Autumn Budget scrapped - pensions safe for now!

Malthusian

michaels said:

AS it is possible that in future they might reduce or remove the TFLS might there be advantages in terms of regualtory arbitrage in taking this as soon as possible ie on turning 55, rather than doing some form of phased crystalisation which might be the normal approach?

About as much as there has been since 2006 when people first started saying the TFLS' days are numbered.

Paying extra tax in the hope the Government will later change the rules to retrospectively make it a good decision is not regulatory arbitrage. Any more than buying Euros in the hope they go up is forex arbitrage. Arbitrage is exploiting known differences in doing the same thing on different markets. Regulatory arbitrage is exploiting differences in rules between two different jurisdictions in which you operate.

Malthusian

drummersdale said:

If they remove the TFLS from the Classic civil service pension, you might see a grown man cry, unless they phase it in or offer a year or two's grace...

This is the reason the government hasn't cut the tax free lump sum already and has instead saved money by slashing the Lifetime Allowance and restricting tax relief on the way in. Removing / reducing the TFLS would have too much effect on MPs and senior civil servants.

A phased withdrawal is unlikely as everyone would rush to withdraw a quarter of their pension at once before the rules changed.

michaels

Malthusian said:

drummersdale said:

If they remove the TFLS from the Classic civil service pension, you might see a grown man cry, unless they phase it in or offer a year or two's grace...

This is the reason the government hasn't cut the tax free lump sum already and has instead saved money by slashing the Lifetime Allowance and restricting tax relief on the way in. Removing / reducing the TFLS would have too much effect on MPs and senior civil servants.

A phased withdrawal is unlikely as everyone would rush to withdraw a quarter of their pension at once before the rules changed.

So should I have used the term 'hedge' rather than 'arbitrage' - ie you are incurring a cost now to provide protection against future potential regualtory changes?

Albermarle

The TFLS is very popular , especially amongst lower paid workers , who almost always take it and see it as a kind of retirement bonus . So removing it would be deeply politically unpopular at many levels of society , including in the Red Wall seats .
So it won't happen.

ffacoffipawb

Albermarle said:

The TFLS is very popular , especially amongst lower paid workers , who almost always take it and see it as a kind of retirement bonus . So removing it would be deeply politically unpopular at many levels of society , including in the Red Wall seats .
So it won't happen.

They could cap it though, say maximum PCLS of £50,000 over all pensions, monitored like the LTA usage so you have LTA usage and PCLS usage, so moving even further away from simplification.

It would probably keep the red wall lot happy, probably, who knows and raise a decent wodge for covid.

Perhaps then get rid of the LTA and/or higher rate tax relief (latter possibility complicated by DB scheme employer contributions).

Albermarle

ffacoffipawb said:

Albermarle said:

The TFLS is very popular , especially amongst lower paid workers , who almost always take it and see it as a kind of retirement bonus . So removing it would be deeply politically unpopular at many levels of society , including in the Red Wall seats .
So it won't happen.

They could cap it though, say maximum PCLS of £50,000 over all pensions, monitored like the LTA usage so you have LTA usage and PCLS usage, so moving even further away from simplification.

It would probably keep the red wall lot happy, probably, who knows and raise a decent wodge for covid.

Perhaps then get rid of the LTA and/or higher rate tax relief (latter possibility complicated by DB scheme employer contributions).

The other point I missed is that at the lower income end it tends to get spent, so good for the economy .I suppose though yes capping it is a lot more likely than getting rid of it .
Still £50K only relates to a £200K pot so this would be maybe seen as an attack on the squeezed middle , so would probably have to go higher to minimise the political fallout. 

Malthusian

michaels said:

Malthusian said:

drummersdale said:

If they remove the TFLS from the Classic civil service pension, you might see a grown man cry, unless they phase it in or offer a year or two's grace...

This is the reason the government hasn't cut the tax free lump sum already and has instead saved money by slashing the Lifetime Allowance and restricting tax relief on the way in. Removing / reducing the TFLS would have too much effect on MPs and senior civil servants.

A phased withdrawal is unlikely as everyone would rush to withdraw a quarter of their pension at once before the rules changed.

So should I have used the term 'hedge' rather than 'arbitrage' - ie you are incurring a cost now to provide protection against future potential regualtory changes?

Yeah, that works. Sort of. Maybe not.

Hedging means to reduce the variance of observed outcomes. Which is why buying dollars to fund future purchases of oil barrels priced in dollars is hedging, but buying Euros to "hedge against Brexit" when all your utility and grocery bills are priced in Sterling is in reality forex gambling.

Taking your tax free lump sum now fixes it as a known amount, whereas if you leave it to grow it could be higher or it could be lower, so from that perspective, taking it now is a hedge.

However, this requires you to ignore the fact that the government could also change the rules that apply to re-investing the lump sum in the same assets you were holding within the pension. (If you invest in something different it's clearly no longer a hedge.) For example, they could dramatically reduce the capital gains allowance again.

The State giveth and the State taketh away again. Blessed be the name of the State. The only hedge against that fact is Jobian serenity.

NedS

The_Green_Hornet said:

Silvertabby said:

Expect the personal tax allowance will remain £12,500 for at least another year.

Even if they increased it by inflation it would only go up by £25.

I'm pretty sure it has already been written into law[1] that the personal tax allowance will rise in line with CPI inflation from April 2021 onward. I assume they will use the September inflation figures like they use for everything else, so we'll find out shortly what next years increases (or decreases) will look like.

[1] https://www.gov.uk/government/publications/income-tax-personal-allowance-and-basic-rate-limit-from-2019-to-2020/income-tax-personal-allowance-and-basic-rate-limit-from-2019-20

Silvertabby

NedS said:

The_Green_Hornet said:

Silvertabby said:

Expect the personal tax allowance will remain £12,500 for at least another year.

Even if they increased it by inflation it would only go up by £25.

I'm pretty sure it has already been written into law[1] that the personal tax allowance will rise in line with CPI inflation from April 2021 onward. I assume they will use the September inflation figures like they use for everything else, so we'll find out shortly what next years increases (or decreases) will look like.

[1] https://www.gov.uk/government/publications/income-tax-personal-allowance-and-basic-rate-limit-from-2019-to-2020/income-tax-personal-allowance-and-basic-rate-limit-from-2019-20

August CPI was 0.2%, having dropped from 1.00% in July.  Looking very much like September will be a negative figure. 

ffacoffipawb

Silvertabby said:

NedS said:

The_Green_Hornet said:

Silvertabby said:

Expect the personal tax allowance will remain £12,500 for at least another year.

Even if they increased it by inflation it would only go up by £25.

I'm pretty sure it has already been written into law[1] that the personal tax allowance will rise in line with CPI inflation from April 2021 onward. I assume they will use the September inflation figures like they use for everything else, so we'll find out shortly what next years increases (or decreases) will look like.

[1] https://www.gov.uk/government/publications/income-tax-personal-allowance-and-basic-rate-limit-from-2019-to-2020/income-tax-personal-allowance-and-basic-rate-limit-from-2019-20

August CPI was 0.2%, having dropped from 1.00% in July.  Looking very much like September will be a negative figure. 

I would expect it to be higher in September as August was suppressed by eat out to help out, though not by much - perhaps at 0.50%?