Rishi after Pensions Tax Relief

MDMD

cfw1994 said:

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.......

One unintended consequence will be for a BRT paying in using Salary Sacrifice who currently gets 32% relief including NI (more if they get an employer kickback for their 13.8% Employer NI) will then get a cut in relief too.

This is probably more beneficial to the government as they will cut their tax relief costs from 45.8% to (for example) 25% yet still be able to claim they are increasing relief for BR taxpayers....

molerat

mark55man said:

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 Mx HRT - someone who is starting from a better point - get a 40% discount and Mx 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  

Things change, we used to get tax relief on mortgage and life insurance payments but not any more.  Nothing is sacred in the world of taxation.

EdSwippet

molerat said: 

Things change, we used to get tax relief on mortgage and life insurance payments but not any more.  Nothing is sacred in the world of taxation.

See also: Thought-terminating cliché - Wikipedia

garmeg

Dont forget the extra effective tax relief for those in receipt of tax credits. This changes the effective tax relief via sal sacrifice for a BRT from 32% to 73% due to the 41% tax credits withdrawal rate. Both figures ignore any bonus from any donated employer NI saving.

£100 into a pension costs such people just £27, isn't that right @michaels as this is something you have mentioned previously.

mark55man

wait that sounds unfair -

hugheskevi

The same old problems need to be overcome:

(1) How do you deal with the salary sacrifice issue? This would be the obvious avoidance method to turn to. If a change is made to not permit salary sacrifice, how do you deal with standard employer contributions above the statutory minimum? Do you permit a percentage or cash amount, beyond which a charge applies for higher/additional rate taxpayers? If not, how do you deal with abnormally large employer contributions - would 10/15/20% be okay? Doesn't that then start to look like salary sacrifice, especially if different percentages are used for different individuals or groups?

(2) How do you deal with Defined Benefit pensions? Whilst you could remove higher/additional rate relief on member contributions, the value of the benefit is much greater, and it is far more difficult to measure the value of the employer contribution at individual level. How would you accurately calculate the value of the employer contribution and apply taxation to it above a particular level? The Annual Allowance methodology for valuing DB pension is extremely crude and inaccurate, but more accuracy would be complicated and expensive to administer (and fall mainly on public sector employers) and as this change would affect far more people than currently have Annual Allowance charges it would be controversial to reduce tax relief based on such an inaccurate calculation. Reducing Annual Allowance to £20 / £30K would mean those earning above £54K / £81K in the public sector (eg Civil Service) would have a tax charge each year.

(3) Would you treat Defined Benefit and Defined Contribution schemes differently? That would make a change a lot easier to implement, but would then be treating public and private sector differently (given DB is mostly public sector). Could such a change lead to avoidance by employers setting up sham-DB schemes (eg guaranteeing to pay at least £100 pension p/a, but DC in every other way) to exploit differences?

(4) Do you move to a LISA type arrangement to replace DC pensions, removing all relief and providing a credit up to a particular amount? That would be much easier, but doesn't deal with DB pensions and there is the issue of how to deal with existing pension savings.

(5) Could you solve the DB issue by moving public sector to DC pensions? But what about workforce/union protests, and also the increased short to medium term expenditure increase from paying existing pensions but with new member and employer contributions going to DC pensions instead of being used to pay existing pensions? And what about the 25 year guarantee of no change given for the 2015 reforms?

All the above means there are no easy fixes, and either you tolerate various unfairness and exploitation (eg as exists with salary sacrifice now - as clearly tax savings incentives should not vary depending on the payroll an employer is willing to offer, and also between DB/DC schemes in Annual/Lifetime Allowance limit application) or go for more significant reform. More significant reform would probably take at least 4 years to design and implement however, so there wouldn't be more revenue now.

german_keeper

I would leave pensions well alone and go for a complete revamp of inheritance tax. I am probably quite unusual in that I have never really understood the Great British obsession with IHT. I would always accept the argument that there should be no such thing as taxation, survival of the fittest and all that, although I wouldn't agree with it. But once you accept the principle of taxation I would see IHT as the fairest tax of all. You haven't worked for it, you haven't paid tax on it, it is a gift.

I would look at something like first £100k tax free next £50/£100k at 5%, next £50k/£100K at 10% etc etc. Obviously the number crunchers in the Treasury would have to do the sums and it may be that in the big scheme of things it would only be a drop in the ocean or the administration would be a nightmare. 

I think 2 things have happened in the last 20 years or so that have been very important. Firstly increases in life expectancy and secondly house prices roughly trebling, at least where we live. So a typical inheritance used to be a nice holiday or a new car. Now it's rather more than that and the recipients are far more likely to be financially comfortable, probably retired. So there is every chance that money could be just sat in a bank account doing very little and not circulating and generating tax revenue.    

I will use the example of me and my 2 sisters. And I would suspect we are not untypical. When my mum goes I would imagine that we would receive somewhere between £100k and £150k each and under current rules pay no IHT at all. None of us is particularly wealthy but all 3 of us are very comfortable. Why on earth shouldn't we pay maybe £10k or £20k each in IHT. Especially when £150k or so of that inheritance will likely come from a young couple with kids who buy my mum's house and are mortgaged to the hilt. Why not we pay a bit of IHT and they get some sort of tax concession.

kangoora

Remove salary sacrifice, it's a 'perk' that is only available to a select number of employees - maybe a large number but there are certainly a huge number of people who will never get that benefit. My wife has worked for about 6 different employers over the last 30 years and has never worked for a company that offered salary sacrifice. It creates a 2 tier system of tax that only benefits those that work for progressive and/or larger employers in the main.

HRT relief on pension contributions is also another 2 tier system that is even more unfair as the people getting the most benefit are the 'richer' members of society anyway. You have to be earning over £50k to start benefiting (excl. Scotland) from this relief.

Also, I thought I'd throw this in, tax dividends the same as income tax, it's ludicrous that people all over the country are paying themselves the bare minimum to qualify for NI payments and paying less tax than PAYE people just because they get their salary as 'dividends' - although that did backfire spectacularly with the COVID 'furlough' schemes. I did find it quite funny that people who had been (legally) dodging 20% income tax for years started whinging about how little they were getting from government support schemes

ussdave

There were plenty of people on the breadline that were also affected by the poor implementation of the furlough scheme.  Thankfully not myself or the Mrs but a few friends that ran small (1 man band, not consultants avoiding tax) businesses were pretty screwed.

Can't say I'm a fan of some of the race to the bottom suggestions.  More tax for those on higher incomes seems like a reasonable start.  Nothing that impacts those who are paying BR tax, even those on salary sacrifice schemes, should be a first port of call though.  I'm happy for HR tax relief to be hit though, even if it impacts me.  Same with action against people that should really be HR tax payers but take payment through an umbrella company or similar.  I've worked with enough consultants on over 100k that pay less tax than someone on less than half that figure to have a bee in my bonnet about it.  IR35 doesn't really do much to prevent that 

garmeg

Putting all footballers and celebrities on full PAYE would raise a few quid.