Telegraph reporting - pensions tax threat

michaels

Albermarle said:

Gary1984 said:

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. 

1) You are right , but the 'middle earners' at £40K ish probably get least benefit - no 40% tax relief and probably paying tax in retirement. The easiest way to reduce higher rate tax relief would be to reduce the annual allowance as the vast majority of those affected by this will be higher rate taxpayers . A lot simpler than fiddling around with the tax system .

2) SS is a loophole that should be closed. Not only does it reduce NI payments to the exchequer but some people also use it to claim child benefit when they are normally earning too much to do that. 

Umm - I have paid about 25 years of NI and have the max state pension entitlement - sal sac means I can avoid some of the NI that I still have to pay despite not receiving any more pension, unlike most other people who earn pension entitlement from their NI payments.  How is me having to pay NI for nothing fair?

kidmugsy

If a bit of fiddle-faddle is planned I'd like to see changes in the direction of simplification.  (Roars of ironic laughter.)

Abolish lifetime allowance altogether.  Or abolish annual allowance altogether.  But please get rid of the complexity of LTA + protected LTA + AA + Tapered AA + MPAA + carry-forward AA.

Example: no LTA and therefore no protected LTA; AA = £20k, no tapering, no MPAA, no carry-forward AA.  With the AA now rather modest, scrap the anti-recycling rules too.  (Oh yeah, and how about decoupling AA from earnings?  Anyone can bung in £20k p.a. even if it comes from an inheritance from Aunt Maisie?)

Hm, it begins to sound like the ISA rules except for the tax relief.  OK, scrap new ISAs too.

Since about the only thing that Joe Bloggs understands about pensions is the 25% TFLS, leave it be.

Albermarle

michaels said:

Albermarle said:

Gary1984 said:

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. 

1) You are right , but the 'middle earners' at £40K ish probably get least benefit - no 40% tax relief and probably paying tax in retirement. The easiest way to reduce higher rate tax relief would be to reduce the annual allowance as the vast majority of those affected by this will be higher rate taxpayers . A lot simpler than fiddling around with the tax system .

2) SS is a loophole that should be closed. Not only does it reduce NI payments to the exchequer but some people also use it to claim child benefit when they are normally earning too much to do that. 

Umm - I have paid about 25 years of NI and have the max state pension entitlement - sal sac means I can avoid some of the NI that I still have to pay despite not receiving any more pension, unlike most other people who earn pension entitlement from their NI payments.  How is me having to pay NI for nothing fair?

Always winners and losers from any taxation change . I also have been paying NI for nothing for a few years but my rich employer has also been able to avoid some NI which I do not agree with.

NedS

kuratowski said:

A lot of speculation, obviously.  I have no idea.

My hunch is that it would prove far more controversial to change the tax treatment of withdrawing money that's already within pensions today, than it would to change the tax treatment of paying money in to pensions in the future.  Which would make some of the ideas listed above more likely than others.

I agree with your point, but wouldn't a 1% increase (to 21%) in the basic rate of income tax do exactly that for many pensioners? And I doubt many in the working classes would have much sympathy for pensioners screaming about unfair taxation of their pensions.

2nd_time_buyer

michaels said:

Albermarle said:

Gary1984 said:

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. 

1) You are right , but the 'middle earners' at £40K ish probably get least benefit - no 40% tax relief and probably paying tax in retirement. The easiest way to reduce higher rate tax relief would be to reduce the annual allowance as the vast majority of those affected by this will be higher rate taxpayers . A lot simpler than fiddling around with the tax system .

2) SS is a loophole that should be closed. Not only does it reduce NI payments to the exchequer but some people also use it to claim child benefit when they are normally earning too much to do that. 

Umm - I have paid about 25 years of NI and have the max state pension entitlement - sal sac means I can avoid some of the NI that I still have to pay despite not receiving any more pension, unlike most other people who earn pension entitlement from their NI payments.  How is me having to pay NI for nothing fair?

I don't really view NI as paying into a personal (state) pension plan. For better or worse, it is a socialist concept to provide a minimum standard of living to all. You continuing to pay in is helping others who for whatever reason have not been able to do.

(P.S. NI also goes towards the NHS) 

michaels

2nd_time_buyer said:

michaels said:

Albermarle said:

Gary1984 said:

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. 

1) You are right , but the 'middle earners' at £40K ish probably get least benefit - no 40% tax relief and probably paying tax in retirement. The easiest way to reduce higher rate tax relief would be to reduce the annual allowance as the vast majority of those affected by this will be higher rate taxpayers . A lot simpler than fiddling around with the tax system .

2) SS is a loophole that should be closed. Not only does it reduce NI payments to the exchequer but some people also use it to claim child benefit when they are normally earning too much to do that. 

Umm - I have paid about 25 years of NI and have the max state pension entitlement - sal sac means I can avoid some of the NI that I still have to pay despite not receiving any more pension, unlike most other people who earn pension entitlement from their NI payments.  How is me having to pay NI for nothing fair?

I don't really view NI as paying into a personal (state) pension plan. For better or worse, it is a socialist concept to provide a minimum standard of living to all. You continuing to pay in is helping others who for whatever reason have not been able to do.

(P.S. NI also goes towards the NHS) 

There is no hypothecated taxation in the UK (beyond the live TV tax)

kidmugsy

In the Telegraph Ros Altmann writes:

"the complexities of removing higher rate relief are significant, particularly for traditional defined benefit schemes, which comprise the vast majority of tax relief costs. Just removing higher rate relief for Defined Contribution schemes would save very little of the £40 billion annual cost to the Exchequer."

Well, well, I didn't know that.  Someday somebody will have to close the DB pensions of government employees to new contributions. New contributions could go to DC schemes.  I foresee at least one advantage beyond the obvious: new tontine-like arrangements will be offered to DC members, to offer some mortality risk pooling.  As long as transferring part of your pension into such a thing were entirely voluntary it might be grand idea.

nigelbb

Eldi_Dos said:

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.

The triple lock is intended to gradually increase the real value of the state pension over the years as it is the lowest in Europe as a proportion of average earnings.

The state pension & the triple lock is the same for all. There is no lower state pension & higher state pension.

nigelbb

Allowing salary sacrifice has always been disgraceful as it evades both income tax & National Insurance.

ex-pat_scot

nigelbb said:

Allowing salary sacrifice has always been disgraceful as it evades both income tax & National Insurance.

It is a deliberate tax planning mechanism, not an unintended consequence of the rules or a deliberate evasion.

Salary sacrifice is available for a number of payroll-related items, including healthcare, cyclescheme, life cover. Are these all "disgraceful"?