How many people actually get to the LTA?

Malthusian

Grumpy_chap said:

It is probably only the fact that these contractors generally have a "comfortable" level of savings that means they cannot SS to NMW and then claim Universal Credit.  Now, that really would be an abuse.  I am not sufficiently knowledgeable as to whether it would be theoretically possible.

That would probably be caught by "deliberate deprivation" rules. *edit* Actually that's probably the wrong answer due to me not being familiar with UC forms. If you have to disclose your total remuneration including pension contributions, salary sacrifice makes no real difference to the potential to make a UC claim, and deliberate depriviation doesn't come into it.

Kim1965 said:

I think half the applications fto cash in db schemes, apart from being dazzled by the pound notes, is that the proceeds can be passed on as inheritance. Peehaps they would not be so keen if was szbjected to tax.

It would probably reduce the incentive, especially given that you can gift surplus income from a DB scheme and it is immediately 100% free of Inheritance Tax (no seven year rule), while if you converted it to DC the tax charge would apply. But I suspect people with pound signs in the eyes and dodgy advisers would still say "60% of something is better than 100% of nothing", ignoring the possibility of using the surplus income to make gifts free of Inheritance Tax or buy whole of life insurance, just as they do now. You can't pass on any of a pension fund if you've blown through it.

Grumpy_chap

Malthusian said:

Grumpy_chap said:

It is probably only the fact that these contractors generally have a "comfortable" level of savings that means they cannot SS to NMW and then claim Universal Credit.  Now, that really would be an abuse.  I am not sufficiently knowledgeable as to whether it would be theoretically possible.

That would probably be caught by "deliberate deprivation" rules. *edit* Actually that's probably the wrong answer due to me not being familiar with UC forms. If you have to disclose your total remuneration including pension contributions, salary sacrifice makes no real difference to the potential to make a UC claim, and deliberate depriviation doesn't come into it.

I kind of asked the question out of genuine interest - I certainly don't know the answer.

Do you think the UC forms would be that complex to have considered this scenario?  There is probably an assumption that no-one would SS so much into a pension as to make themselves hard up in the short term and hence eligible for UC.

Also, what is "total remuneration" and does it include employer pension contributions?
If an individual earns £20k, I doubt that figure is adjusted to reflect the extra 3% of employer pension contributions. 
Nor would I expect an adjustment if the employer pension contributions were a bit higher, say 8% or 10%. 
When an individual does SS, there is a change to their contract to reduce salary but receive the benefits.  So, salary £60k, SS £40k to employer pension contributions leaving £20k salary.  Is that treated any different by UC than a person on £20k with "normal range" of employer pension?

hugheskevi

Grumpy_chap said:

Malthusian said:

Grumpy_chap said:

It is probably only the fact that these contractors generally have a "comfortable" level of savings that means they cannot SS to NMW and then claim Universal Credit.  Now, that really would be an abuse.  I am not sufficiently knowledgeable as to whether it would be theoretically possible.

That would probably be caught by "deliberate deprivation" rules. *edit* Actually that's probably the wrong answer due to me not being familiar with UC forms. If you have to disclose your total remuneration including pension contributions, salary sacrifice makes no real difference to the potential to make a UC claim, and deliberate depriviation doesn't come into it.

I kind of asked the question out of genuine interest - I certainly don't know the answer.

Do you think the UC forms would be that complex to have considered this scenario?  There is probably an assumption that no-one would SS so much into a pension as to make themselves hard up in the short term and hence eligible for UC.

Also, what is "total remuneration" and does it include employer pension contributions?
If an individual earns £20k, I doubt that figure is adjusted to reflect the extra 3% of employer pension contributions. 
Nor would I expect an adjustment if the employer pension contributions were a bit higher, say 8% or 10%. 
When an individual does SS, there is a change to their contract to reduce salary but receive the benefits.  So, salary £60k, SS £40k to employer pension contributions leaving £20k salary.  Is that treated any different by UC than a person on £20k with "normal range" of employer pension?

UC can't be too detailed, not least due to complexities around valuing DB pension. I think the Universal Credit capital rules are more of a constaint to this than the income rules with regard to salary sacrifice. Any capital over £6,000 reduces UC entitlement, and capital over £16,000 makes you ineligible. That is household capital, so covers both partners.

Hence to claim UC you would need to have low assets and salary sacrifice a large part of income. Even for those who don't have large ISAs (and so would struggle to meet capital requirements) for most with decent incomes that will not be sustainable lifestyle for any period of time, making the exercise a lot of effort for a small payoff. It would also be quite risky, as you would not have any decent safety margin in event of job loss, etc, so would need to rely on insurances.

cfw1994

Anonymous101 said:

The problem as I see it is that people do start to think "why earn more?" when they hit these sorts of thresholds.
I know you shouldn't let the tax tail wag the savings dog but people do question the sense in paying 42% tax and NI plus losing Child Benefit once you become a higher rate tax payer. Granted its a more fortunate position than many are in to be able to make those decisions but I do find myself thinking this way. I can LTA influencing thinking in this way too.

SCB's approach to saving in S&S ISA's and Pensions goes some way to mitigating this. However if say you were contributing everything over BR tax into a pension via SS then you hit the LTA, maybe you'd sooner have a day a week off than pay tax through earnings or the LTA? Its not good for the economy as a whole IMO.

Is that first line actually a problem though?

If people are frugal enough that the LTA total is ample for a comfortable early retirement, maybe that LTA 'problem' is actually advantageous to them, giving them incentive to consider their remaining time on Planet Earth 🥳   

I imagine that parts of society do currently suffer - medical staff stepping away 'early' perhaps causes unexpected challenges, but we need to train more of them anyway 🤷‍♂️   If that is seen as a major issue, maybe the LTA *does* need raising.  

Many, many people have OMY (one more year) syndrome, & the number of people I know who pass away before having much or indeed any retirement time is far too high  👀

Flugelhorn

cfw1994 said:

I imagine that parts of society do currently suffer - medical staff stepping away 'early' perhaps causes unexpected challenges, but we need to train more of them anyway 🤷‍♂️   If that is seen as a major issue, maybe the LTA *does* need raising.  

it is a problem for medical staff - many  don't understand the sums and some get clobbered by the AA too (which they also don't understand and can't calculate because the figures are so out of date) - yes we need to train more but it takes far too long to replace someone in their mid 50s taking early retirement, can't replace someone who has much  clinical experience and wisdom of years in practice by a newly qualified doctor or even 3-4 newly qualified doctors 

Thrugelmir

Flugelhorn said:

cfw1994 said:

I imagine that parts of society do currently suffer - medical staff stepping away 'early' perhaps causes unexpected challenges, but we need to train more of them anyway 🤷‍♂️   If that is seen as a major issue, maybe the LTA *does* need raising.  

it is a problem for medical staff - many  don't understand the sums and some get clobbered by the AA too (which they also don't understand and can't calculate because the figures are so out of date) - yes we need to train more but it takes far too long to replace someone in their mid 50s taking early retirement, can't replace someone who has much  clinical experience and wisdom of years in practice by a newly qualified doctor or even 3-4 newly qualified doctors 

Days of contributing to wider society rather purely for oneself are long gone. 

hyubh

Malthusian said:

Albermarle said:

In my opinion the salary sacrifice issue is the most glaringly obvious issue to resolve. It is costing the government more and more every year in lost NI employee and employer payments. Plus it discriminates against employees not in these schemes.

There is only one way the salary sacrifice issue will be "resolved" which is to make it illegal and apply NI to all pension contributions. Which won't make employees unable to access salary sacrifice any better off. It will just make everyone else worse off.

Arguably it's not politically feasible because you would have to make doctors and nurses and other public servants (TM) pay National Insurance on their employer contributions. At 20.68% * 15.05% that's effectively a 3.25% pay cut for Ms Nightingale. Good luck with that.

By the by, while public sector schemes are in general net pay rather than relief at source arrangements, they aren't salary sacrifice - those are two different things, i.e. abolishing salary sacrifice would have very little impact on public sector scheme members.

marlot

Thrugelmir said:

Days of contributing to wider society rather purely for oneself are long gone. 

Perhaps I've mis-understood your post, but I don't agree.

I'm involved in our local foodbank.  100% staffed by volunteers.  And many of our donations come from people who are not wealthy.

I'm also involved in a local steam railway.  One of about 1,000 volunteers.  Some do it for what they get out of it, but most because they are helping others.

Most of the people posting answers on forums like this are motivated by helping others.

Flugelhorn

Thrugelmir said:

Flugelhorn said:

cfw1994 said:

I imagine that parts of society do currently suffer - medical staff stepping away 'early' perhaps causes unexpected challenges, but we need to train more of them anyway 🤷‍♂️   If that is seen as a major issue, maybe the LTA *does* need raising.  

it is a problem for medical staff - many  don't understand the sums and some get clobbered by the AA too (which they also don't understand and can't calculate because the figures are so out of date) - yes we need to train more but it takes far too long to replace someone in their mid 50s taking early retirement, can't replace someone who has much  clinical experience and wisdom of years in practice by a newly qualified doctor or even 3-4 newly qualified doctors 

Days of contributing to wider society rather purely for oneself are long gone. 

Sadly yes - we all started out with great intentions but ultimately got worn out by regulation, litigation, dumbing down of professionalism, financial penalties  and intolerable management - as is often muttered in this household "the NHS pension was the only good bit about it all".

With the pension (as happened to me) - you end up doing a few extra sessions to "help out",  crash a contribution threshold and end up paying to go to work. (over £1000 for a couple of sessions) - you can be darn sure I didn't "volunteer" the next year 

Anonymous101

cfw1994 said:

Anonymous101 said:

The problem as I see it is that people do start to think "why earn more?" when they hit these sorts of thresholds.
I know you shouldn't let the tax tail wag the savings dog but people do question the sense in paying 42% tax and NI plus losing Child Benefit once you become a higher rate tax payer. Granted its a more fortunate position than many are in to be able to make those decisions but I do find myself thinking this way. I can LTA influencing thinking in this way too.

SCB's approach to saving in S&S ISA's and Pensions goes some way to mitigating this. However if say you were contributing everything over BR tax into a pension via SS then you hit the LTA, maybe you'd sooner have a day a week off than pay tax through earnings or the LTA? Its not good for the economy as a whole IMO.

Is that first line actually a problem though?

If people are frugal enough that the LTA total is ample for a comfortable early retirement, maybe that LTA 'problem' is actually advantageous to them, giving them incentive to consider their remaining time on Planet Earth 🥳   

I imagine that parts of society do currently suffer - medical staff stepping away 'early' perhaps causes unexpected challenges, but we need to train more of them anyway 🤷‍♂️   If that is seen as a major issue, maybe the LTA *does* need raising.  

Many, many people have OMY (one more year) syndrome, & the number of people I know who pass away before having much or indeed any retirement time is far too high  👀

I take your point and absolutely agree that society should value time more than earning. Unfortunately this isn't the common view as groups like FIRE are still very much in the minority.

Pensions are effectively a mechanism to defer tax. They don't remove the requirement to pay tax on that income.

I think that the current LTA allowances are particularly restrictive especially for families where incomes are skewed and one partner may be up at LTA but the other is a long long way from that. Perhaps through taking step back to raise children. Effectively that one pension pot is for the family not the individual. So although the LTA may be sufficient for one person its clearly less so for two or more.