In light of the latest budget, will you be tweaking your long term budget planners?

Sea_Shell

We hadn't factored in any increases to the PA in our forecasts.   Just based it on what it is now.

We won't miss what we hadn't planned to have!

quirkydeptless

Best thing about the budget was that instead of withdrawing £16666.66 recurring from my SIPP, I can withdraw a rational  £16760

Linton

My plan works in £s and calculates tax exactly based on allowances and tax bands increasing by inflation of 3%.  So I will reset the predicted values with reality when the plan is updated in April. The effect will be minimal since actual expenditure is lower than predicted.  There wont be any fundamental changes.

IAMIAM

Basically, most people who end up into the higher rate band are wise to increase pension contributions....

hugheskevi

A significant issue with lowering and freezing thresholds is the big uncertainty it creates for younger and middle-aged savers. With the Lifetime Allowance frozen at its current level:

• A new Civil Servant aged 21 earning £20,000 who experiences salary growth equal to inflation of 2.5% in all future years would exceed Lifetime Allowance by their State Pension age.
• A new member of a Defined Contribution pension scheme aged 21 earning £25,000 and experiencing salary growth of 2.5% per year and contributing (including employer contribution rate) 15% of salary and receiving investment returns of 5% (nominal) growth is very close to Lifetime Allowance at State Pension age.

These are very low earners with low pay escalation, the figures for even average earners are obviously much tighter. Given that by 2026 the Lifetime Allowance will be nearly £500,000 lower in cash terms than it was 20 years earlier in 2006, it is hard to make a convincing argument that future increases should be expected, particularly given that taxes which once upon a time affected very few have been massively expanded over time, eg, higher rate of income tax.

This makes retirement planning extremely uncertain, and that policy risk makes pension saving unattractive, with no idea of what might happen after 2026.

From an economic perspective, it is damaging given the obvious response to reaching the LTA is to retire and to commence pension earlier than would otherwise have been the case. That may or may not be a rational decision, but it is well-known that 'nudges' such as this disincentive can be extremely powerful.

NedS

kinger101 said:

Short answer no.

Long answer, for tax allowances such as the personal allowance, it's unreasonable to assume they'll move according to inflation for the rest of your life anyway so I don't see the benefit in planning for these.  I doubt income tax rates will be 20 % and 40 % by the time I retire too.

It was reasonable to assume that because it was written into law that personal income tax allowances would rise in line with CPI inflation. Up until yesterday when the Chancellor changed the law. Now they are frozen until 2026, so it would be equally reasonable to assume that will be the case, until the law changes again, and to update any financial planning accordingly. I think the law is a pretty good determinant as to what is reasonable?

bownyboy

No change here. We're both FI and looking to RE this year. We will be drawing down from a combination of ISAs and SIPPs along with state pension later on.

SouthCoastBoy

bownyboy said:

No change here. We're both FI and looking to RE this year. We will be drawing down from a combination of ISAs and SIPPs along with state pension later on.

I think the key to have a flexible strategy. I have not always put all my investments into a pension I am 50:50 in stocks and shares ISAs and pensions. This has helped me in two ways, I could draw money from investments if needed before 55 and additionally the LTA does not become such an issue, plus when drawing pensions and combination of S&S ISA there is less tax to pay rather than having it all in a pension, appreciate I have paid income tax on the S&S ISA already. Finally as we can see the rules can change therefore IMO always a good idea not to have all your eggs in one basket.

Alexland

Freezing of both the inheritance tax and lifetime allowances for 5 years has given me pause for thought. On inheritance tax it's becoming clearer that we won't be able to pass much down apart from the family home and on the LTA it's probably still worth contributing enough into my workplace pension to avoid child benefit clawback.

However it does make me think we should be putting more into my wife's overall smaller pensions. She works part time and is already salary sacrificing enough to bring her down to just above the personal allowance but I wonder if it might then be worth putting money into her SIPP each tax year while it is still supported by earnings but that would be at the expense of putting money into our S&S ISAs which we were trying to build up to spend on very early retirement. The estate planning tail might be wagging the dog but if/when we receive inheritance ourselves it might have been better to pension wrap even more of our current income. We have some money to invest before the end of this tax year and I am on the fence if it is going into our ISAs or my wife's SIPP.

DT2001

Alexland said:

Freezing of both the inheritance tax and lifetime allowances for 5 years has given me pause for thought. On inheritance tax it's becoming clearer that we won't be able to pass much down apart from the family home and on the LTA it's probably still worth contributing enough into my workplace pension to avoid child benefit clawback.

However it does make me think we should be putting more into my wife's overall smaller pensions. She works part time and is already salary sacrificing enough to bring her down to just above the personal allowance but I wonder if it might then be worth putting money into her SIPP each tax year while it is still supported by earnings but that would be at the expense of putting money into our S&S ISAs which we were trying to build up to spend on very early retirement. The estate planning tail might be wagging the dog but if/when we receive inheritance ourselves it might have been better to pension wrap even more of our current income. We have some money to invest before the end of this tax year and I am on the fence if it is going into our ISAs or my wife's SIPP.

We are pretty much at our rough number. So we decided that any inheritance we were due to receive would be passed on immediately preferably by a will change.
If you put money in an ISA it will support your early retirement plan. You could continue post retirement to put in £3.6k to top up funds outside IHT.
It is a balancing act and partly depends on how strong the desire to retire early is.