How many people actually get to the LTA?

michaels

DoublePolaroid said:

The wife and I are both GP’s. Whilst I don’t claim to be anybody special, she is literally awake at 2am several nights a week, having fed the baby, with her laptop on catching up on her admin. She doesn’t do that for her own health - in fact I know it’s not good for her mental health - nor for the money. I would suggest that the majority of NHS doctors and nurses either work, or have worked for a large proportion of their careers, far more hours than they get paid for. I’m not claiming special status on their behalf, but at least some of these people do/did so for the benefit of others. 

For my part, the AA had me considering (but ultimately rejecting) the notion of working fewer hours even though I don’t want to. The knowledge that I am likely to far exceed the LTA well before NPA (and I’m very, very fortunate to be in that position) rubber stamped my desire to retire several years early, by ensuring it makes financial - as well as emotional - sense to do so. I have many colleagues encountering the same issues.

I mean it genuinely when I say, as a Pinko type, that I’d happily pay more tax. However I don’t think it’s too much to ask that Government considers the potential unintended consequences of its policies. It costs £230k to train a doctor to the most basic, non specialist level. There is no guarantee that that investment actually gets you an NHS doctor - 5000 doctors permanently leave the NHS annually - so actively encouraging those that we do have to put away their stethoscopes permanently because of myopic tax policy that presumably represents a drop in the ocean of total tax revenue, is bizarre. 

Thanks for the insight - presumably it is the marginal rate rather than the average rate that is the killer in these circumstances?  If it is the average rate that is the problem then I can't see an obvious solution.

Albermarle

so actively encouraging those that we do have to put away their stethoscopes permanently because of myopic tax policy that presumably represents a drop in the ocean of total tax revenue, is bizarre. 

The effect of LTA ( or reduced LTA from its previous levels) on Doctors etc , is the law of unintended consequences.

The idea of LTA is to limit how much can be gained from tax relief on pension contributions . To increase the LTA would not only lose the Treasury money from LTA charges ( probably not a huge amount as you say ) but would encourage high earners in general to pump up their contributions and get 40% tax relief , which would prove expensive for the Exchequer, as 40% tax relief already costs Billions .

That's not to say pension legislation in general does not need updating , but it would be a very complex exercise, inevitably with winners, losers and possibly even more confusion than now .

DoublePolaroid

Albermarle said:

so actively encouraging those that we do have to put away their stethoscopes permanently because of myopic tax policy that presumably represents a drop in the ocean of total tax revenue, is bizarre. 

The effect of LTA ( or reduced LTA from its previous levels) on Doctors etc , is the law of unintended consequences.

The idea of LTA is to limit how much can be gained from tax relief on pension contributions . To increase the LTA would not only lose the Treasury money from LTA charges ( probably not a huge amount as you say ) but would encourage high earners in general to pump up their contributions and get 40% tax relief , which would prove expensive for the Exchequer, as 40% tax relief already costs Billions .

That's not to say pension legislation in general does not need updating , but it would be a very complex exercise, inevitably with winners, losers and possibly even more confusion than now .

You are of course correct, and I acknowledged it as an unintended consequence in my post. Perhaps I’m asking too much in suggesting more thought ought to be put into such policies before the bloke in number 11 starts gurning with red briefcase in hand, given that Government has a direct responsibility (NHSE is not independent) for maintaining the health of the health service. 

ex-pat_scot

Albermarle said:

so actively encouraging those that we do have to put away their stethoscopes permanently because of myopic tax policy that presumably represents a drop in the ocean of total tax revenue, is bizarre. 

The effect of LTA ( or reduced LTA from its previous levels) on Doctors etc , is the law of unintended consequences.

The idea of LTA is to limit how much can be gained from tax relief on pension contributions . To increase the LTA would not only lose the Treasury money from LTA charges ( probably not a huge amount as you say ) but would encourage high earners in general to pump up their contributions and get 40% tax relief , which would prove expensive for the Exchequer, as 40% tax relief already costs Billions .

That's not to say pension legislation in general does not need updating , but it would be a very complex exercise, inevitably with winners, losers and possibly even more confusion than now .

I would challenge that it costs billions to provide tax relief. 
Framing tax relief as a cost to the treasury is rather insidious, even though it is the language they use. It suggests that any money (ours!) that we are allowed to keep is somehow a cost to the treasury.
It is also a tax deferred rather than foregone.

As has been noted many times, having Annual Allowance and LTA together is pointless.
However it is with us, and there is little political will to update. To do so would be to invite howls of "cash for your rich mates" complaints.
There are many other wrinkles in the tax system, such as the 60% effective tax rate where personal allowance is gradually withdrawn, or the tapering of AA for higher earners, or the child benefit reduction etc. Each of these drives certain behaviours, such as increasing pension contributions, reducing hours worked, bringing forward retirement, moving to contractor model (not so much at the moment!) etc.  The LTA is similar, in that it is driving similar behaviours amongst the better -off salaried people, and would get a chorus of tiny violins whenever its "unfairness" is ever pointed out. 

Secret2ndAccount

Anonymous101 said:

Albermarle said:

Anonymous101 said:

I might take a bit of an issue with the detail on the withdrawal rates etc I'd argue that £1m pot gives an income £30k-£40k plus state pension is more likely. However I follow your logic and don't disagree with it. I suppose what I do disagree with is that this is a luxury retirement such that any pot value above this requires a heavy tax penalty (LTA) further to what mechanism already exists in the form of income tax.

For sure £50K pa does not buy a luxury retirement , but the type of sums needed for a true luxury retirement ( large house in posh area, holiday villas in Cornwall and South of France, big yacht, Porsche(s) , eating at Michelin star restaurants etc ) are not really in the remit of this forum .

Well yes but going back to my original point, £50k would be per couple and that's a long long way from the type of retirement you mentioned. That is well within the scope of this forum.

I suppose that's the crux of this topic. The LTA was introduced in order to tax the types of people enjoying the luxury retirement types you mention. As time has passed though its been lowered to such a degree it now impacts on those at the upper end of a moderate retirement.

50k per year is plenty to get by. Should be free of the mortgage and the school fees by retirement time, so it's 50k for bills and spending money. If you want more, then pay the LTA charge. It's not like the LTA monster shows up and eats half your pension. You get the first million+ with no charge (plus 2 x SP, so it's actually over 1.5 million). Then they take back the tax relief on the extra 300k or whatever. If you'd taken that 300k as salary, and paid it into an ISA, you'd be in the same position now, and nobody would be batting an eye lid.
Government employees lack the option to take the salary instead of the pension contrib. However, they get a preferential multiple (20x) in converting their income into an LTA calculation, so most can expect to get more out without paying the LTA charge. 
For the vast majority, you never actually lose money. It just becomes the equivalent of a saving scheme rather than a pension scheme. How much you save for your retirement is your choice, and you get the first million with special tax benefits.

I would prefer to see that incentive offered to the lower paid workers to encourage them to have some kind of pension. Better than spending the incentive on people who can afford to pay their own contributions. Maybe we should pay 40% relief on all personal pension contributions. High earners are already getting 40% relief, so it wouldn't help them. For the lower paid, it would be a big boost. It would also level the playing field with respect to salary sacrifice. Now it would be better to make a pension contrib personally, than to have your company pay it via sacrifice.

biscan25

I think the only LTA loopholes still around that I've heard about are the DB SSAS and the divorce/optional remarriage route.
The latter would be highly risky and irregular.
There may be more, but they're probably kept quiet!

Albermarle

biscan25 said:

I think the only LTA loopholes still around that I've heard about are the DB SSAS and the divorce/optional remarriage route.
The latter would be highly risky and irregular.
There may be more, but they're probably kept quiet!

There is the potential taking of three sub £10K amounts under the 'small pot rule ' This means you can extract up to £30K , that does not affect your LTA . Every little helps........

You get the first million+ with no charge (plus 2 x SP, so it's actually over 1.5 million).
Probably two State Pensions , with some kind of enhanced inflation protection ( triple lock, double lock etc ) would be worth about £700K , so altogether around £1.8 M ?

ex-pat_scot

Albermarle said:

biscan25 said:

I think the only LTA loopholes still around that I've heard about are the DB SSAS and the divorce/optional remarriage route.
The latter would be highly risky and irregular.
There may be more, but they're probably kept quiet!

There is the potential taking of three sub £10K amounts under the 'small pot rule ' This means you can extract up to £30K , that does not affect your LTA . Every little helps........

Indeed! It's not huge, but the effective LTA is £1.073m + £30,000 before you get hit with LTA charge.

RickyB2000

Albermarle said:

Kim1965 said:

I accept that it works against certain proffessions like  doctors in db schemes for example. 
 As a point, I would have thought that tax breaks for pensions  should be for retirement not inheritance.
 I would also think a flat rate incentive would also be fairer a 30 % rate would benefit  lower paid savers.
 Also salary sacrifice, as i understand allows a person to avoid /divert national insurance into pension funds. Many do not have access to ss, seems unfair.
 I have no idea how such changes could be implemented, but it will be interesting to see what happens after a change if government. 

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.
In addition a minority use the salsac to avoid student loan repayments, and it allows high earners to still claim child benefit, if they can afford to salsac a big enough %.

A 30% rate for tax relief is a non starter though. There are a lot more 20% tax payers than 40% , so having a universal 30% relief would cost the Treasury Billions . A figure of 25% has been mooted in the past .

Regarding the laws on inheriting pension pots , they clearly need looking at . Not just about them not being included in IHT calculations, but the preferential tax treatment that beneficiaries get, and that even these advantages can be passed on down multi generations . I think it is clearly a trick legal problem though,  and would be a tricky political problem with some kind of complicated transition to a new regime. 

I am pretty sure any high earner can claim child benefit if they have access to a pension. As it is calculated off of adjusted net income not taxable income. So any type of pension contribution counts, as does charity contributions etc. The big difference is the normal pension contributor has to fund 20% out of post tax income and reclaim this at some point in the future while the salsac doesn’t making it much easier

Flugelhorn

RickyB2000 said:

I am pretty sure any high earner can claim child benefit if they have access to a pension. As it is calculated off of adjusted net income not taxable income. So any type of pension contribution counts, as does charity contributions etc. The big difference is the normal pension contributor has to fund 20% out of post tax income and reclaim this at some point in the future while the salsac doesn’t making it much easier

Huh? you can only contribute so much to a pension otherwise other nasty taxes happen, so no you can't all get child benefit - OH used to get it and then 18 months later we had to pay it back, still it sat in the offset account while we were looking after it for the treasury.