised.

Most of their mates are either in public sector schemes or offshore. The biggest problem with abolishing higher rate relief from the Government's perspective is the headlines in the Daily Mail and Times a year later saying "Pensions crisis warning as savings plummet by 80%".

The other problem is the loss of tax receipts. Pensions tax relief increases Government tax receipts for the exact same reason that people put money into pensions in the first place. People save money in pensions, invest it in the world economy, it grows free of tax and then finally they can withdraw and spend a larger amount than if they'd spent the money as soon as they earned it. Likewise the Government gets higher tax receipts from that larger sum of money (income tax, VAT, death taxes) than if they'd collected tax from a smaller amount of money as soon as the taxpayer earned it.

Claims that pension tax relief cost the Government money are an example of failing the marshmallow test, just as not saving into a pension is.

That particular kite has certainly been flying for at least ten years. Probably 14, since pensions simplification in 2006 and the introduction of much clearer rules on how much you could put in each year. It was slightly before my time, but I believe that was the point at which people started consciously considering the question "how much can I shovel into my pension", rather than the amount you put into your pension being determined automatically by your terms of employment.

I must admit if the higher rate tax relief was withdrawn I would immediately slash my contributions from current 50% of salary to 6%. A total change of strategy from using pensions and the primary savings vehicle to using using ISA's.
I've not crunched the numbers but I suspect for the sake of £12k per year possible tax increase I would pay for the next 4 or 5 years (say £40k) the long term tax loss could be in the region of £80-100k.

So getting rid of higher rate relief would save you tax then?

garmeg

Paul_Herring said:

I must admit if the higher rate tax relief was withdrawn I would immediately slash my contributions from current 50% of salary to 6%. [and use ISA instead]

I'm not so sure. I'm on SS, and not only would I need to take the 25% PCLS into consideration, but also the NI. And when the news was in the Sunday Times, quoting a flat 30% rate of relief, I worked out that I might actually be better off on my current level of contributions with that rate to the tune of an extra £500/m net in my pay, keeping my contributions the same (~£40K taking me through the 40% barrier down to near minimum wage.)

But then again, I'm only a couple of years off a planned transfer of savings from pension to ISA's anyway, to fund retirement->55.

With salary sacrifice, a basic rate taxpayer gets a 47% uplift (32% tax + NI) and a higher rate gets a 72% uplift (42% tax + NI).

Depending on how you calculate the 30% relief (assuming the standard definition) then all taxpayers gets a 43% uplift (30% tax so 100/70 - 1 = 43%). In no scenario is this better than salary sacrifice for either party. Assuming here that salary sacrifice is no longer available of course.

Anonymous101

zagfles said:

Anonymous101 said:

Malthusian said:

badmemory said:

I was trying to remember the first time I read about removing the 40% (extra 20%) tax relief on pension contributions on here, it has got to be at least 10 years.  Still hasn't happened.  It would affect too many of their mates.  I hardly think that will happen as they have been handing out contracts for large amounts to those self same mates.  If any of the changes effect people on over £75k/a I will be very surprised.

Most of their mates are either in public sector schemes or offshore. The biggest problem with abolishing higher rate relief from the Government's perspective is the headlines in the Daily Mail and Times a year later saying "Pensions crisis warning as savings plummet by 80%".

The other problem is the loss of tax receipts. Pensions tax relief increases Government tax receipts for the exact same reason that people put money into pensions in the first place. People save money in pensions, invest it in the world economy, it grows free of tax and then finally they can withdraw and spend a larger amount than if they'd spent the money as soon as they earned it. Likewise the Government gets higher tax receipts from that larger sum of money (income tax, VAT, death taxes) than if they'd collected tax from a smaller amount of money as soon as the taxpayer earned it.

Claims that pension tax relief cost the Government money are an example of failing the marshmallow test, just as not saving into a pension is.

That particular kite has certainly been flying for at least ten years. Probably 14, since pensions simplification in 2006 and the introduction of much clearer rules on how much you could put in each year. It was slightly before my time, but I believe that was the point at which people started consciously considering the question "how much can I shovel into my pension", rather than the amount you put into your pension being determined automatically by your terms of employment.

I must admit if the higher rate tax relief was withdrawn I would immediately slash my contributions from current 50% of salary to 6%. A total change of strategy from using pensions and the primary savings vehicle to using using ISA's.
I've not crunched the numbers but I suspect for the sake of £12k per year possible tax increase I would pay for the next 4 or 5 years (say £40k) the long term tax loss could be in the region of £80-100k.

So getting rid of higher rate relief would save you tax then?

Its not straight forwards but, if I've understood my numbers correctly, I think so in the very long run.

As the tax is effectively paid out of the growth of pension investments its by far the best route whilst the HRT is in place. Once that's removed however I think ISA's are better. Not least because the money is on my side of the tax fence as it were. A change would likely mean me having to work for longer so its pretty much lose lose for me and absolutely something I'd be against for my own selfish reasons.

jamjar92

Anonymous101 said:

zagfles said:

Anonymous101 said:

Malthusian said:

badmemory said:

I was trying to remember the first time I read about removing the 40% (extra 20%) tax relief on pension contributions on here, it has got to be at least 10 years.  Still hasn't happened.  It would affect too many of their mates.  I hardly think that will happen as they have been handing out contracts for large amounts to those self same mates.  If any of the changes effect people on over £75k/a I will be very surprised.

Most of their mates are either in public sector schemes or offshore. The biggest problem with abolishing higher rate relief from the Government's perspective is the headlines in the Daily Mail and Times a year later saying "Pensions crisis warning as savings plummet by 80%".

The other problem is the loss of tax receipts. Pensions tax relief increases Government tax receipts for the exact same reason that people put money into pensions in the first place. People save money in pensions, invest it in the world economy, it grows free of tax and then finally they can withdraw and spend a larger amount than if they'd spent the money as soon as they earned it. Likewise the Government gets higher tax receipts from that larger sum of money (income tax, VAT, death taxes) than if they'd collected tax from a smaller amount of money as soon as the taxpayer earned it.

Claims that pension tax relief cost the Government money are an example of failing the marshmallow test, just as not saving into a pension is.

That particular kite has certainly been flying for at least ten years. Probably 14, since pensions simplification in 2006 and the introduction of much clearer rules on how much you could put in each year. It was slightly before my time, but I believe that was the point at which people started consciously considering the question "how much can I shovel into my pension", rather than the amount you put into your pension being determined automatically by your terms of employment.

I must admit if the higher rate tax relief was withdrawn I would immediately slash my contributions from current 50% of salary to 6%. A total change of strategy from using pensions and the primary savings vehicle to using using ISA's.
I've not crunched the numbers but I suspect for the sake of £12k per year possible tax increase I would pay for the next 4 or 5 years (say £40k) the long term tax loss could be in the region of £80-100k.

So getting rid of higher rate relief would save you tax then?

Its not straight forwards but, if I've understood my numbers correctly, I think so in the very long run.

As the tax is effectively paid out of the growth of pension investments its by far the best route whilst the HRT is in place. Once that's removed however I think ISA's are better. Not least because the money is on my side of the tax fence as it were. A change would likely mean me having to work for longer so its pretty much lose lose for me and absolutely something I'd be against for my own selfish reasons.

The problem is accessibility to the funds, pension are locked in until at least 55, with an ISA you could dip in. Depends on how disciplined you are. 

Anonymous101

jamjar92 said:

Anonymous101 said:

zagfles said:

Anonymous101 said:

Malthusian said:

badmemory said:

I was trying to remember the first time I read about removing the 40% (extra 20%) tax relief on pension contributions on here, it has got to be at least 10 years.  Still hasn't happened.  It would affect too many of their mates.  I hardly think that will happen as they have been handing out contracts for large amounts to those self same mates.  If any of the changes effect people on over £75k/a I will be very surprised.

Most of their mates are either in public sector schemes or offshore. The biggest problem with abolishing higher rate relief from the Government's perspective is the headlines in the Daily Mail and Times a year later saying "Pensions crisis warning as savings plummet by 80%".

The other problem is the loss of tax receipts. Pensions tax relief increases Government tax receipts for the exact same reason that people put money into pensions in the first place. People save money in pensions, invest it in the world economy, it grows free of tax and then finally they can withdraw and spend a larger amount than if they'd spent the money as soon as they earned it. Likewise the Government gets higher tax receipts from that larger sum of money (income tax, VAT, death taxes) than if they'd collected tax from a smaller amount of money as soon as the taxpayer earned it.

Claims that pension tax relief cost the Government money are an example of failing the marshmallow test, just as not saving into a pension is.

That particular kite has certainly been flying for at least ten years. Probably 14, since pensions simplification in 2006 and the introduction of much clearer rules on how much you could put in each year. It was slightly before my time, but I believe that was the point at which people started consciously considering the question "how much can I shovel into my pension", rather than the amount you put into your pension being determined automatically by your terms of employment.

I must admit if the higher rate tax relief was withdrawn I would immediately slash my contributions from current 50% of salary to 6%. A total change of strategy from using pensions and the primary savings vehicle to using using ISA's.
I've not crunched the numbers but I suspect for the sake of £12k per year possible tax increase I would pay for the next 4 or 5 years (say £40k) the long term tax loss could be in the region of £80-100k.

So getting rid of higher rate relief would save you tax then?

Its not straight forwards but, if I've understood my numbers correctly, I think so in the very long run.

As the tax is effectively paid out of the growth of pension investments its by far the best route whilst the HRT is in place. Once that's removed however I think ISA's are better. Not least because the money is on my side of the tax fence as it were. A change would likely mean me having to work for longer so its pretty much lose lose for me and absolutely something I'd be against for my own selfish reasons.

The problem is accessibility to the funds, pension are locked in until at least 55, with an ISA you could dip in. Depends on how disciplined you are. 

Very true. That's a good point.
My intention is that I'd be living off an element of ISA investment drawdown to bridge the gap until pension accessibility age regardless. Continuing to do that post pension access age in the event HRT is cut wouldn't be a problem. The discipline side of it doesn't concern me at all, I feel I've got a handle on the behavioural aspects of investing / spending.

HarryGray

Where will this leave salary sacrifice? I think its too much hassle for them to implement..