Rishi after Pensions Tax Relief

mark55man

so emphasis on how unfair it is for HRT payers to get 40% relief and BRT payers to get 20% relief.  The argument is that it is unfair because HRT get double the tax relief.

I don't agree.  If Mr BRT earns £100 gross in his BRT band and pays it into his pension then when all the income tax toings and rebate froings are finished he has £100 in his pension.  If Ms HRT earns £100 gross in her HRT band (but before the £100K shenanigans kick in) then when all the income tax toings and rebate froings are finished she has £100 in her pension.  How is that not fair for a government encouraging retirement savings (as all governments have done for decades)

Its a bit like, "if only there was some way to get higher earners (such as those paying HRT) to pay more tax", doh!! we are.  I am a HRT and I don't object to paying the HRT - but it mildly narks me that that difference is hardly recognised anywhere as the contribution that is being asked for.  I think what people (typically BRT or pensioners) really mean is they want the active HRT taxpayers to pay even more of the share so they don't have to.  Following COVID, someone (or maybe all of us) will need to be doing that one way or the other  

NedS

mark55man said:

so emphasis on how unfair it is for HRT payers to get 40% relief and BRT payers to get 20% relief.  The argument is that it is unfair because HRT get double the tax relief.

I don't agree.  If Mr BRT earns £100 gross in his BRT band and pays it into his pension then when all the income tax toings and rebate froings are finished he has £100 in his pension.  If Ms HRT earns £100 gross in her HRT band (but before the £100K shenanigans kick in) then when all the income tax toings and rebate froings are finished she has £100 in her pension.  How is that not fair for a government encouraging retirement savings (as all governments have done for decades)

It's not fair because the cost to Ms HRT is £60 but the cost to Mr BRT is £80, and it's further perceived as being unfair as Ms HRT is more well off as a function of earning more, so is better able to afford to save for retirement whereas for Mr BRT, saving for retirement may be more of a struggle and it's costing him more to buy the same £100 of pension provision.

NedS

I note the press articles talk of a flat 25% rate for pension tax relief across the board - I wonder if that signifies an intention to also raise BRT from 20% or if it is the Chancellors way of softening the blow for HRT payers but giving BRT payers something of a bonus to boot? I guess it certainly gives scope for small rises in BRT if the Chancellor so desires.

cfw1994

aroominyork said:

What's the point in people who don't care about opinions reading threads that ask for opinions? Nobody knows.

*and* take time to respond to them: who knows 
NedS said:

I note the press articles talk of a flat 25% rate for pension tax relief across the board - I wonder if that signifies an intention to also raise BRT from 20% or if it is the Chancellors way of softening the blow for HRT payers but giving BRT payers something of a bonus to boot? I guess it certainly gives scope for small rises in BRT if the Chancellor so desires.

I think that is a great idea to provide incentive to the 'lower' paid (ie, not HRT) to invest in their longer term retirement futures.
I do maintain that it is an area full of potential for unintended consequences.......

mark55man

NedS said:

mark55man said:

so emphasis on how unfair it is for HRT payers to get 40% relief and BRT payers to get 20% relief.  The argument is that it is unfair because HRT get double the tax relief.

I don't agree.  If Mr BRT earns £100 gross in his BRT band and pays it into his pension then when all the income tax toings and rebate froings are finished he has £100 in his pension.  If Ms HRT earns £100 gross in her HRT band (but before the £100K shenanigans kick in) then when all the income tax toings and rebate froings are finished she has £100 in her pension.  How is that not fair for a government encouraging retirement savings (as all governments have done for decades)

It's not fair because the cost to Ms HRT is £60 but the cost to Mr BRT is £80, and it's further perceived as being unfair as Ms HRT is more well off as a function of earning more, so is better able to afford to save for retirement whereas for Mr BRT, saving for retirement may be more of a struggle and it's costing him more to buy the same £100 of pension provision.

The GROSS (ie earnings) cost to both is £100.  The NET cost to Ms HRT is £60 because she has already given HMRC £40.  Mr BRT gets £20 rebate but has only given HMRC £20.  So they both get returned to them all that they have given to HMRC.  Which is why it would be unfair for Mr and Mrs to both get £20, because Mr BRT would be getting 100% rebate of tax paid and Mrs HRT only getting 50%

molerat

mark55man said:

NedS said:

mark55man said:

so emphasis on how unfair it is for HRT payers to get 40% relief and BRT payers to get 20% relief.  The argument is that it is unfair because HRT get double the tax relief.

I don't agree.  If Mr BRT earns £100 gross in his BRT band and pays it into his pension then when all the income tax toings and rebate froings are finished he has £100 in his pension.  If Ms HRT earns £100 gross in her HRT band (but before the £100K shenanigans kick in) then when all the income tax toings and rebate froings are finished she has £100 in her pension.  How is that not fair for a government encouraging retirement savings (as all governments have done for decades)

It's not fair because the cost to Ms HRT is £60 but the cost to Mr BRT is £80, and it's further perceived as being unfair as Ms HRT is more well off as a function of earning more, so is better able to afford to save for retirement whereas for Mr BRT, saving for retirement may be more of a struggle and it's costing him more to buy the same £100 of pension provision.

The GROSS (ie earnings) cost to both is £100.  The NET cost to Ms HRT is £60 because she has already given HMRC £40.  Mr BRT gets £20 rebate but has only given HMRC £20.  So they both get returned to them all that they have given to HMRC.  Which is why it would be unfair for Mr and Mrs to both get £20, because Mr BRT would be getting 100% rebate of tax paid and Mrs HRT only getting 50%

But if, as with most things, we were to buy them from net income why should Mr HRT - someone who is starting from a better point - get a 40% discount and Mr BRT only get 20%.

jamesd

Mick70 said:

Much of the media reporting again that Rishi will be going after Pensions Tax Relief for higher earners

A foolish way to achieve the objective. Reduce annual allowance to 30k and increase carry-forward from 3 to 5 years would be far simpler. Current single year maximum is 160k (ignoring potential taper). Three years at 30k would cut to 120k, 4 years to 150k while 5 increases to 180k.

Around half of the population will be higher rate tax payers at some point so it's not some small number affected. Carry-forward lets those in higher bands for shorter times use the extra income prudently while the ongoing allowance limits the total benefit an individual can receive during their lifetime.

Potentially cut to 20k AA with 8 years carry-forward. One year maximum then 180k.

Try to change tax relief calculation an it's far messier, with lots of interactions involved. Salary sacrifice  (company contributions) can already reduce the basic:higher rate differential from 20:40 to 32:42 (1: to 1:1.3). If 50% of 13.8% employer NI is added it's 38.9:48.9 (1:1.26). The annual allowance already restricts use of this.

"with this measure we reduce the tax relief for long term high earners while continuing to support those with temporary high earnings to prudently provide for their retirement" and avoid problems with defined benefit value increases. Supporting prudence while trimming excess benefit seems like a handy Conservative ideology match.

This does have one problem: the full tax take increase isn't immediate. But with the mechanism already in place it can start to help in months rather than years.

Albermarle

A foolish way to achieve the objective. Reduce annual allowance to 30k

Clearly this way would be a lot more straightforward but I suspect the cost of HRT relief would not then be hugely reduced ?

Presumably the majority of higher rate taxpayers are not now hitting the £40K , so a reduction to £30K would only affect a minority .

EdSwippet

NedS said:
It's not fair because the cost to Ms HRT is £60 but the cost to Mr BRT is £80, and it's further perceived as being unfair as Ms HRT is more well off as a function of earning more, so is better able to afford to save for retirement whereas for Mr BRT, saving for retirement may be more of a struggle and it's costing him more to buy the same £100 of pension provision.

Pensions are one of the few multi-year income smoothing options available to earners. Here is a counter-example. Suppose Mr BRT and Ms HRT both do the same job at the same company, nominal five day working week but hours are flexible.

• Mr BRT chooses to work all day Mon and Tue, and Wed mornings, for two years. He earns £50k/year and pays basic rate tax. Total income is £100k.
• Ms HRT chooses to work all day Mon to Fri in year one, and takes year two off. Total income is also £100k, the same as Mr BRT, on identical amount of work, but she has to pay a lot of higher rate tax (overall she is £10k worse off than Mr BRT).

You may now explain why two people doing the same amount of work for the same amount of money should be subjected to wildly different tax outcomes based purely on timing. Saying "because we have a tax system that uses annual accounting" is not sufficient explanation.

mark55man

molerat said:

mark55man said:

NedS said:

mark55man said:

so emphasis on how unfair it is for HRT payers to get 40% relief and BRT payers to get 20% relief.  The argument is that it is unfair because HRT get double the tax relief.

I don't agree.  If Mr BRT earns £100 gross in his BRT band and pays it into his pension then when all the income tax toings and rebate froings are finished he has £100 in his pension.  If Ms HRT earns £100 gross in her HRT band (but before the £100K shenanigans kick in) then when all the income tax toings and rebate froings are finished she has £100 in her pension.  How is that not fair for a government encouraging retirement savings (as all governments have done for decades)

It's not fair because the cost to Ms HRT is £60 but the cost to Mr BRT is £80, and it's further perceived as being unfair as Ms HRT is more well off as a function of earning more, so is better able to afford to save for retirement whereas for Mr BRT, saving for retirement may be more of a struggle and it's costing him more to buy the same £100 of pension provision.

The GROSS (ie earnings) cost to both is £100.  The NET cost to Ms HRT is £60 because she has already given HMRC £40.  Mr BRT gets £20 rebate but has only given HMRC £20.  So they both get returned to them all that they have given to HMRC.  Which is why it would be unfair for Mr and Mrs to both get £20, because Mr BRT would be getting 100% rebate of tax paid and Mrs HRT only getting 50%

But if, as with most things, we were to buy them from net income why should Mr HRT - someone who is starting from a better point - get a 40% discount and Mr BRT only get 20%.

Mainly because pensions have, for as long as I've read about it (and that's a long time) has always been one of the things that you do out of gross money - so making a change in this respect is doubly unfair.

Also I note you have rejected my suggestion that a Ms can be a HRT and mansplained it into Mr