Rishi after Pensions Tax Relief

Thrugelmir

Linton said:

zagfles said:

ussdave said:

michaels said:

Looks like we spoke to soon, some sort of change to indexation rules affecting index linked bonds and DB pensions (the BBC are either to dumb to explain it or assume their readership are too dumb to understand it)

https://www.bbc.co.uk/news/business-55070292

Aren't a lot of DB schemes these days linked to CPI instead of RPI, so impact is limited?
I may have misunderstood - have read it in a rush.

I think they are in the public sector but not the private. An actual minor pension advantage in the private sector!

Some private sector pensions explicitly referred to RPI in their scheme rules, so changing could be difficult.  Others were less specific.

One of my old deferred DB schemes has just been transfered to a personal insurance policy. Guaranteed linkage to RPI for life.  Was worried that the scheme which closed in 1999, was doomed to end up in the PFI. 

NedS

Thrugelmir said:

Linton said:

zagfles said:

ussdave said:

michaels said:

Looks like we spoke to soon, some sort of change to indexation rules affecting index linked bonds and DB pensions (the BBC are either to dumb to explain it or assume their readership are too dumb to understand it)

https://www.bbc.co.uk/news/business-55070292

Aren't a lot of DB schemes these days linked to CPI instead of RPI, so impact is limited?
I may have misunderstood - have read it in a rush.

I think they are in the public sector but not the private. An actual minor pension advantage in the private sector!

Some private sector pensions explicitly referred to RPI in their scheme rules, so changing could be difficult.  Others were less specific.

One of my old deferred DB schemes has just been transfered to a personal insurance policy. Guaranteed linkage to RPI for life.  Was worried that the scheme which closed in 1999, was doomed to end up in the PFI. 

The life of what? You, or the RPI index?

zagfles

NedS said:

Thrugelmir said:

Linton said:

zagfles said:

ussdave said:

michaels said:

Looks like we spoke to soon, some sort of change to indexation rules affecting index linked bonds and DB pensions (the BBC are either to dumb to explain it or assume their readership are too dumb to understand it)

https://www.bbc.co.uk/news/business-55070292

Aren't a lot of DB schemes these days linked to CPI instead of RPI, so impact is limited?
I may have misunderstood - have read it in a rush.

I think they are in the public sector but not the private. An actual minor pension advantage in the private sector!

Some private sector pensions explicitly referred to RPI in their scheme rules, so changing could be difficult.  Others were less specific.

One of my old deferred DB schemes has just been transfered to a personal insurance policy. Guaranteed linkage to RPI for life.  Was worried that the scheme which closed in 1999, was doomed to end up in the PFI. 

The life of what? You, or the RPI index?

It looks like from 2030 RPI will be the same as CPIH. That's my understanding anyway - the consultation response document is not easy reading!

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/938008/RPI_Response_FINAL_VERSION_.pdf

MarkCarnage

It looks like from 2030 RPI will be the same as CPIH. That's my understanding anyway - the consultation response document is not easy reading!

I agree. There has been real rubbish posted on this. Not least on the BBC website by innumerate journalists. 

The main issue may be for DB schemes who thought they had appropriate inflation hedges in place, but now find the market value of these hedge assets diminished, though a fair bit of this was probably in the price. It's difficult to generalise, as the experience will vary a lot from scheme to scheme. However, it probably penalises those who had done what was deemed 'best practice' and encouraged by the Pensions Regulator, and hedged. By not acting 7-8 years ago, when the issue emerged the problem is now worse. I believe that the Head of the relevant Government Statistics office at the time has a lot to answer for by not recommending a change then. 

shinytop

zagfles said:

NedS said:

Thrugelmir said:

Linton said:

zagfles said:

ussdave said:

michaels said:

Looks like we spoke to soon, some sort of change to indexation rules affecting index linked bonds and DB pensions (the BBC are either to dumb to explain it or assume their readership are too dumb to understand it)

https://www.bbc.co.uk/news/business-55070292

Aren't a lot of DB schemes these days linked to CPI instead of RPI, so impact is limited?
I may have misunderstood - have read it in a rush.

I think they are in the public sector but not the private. An actual minor pension advantage in the private sector!

Some private sector pensions explicitly referred to RPI in their scheme rules, so changing could be difficult.  Others were less specific.

One of my old deferred DB schemes has just been transfered to a personal insurance policy. Guaranteed linkage to RPI for life.  Was worried that the scheme which closed in 1999, was doomed to end up in the PFI. 

The life of what? You, or the RPI index?

It looks like from 2030 RPI will be the same as CPIH. That's my understanding anyway - the consultation response document is not easy reading!

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/938008/RPI_Response_FINAL_VERSION_.pdf

So changing RPI as defined now (and maybe calling it something else) may make DB pensioners comparatively worse off.  They might get a 1.5% (CPIH) instead of a 2% (RPI) increase.  But if the real increase in the pensioner's cost of living is 1.5% then, although they're losing their 0.5% Brucie Bonus, they are still keeping up with inflation. Of course if it really is 2% then the index doesn't reflect reality and they lose out.  The question is, which is it?    

chucknorris

michaels said:

CSL0183 said:

michaels said:

CSL0183 said:

michaels said:

CSL0183 said:

Employee gets paid £60k pa and has a 10% matched contribution with the employer known as Salary Sacrifice. Effectively the employee is agreeing to take a pay cut to £54k and the employer contributes the £12k into the fund. That’s the way the current SS scheme works. 

If the government tried to close it down and make it “Illegal” then what’s to stop the employer to say this position is now £54k and your pension is now entirely non contributory. £12k still goes into your fund free of any employers taxation and that way your pension is now non contributory. 

If they then try to close this loophole and make employers contributions a benefit in kind then my previously raised points crop up. The same would then need to be applied to the public sector and there would be huge fallout. 

This is far from easy. 

We all know that they will claim to have raised the tax relief form 20% to 25% on pension contributions but that this will include all contributions whether they are employer or employee and regardless of the tax band of the employee.  The only pensions not impacted will be defined benefit 'to encourage this form of provision'

Agreed, I can see the Government propaganda machine in overdrive trying to convince everyone that 20-25% is a good thing. However, suspect the media will pick up on the fact that their take home pays will Infact drop as a result if they had previously been getting 32% relief. That along with the fallout from the higher rate taxpayers. 

It could stifle the economy to be fair. People could continue with their normal contributions and take the hit in take home pay or they can reduce their pension contribution so that they are no worse off take home pay wise. Either way, spending power is reduced now or in the future. 

So the govt gets more revenue now (to spend on election bribes) at the expense of less in the future when whichever party is in charge it won't be the same politicians...now tell what the downside is for the current gov?

They won’t make another term, they will lose their core middle class vote due to the double taxation if HRT relief is cut and if they go after the public sector schemes, they would lose a lot of votes there too. In addition, if they are making millions of basic rate taxpayers worse off by scrapping SS, there’s votes to be lost there too. 

So yeah, losing millions of votes would be the downside about a pensions tax raid. 

I am yet to meet a public sector worker who has a clue just how much their DB pension is worth and similarly if private sector workers see the same deductions each month so take home pay doesn't change but 20% less is going into their pension the majority will not have a clue.

In reality the unions would kick off if DB pensions were hit so no doubt an exception will be made for these.  they are already grossly unfair so making them even more unfair will not really be noticed by the majority.

Although I know exactly the benefit of my TPS (Teachers Pension Scheme) pension, you are right that many do not realise the value of them, I can think only of one of my fellow lecturers that knows the value of it (excluding the ones that I have explained it too). This is a conversion that I had with one of my colleagues, when I said "congratulations on your promotion to principal lecturer, as well as a salary increase of course your accrued pension will increase too". He actually said, "my pension isn't worth much, it is only about £1,000 a year". He was actually valuing it at only £1,000  per annum of salary, instead of realising that it is an extra £1,000 pension paid on retirement annually for every year until death (the possibly some to his spouse) that he works. I still don't think he fully understood, when I explained that if he wanted to buy an annuity that paid £1,000 per annum (index linked, with spouse benefits) that it would cos about £37k (depending on the provider).
Personally I do not particularly like annuities though, mainly because when I retire I will have just under £30k of index linked pension and much more income from elsewhere (and my wife's income is significant too). So an annuity just isn't as valuable to me as other alternative investments, as it could be to others on a lower pension income. So, I only use a multiplier of 28.5 (not 37) on my spreadsheet, but the value is very subjective, for someone with lower retirement income, the multiplier would be higher than 28.5. The 37 is a rough figure, I did not do a search of the actual costs of annuities. The only other person who I have discussed pension with (in person, not on a forum) that seems to fully understand the value is my wife, but she is a retired actuary (so obviously she would know the value).

Sailtheworld

NedS said:

Sailtheworld said:

The reports of the demise of tax relief on pension contributions were, as usual, somewhat exaggerated.

I think that would come during the budget, if it were to happen. And as others have said, it is very unlikely the Chancellor would announce large changes to pensions in March to be implemented in April (not feasible to implement in short period of time), so any large changes would likely not be until 2022/23 at the earliest.

Which budget? This thread is a cut and paste of the thread which has appeared before every budget / spending review for as long as I can remember.

kinger101

chucknorris said:

michaels said:

CSL0183 said:

michaels said:

CSL0183 said:

michaels said:

CSL0183 said:

Employee gets paid £60k pa and has a 10% matched contribution with the employer known as Salary Sacrifice. Effectively the employee is agreeing to take a pay cut to £54k and the employer contributes the £12k into the fund. That’s the way the current SS scheme works. 

If the government tried to close it down and make it “Illegal” then what’s to stop the employer to say this position is now £54k and your pension is now entirely non contributory. £12k still goes into your fund free of any employers taxation and that way your pension is now non contributory. 

If they then try to close this loophole and make employers contributions a benefit in kind then my previously raised points crop up. The same would then need to be applied to the public sector and there would be huge fallout. 

This is far from easy. 

We all know that they will claim to have raised the tax relief form 20% to 25% on pension contributions but that this will include all contributions whether they are employer or employee and regardless of the tax band of the employee.  The only pensions not impacted will be defined benefit 'to encourage this form of provision'

Agreed, I can see the Government propaganda machine in overdrive trying to convince everyone that 20-25% is a good thing. However, suspect the media will pick up on the fact that their take home pays will Infact drop as a result if they had previously been getting 32% relief. That along with the fallout from the higher rate taxpayers. 

It could stifle the economy to be fair. People could continue with their normal contributions and take the hit in take home pay or they can reduce their pension contribution so that they are no worse off take home pay wise. Either way, spending power is reduced now or in the future. 

So the govt gets more revenue now (to spend on election bribes) at the expense of less in the future when whichever party is in charge it won't be the same politicians...now tell what the downside is for the current gov?

They won’t make another term, they will lose their core middle class vote due to the double taxation if HRT relief is cut and if they go after the public sector schemes, they would lose a lot of votes there too. In addition, if they are making millions of basic rate taxpayers worse off by scrapping SS, there’s votes to be lost there too. 

So yeah, losing millions of votes would be the downside about a pensions tax raid. 

I am yet to meet a public sector worker who has a clue just how much their DB pension is worth and similarly if private sector workers see the same deductions each month so take home pay doesn't change but 20% less is going into their pension the majority will not have a clue.

In reality the unions would kick off if DB pensions were hit so no doubt an exception will be made for these.  they are already grossly unfair so making them even more unfair will not really be noticed by the majority.

Although I know exactly the benefit of my TPS (Teachers Pension Scheme) pension, you are right that many do not realise the value of them, I can think only of one of my fellow lecturers that knows the value of it (excluding the ones that I have explained it too). This is a conversion that I had with one of my colleagues, when I said "congratulations on your promotion to principle lecturer, as well as a salary increase of course your accrued pension will increase too". He actually said, "my pension isn't worth much, it is only about £1,000 a year". He was actually valuing it at only £1,000  per annum of salary, instead of realising that it is an extra £1,000 pension paid on retirement annually for every year until death (the possibly some to his spouse) that he works. I still don't think he fully understood, when I explained that if he wanted to buy an annuity that paid £1,000 per annum (index linked, with spouse benefits) that it would cos about £37k (depending on the provider).
Personally I do not particularly like annuities though, mainly because when I retire I will have just under £30k of index linked pension and much more income from elsewhere (and my wife's income is significant too). So an annuity just isn't as valuable to me as other alternative investments, as it could be to others on a lower pension income. So, I only use a multiplier of 28.5 (not 37) on my spreadsheet, but the value is very subjective, for someone with lower retirement income, the multiplier would be higher than 28.5. The 37 is a rough figure, I did not do a search of the actual costs of annuities. The only other person who I have discussed pension with (in person, not on a forum) that seems to fully understand the value is my wife, but she is a retired actuary (so obviously she would know the value).

When I worked at a university, I even knew two people who opted out of the USS.  They made some vague ill-informed excuse about "the government wouldn't honour it" etc, but primarily I suspect it was because they wanted more take home pay.    

I've been toying with the idea of getting a CETV for my small USS sum (around 7K pa), but given USS + SP would probably give me a safe basic pension level, I'll probably not bother.  Though I'm still mindful of the inflation risk and the deficit.  Which seems difficult to plug given the high level of resistance to any changes to the scheme.

I suspect I'd have a high probability of growing whatever CETV I had to > £200K (inflation adjusted) in 20 years, but any transferred amount would be subject to the same risks as my DC pot.

BTW - it's "principal" lecturer.

Dazed_and_C0nfused

badmemory said:

By £62.50, if you are a 20% tax payer that is just over £1 a month.

Apparently it gets rounded up to the nearest £10 so will actually be £12,570, a whole £1.16/month 

https://www.icaew.com/insights/tax-news/2020/nov-2020/income-tax-personal-allowance-and-national-insurance-limits-for-202122

chucknorris

kinger101 said:

chucknorris said:

michaels said:

CSL0183 said:

michaels said:

CSL0183 said:

michaels said:

CSL0183 said:

Employee gets paid £60k pa and has a 10% matched contribution with the employer known as Salary Sacrifice. Effectively the employee is agreeing to take a pay cut to £54k and the employer contributes the £12k into the fund. That’s the way the current SS scheme works. 

If the government tried to close it down and make it “Illegal” then what’s to stop the employer to say this position is now £54k and your pension is now entirely non contributory. £12k still goes into your fund free of any employers taxation and that way your pension is now non contributory. 

If they then try to close this loophole and make employers contributions a benefit in kind then my previously raised points crop up. The same would then need to be applied to the public sector and there would be huge fallout. 

This is far from easy. 

We all know that they will claim to have raised the tax relief form 20% to 25% on pension contributions but that this will include all contributions whether they are employer or employee and regardless of the tax band of the employee.  The only pensions not impacted will be defined benefit 'to encourage this form of provision'

Agreed, I can see the Government propaganda machine in overdrive trying to convince everyone that 20-25% is a good thing. However, suspect the media will pick up on the fact that their take home pays will Infact drop as a result if they had previously been getting 32% relief. That along with the fallout from the higher rate taxpayers. 

It could stifle the economy to be fair. People could continue with their normal contributions and take the hit in take home pay or they can reduce their pension contribution so that they are no worse off take home pay wise. Either way, spending power is reduced now or in the future. 

So the govt gets more revenue now (to spend on election bribes) at the expense of less in the future when whichever party is in charge it won't be the same politicians...now tell what the downside is for the current gov?

They won’t make another term, they will lose their core middle class vote due to the double taxation if HRT relief is cut and if they go after the public sector schemes, they would lose a lot of votes there too. In addition, if they are making millions of basic rate taxpayers worse off by scrapping SS, there’s votes to be lost there too. 

So yeah, losing millions of votes would be the downside about a pensions tax raid. 

I am yet to meet a public sector worker who has a clue just how much their DB pension is worth and similarly if private sector workers see the same deductions each month so take home pay doesn't change but 20% less is going into their pension the majority will not have a clue.

In reality the unions would kick off if DB pensions were hit so no doubt an exception will be made for these.  they are already grossly unfair so making them even more unfair will not really be noticed by the majority.

Although I know exactly the benefit of my TPS (Teachers Pension Scheme) pension, you are right that many do not realise the value of them, I can think only of one of my fellow lecturers that knows the value of it (excluding the ones that I have explained it too). This is a conversion that I had with one of my colleagues, when I said "congratulations on your promotion to principle lecturer, as well as a salary increase of course your accrued pension will increase too". He actually said, "my pension isn't worth much, it is only about £1,000 a year". He was actually valuing it at only £1,000  per annum of salary, instead of realising that it is an extra £1,000 pension paid on retirement annually for every year until death (the possibly some to his spouse) that he works. I still don't think he fully understood, when I explained that if he wanted to buy an annuity that paid £1,000 per annum (index linked, with spouse benefits) that it would cos about £37k (depending on the provider).
Personally I do not particularly like annuities though, mainly because when I retire I will have just under £30k of index linked pension and much more income from elsewhere (and my wife's income is significant too). So an annuity just isn't as valuable to me as other alternative investments, as it could be to others on a lower pension income. So, I only use a multiplier of 28.5 (not 37) on my spreadsheet, but the value is very subjective, for someone with lower retirement income, the multiplier would be higher than 28.5. The 37 is a rough figure, I did not do a search of the actual costs of annuities. The only other person who I have discussed pension with (in person, not on a forum) that seems to fully understand the value is my wife, but she is a retired actuary (so obviously she would know the value).

When I worked at a university, I even knew two people who opted out of the USS.  They made some vague ill-informed excuse about "the government wouldn't honour it" etc, but primarily I suspect it was because they wanted more take home pay.    

I've been toying with the idea of getting a CETV for my small USS sum (around 7K pa), but given USS + SP would probably give me a safe basic pension level, I'll probably not bother.  Though I'm still mindful of the inflation risk and the deficit.  Which seems difficult to plug given the high level of resistance to any changes to the scheme.

I suspect I'd have a high probability of growing whatever CETV I had to > £200K (inflation adjusted) in 20 years, but any transferred amount would be subject to the same risks as my DC pot.

BTW - it's "principal" lecturer.

kinger101 said:

chucknorris said:

michaels said:

CSL0183 said:

michaels said:

CSL0183 said:

michaels said:

CSL0183 said:

Employee gets paid £60k pa and has a 10% matched contribution with the employer known as Salary Sacrifice. Effectively the employee is agreeing to take a pay cut to £54k and the employer contributes the £12k into the fund. That’s the way the current SS scheme works. 

If the government tried to close it down and make it “Illegal” then what’s to stop the employer to say this position is now £54k and your pension is now entirely non contributory. £12k still goes into your fund free of any employers taxation and that way your pension is now non contributory. 

If they then try to close this loophole and make employers contributions a benefit in kind then my previously raised points crop up. The same would then need to be applied to the public sector and there would be huge fallout. 

This is far from easy. 

We all know that they will claim to have raised the tax relief form 20% to 25% on pension contributions but that this will include all contributions whether they are employer or employee and regardless of the tax band of the employee.  The only pensions not impacted will be defined benefit 'to encourage this form of provision'

Agreed, I can see the Government propaganda machine in overdrive trying to convince everyone that 20-25% is a good thing. However, suspect the media will pick up on the fact that their take home pays will Infact drop as a result if they had previously been getting 32% relief. That along with the fallout from the higher rate taxpayers. 

It could stifle the economy to be fair. People could continue with their normal contributions and take the hit in take home pay or they can reduce their pension contribution so that they are no worse off take home pay wise. Either way, spending power is reduced now or in the future. 

So the govt gets more revenue now (to spend on election bribes) at the expense of less in the future when whichever party is in charge it won't be the same politicians...now tell what the downside is for the current gov?

They won’t make another term, they will lose their core middle class vote due to the double taxation if HRT relief is cut and if they go after the public sector schemes, they would lose a lot of votes there too. In addition, if they are making millions of basic rate taxpayers worse off by scrapping SS, there’s votes to be lost there too. 

So yeah, losing millions of votes would be the downside about a pensions tax raid. 

I am yet to meet a public sector worker who has a clue just how much their DB pension is worth and similarly if private sector workers see the same deductions each month so take home pay doesn't change but 20% less is going into their pension the majority will not have a clue.

In reality the unions would kick off if DB pensions were hit so no doubt an exception will be made for these.  they are already grossly unfair so making them even more unfair will not really be noticed by the majority.

Although I know exactly the benefit of my TPS (Teachers Pension Scheme) pension, you are right that many do not realise the value of them, I can think only of one of my fellow lecturers that knows the value of it (excluding the ones that I have explained it too). This is a conversion that I had with one of my colleagues, when I said "congratulations on your promotion to principle lecturer, as well as a salary increase of course your accrued pension will increase too". He actually said, "my pension isn't worth much, it is only about £1,000 a year". He was actually valuing it at only £1,000  per annum of salary, instead of realising that it is an extra £1,000 pension paid on retirement annually for every year until death (the possibly some to his spouse) that he works. I still don't think he fully understood, when I explained that if he wanted to buy an annuity that paid £1,000 per annum (index linked, with spouse benefits) that it would cos about £37k (depending on the provider).
Personally I do not particularly like annuities though, mainly because when I retire I will have just under £30k of index linked pension and much more income from elsewhere (and my wife's income is significant too). So an annuity just isn't as valuable to me as other alternative investments, as it could be to others on a lower pension income. So, I only use a multiplier of 28.5 (not 37) on my spreadsheet, but the value is very subjective, for someone with lower retirement income, the multiplier would be higher than 28.5. The 37 is a rough figure, I did not do a search of the actual costs of annuities. The only other person who I have discussed pension with (in person, not on a forum) that seems to fully understand the value is my wife, but she is a retired actuary (so obviously she would know the value).

Someone in our department also did that, but after a number of years they realised (probably after comments from colleagues) and they re-joined, that happened before I worked there, so I don't actually know.

I bought the max allowed additional pension in the pre 2015 TPS scheme (£6k, it is slightly more now, but I bought it years ago). I had to wait until August this year to join the 2015 scheme, and I immediately bought additional pension in that scheme too. But because because I am only part time, I will not have enough 'relevant earnings' to buy the max in the 2015 scheme, I will probably only be able to buy about another £6.25k (I think the current max allowed is £7.5k, I'm not sure).

Yeah I know that it is 'principal', it was just a typo (now corrected). I can't transfer my TPS pension, but if I could, I'm not sure if I would, as it does add diversity to my portfolio, because I can't do it, I haven't spent any time really thinking about it.

EDIT: I recently realised that I am probably going to have to retire in a few years when I am 66, I really like my job and I would prefer to stay, but if I draw pension and I can't sacrifice my salary to buy additional pension (not allowed after state pension age), I would end up paying 60% tax (due to losing personal allowance), and I don't want to do that. My only real option would be to consider deferring my pension, but I am thinking that 66 is old enough to stop working (I haven't decided yet).