Telegraph reporting - pensions tax threat

Mick70

https://www.bbc.co.uk/news/blogs-the-papers-57548783

Telegraph reporting pensions will come under close scrutiny for tax rises in the autumn budget , i know this is regularly reported upon and never happens but you do wonder if pensions are an easy target for the govt to start paying back its furlough debts 
few staff I work with have bought second properties as holiday lets as a pensions vehicle , also wonder if they could become a target 

mick

JoeCrystal

Doesn't really matter until the actual budget come out. 🙂 It seems that salary sacrifice for pension and the higher tax relief seems to be more likely a target.

The one I am more interested in is what they will do with triple lock promise. Otherwise, the state pensioners would be a nice rise in their pension. 5% to 8% potentially!

ex-pat_scot

It comes around, regular as clockwork, every time there's a discussion on future budgets and opportunities for raising tax.
Frankly it feels like a bit of "kite flying" to see what grumbles are generated and whether it might be politically-acceptable.

As ever, there are a few threads to pick:
- flat rate tax relief
- LTA
- wealth tax
- inheritance
- Annual Allowance
- age of access
- tax free element
- (outside bet) - NI or other tax levied on pension income, above income tax
- means testing state pension
- "think of the poor doctors"

Not in any order of likelihood.

The "political risk" of tinkering to pensions remains by far the greatest threat to pension planning. 
Each "discussion" erodes the trust in the outcome of your decades-long pension planning.

We've seen the introduction of an LTA, then its gradual erosion from £1,8m to £1,25m then £1m then indexed then frozen.
I'm aiming for LTA as my target - tax gets rather punitive above, and it will broadly generate an income of £50,000 with some nimble footwork and using SP as a counterbalance.
I've got less than 3 years to get to 55 and possible access. Even with that short horizon, there are pitfalls and risks involved. If I were long range forecasting (10-20 years out) then there's no realistic way of trying to predict future approach/levels/ restriction.
We all know that it's fundamentally ill-conceived (I hesitate using the word "fair", as that's far too subjective) illogical and drives unintended consequences (early retirements, loss of experienced GPs etc).

Flat rate tax would require an enormous overhaul of systems and rules, and would take some years to implement. Selfishly, that would not hit until past my retirement, so I'm less worried about it.
It would mean a fundamental unpicking of salary sacrifice, redesign of company and HMRC systems etc, so would need quite a long introduction window.

Inheritance would be an easy "win" - at present, any uncrystallised funds are deemed outside of the estate for IHT.

AA would be a relatively simple figure to throttle back from the £40,000 level. Indeed it was £50,000 until not so long ago.
Simple to administer for DC, but rather more of an impact on DB schemes and NHS staff.

Age of access is a worry. There's a puritan ethic to the messaging that 55 is simply far too early to retire, and that it should have moved from 50 (again, quite recently) and being pegged to the rising state pension age.  Why? If you have sufficient, and have been grown up enough to save prudently, then choosing when to stop should not have to be restricted.

Tax free 25% doesn't really seem to be at threat. There are mutterings, but this forms such a core element of the pension "bargain" that to remove it would be to remove pretty much all incentive to save in a pension (employer contributions aside).

Tax on pension income. We are fortunate that we dont get NI on pension income, but there are a few noises about pensioners being the ones who cost the dear NHS the most, so why dont they pay NI?  That would be pretty tough to bear, as it would broadly double the deductions on pension income.

SP means testing - is already broadly in place, as it is subject to income tax at the marginal rate.

Special interest lobbying - whether doctors, judges or whomever - will fight fiercely.

Silvertabby

JoeCrystal said:

Doesn't really matter until the actual budget come out. 🙂 It seems that salary sacrifice for pension and the higher tax relief seems to be more likely a target.

The one I am more interested in is what they will do with triple lock promise. Otherwise, the state pensioners would be a nice rise in their pension. 5% to 8% potentially!

Part of that increase shouldn't really count, as it's simply the restoration of salaries back up to 100% after the furlough reduction to 80%.

However, there are already screams of 'but we're entitled' and 'they'd better not break the triple lock promise'.

Mr S is already a State pensioner, and I get mine next year, so an 8% rise would be nice - but at what cost to the Country's  post Covid economic recovery?  Don't forget that it isn't only current pensioners who would get this increase - the pension forecast figures for everyone else would be raised by this amount as well.
  

Thrugelmir

Mick70 said:

are an easy target for the govt to start paying back its furlough debts 

The debts are ours, the taxpayers. 

[Deleted User]

“ Tax free 25% doesn't really seem to be at threat. There are mutterings, but this forms such a core element of the pension "bargain" that to remove it would be to remove pretty much all incentive to save in a pension (employer contributions aside).”

Nope.  Tax deferral is also a massive incentive.  

Albermarle

inheritance would be an easy "win" - at present, any uncrystallised funds are deemed outside of the estate for IHT.

Not just uncrystallised but crystallised funds as well . 

It is for sure an anomaly, but changing it would I guess mean some primary legislation about the role of trustees generally, not just for pensions .

2nd_time_buyer

If it was me. I would:

1) abolish higher rate tax relief
2) abolish salary sacrifice on pensions
3) introduce a flat relief at 32% (i.e. the same as salary sacrifice at basic rate)

I am not sure if that is more or less affordable than the current system. If it is less, I would then be tempted to play around with the annual and lifetime allowance.

That would get rid of the two most bonkers things in the current system:
1) People who earn more (and arguably need it less) get more tax relief;
2) whether or not you can salary sacrifice pension contributions seems entirely arbitrary depending on employer.

Eldi_Dos

The way the triple lock is working is not levelling up pensions but increasing the gap between those on lower pensions and those on higher pensions.

dunstonh

Please see answers to pre budget threads in 2020,2019,2018, 2017,2016, 2015, 2014,2013,2012, 2011,2010......and so on.

P'ing in the wind at this stage.  As the media does every year.  And usually get it wrong.

Gary1984

2nd_time_buyer said:

If it was me. I would:

1) abolish higher rate tax relief
2) abolish salary sacrifice on pensions
3) introduce a flat relief at 32% (i.e. the same as salary sacrifice at basic rate)

I am not sure if that is more or less affordable than the current system. If it is less, I would then be tempted to play around with the annual and lifetime allowance.

That would get rid of the two most bonkers things in the current system:
1) People who earn more (and arguably need it less) get more tax relief;
2) whether or not you can salary sacrifice pension contributions seems entirely arbitrary depending on employer.

1) It should really be thought of as tax deferral, not tax relief. HRT payers will pay tax on their pension eventually. The main advantage is that they can get relief at higher rate then pay tax on withdrawal at Basic rate. But similarly a basic rate earner can effectively pay no tax if they take withdrawals up to their tax free allowance + tax free element, so the benefit can be similar in the end for low and high earners. 

2) People need to be more switched on about salary sacrifice and weigh it up as part of their total benefits package and start demanding it from their employers.