Pension tax relief

Simes122

HappyHarry said:

Audaxer said:

HappyHarry said:

There is also the key issue that people may stop saving into pensions if they are only gaining 20% tax relief on contributions, but face a potential 40%/45% tax on withdrawals.

That could be an issue, but I was thinking that many people in the higher tax band currently getting 40% tax relief, would probably only be drawing down enough to pay 20% tax when they do start drawing down their DC pensions?

Many will quite possibly do just that.
But with the state pension likely to rise, and if tax thresholds are frozen, more and more people will be finding themselves higher rate taxpayers in retirement. 

I see the concept of reducing tax relief as more of a left wing ideology rather than one expected from a right wing conservative government.

Agreed - I don’t consider myself rich - I’ve worked hard, and have taken a responsible approach to even out my income over my expected lifetime by deferring income till later rather than spend now.  I will pay tax in retirement at HR thus it would be grossly unfair for relief to be less than my expected tax.  I’d stop work in an instant if that relief on tax/NI were taken.  I’d be paying 20% plus 13.25% more in work in tax /NI on pension savings, and then a further 41% on the same money I’d deferred as future income.  Indeed, it’s a left wing ideology!

MK62

There is an interesting paper on this issue here for anyone interested
https://commonslibrary.parliament.uk/research-briefings/cbp-7505/

EdSwippet

Dazed_and_C0nfused said:

Scrapping carry forward would be relatively straightforward and could be sold as generally not adversely impacting those at the lower end of the income scale.

Would also help simplify pensions a little.

Indeed. This would be an example of a cynical government strategy tactic that is, unfortunately, all too common. It runs somewhat along these lines:

1. Change the tax system to increase taxes.
2. Mitigate or eliminate the effects on 'lower earners', or 'the majority of taxpayers', or 'hard working families' by introducing a new allowance or similar, so that only the 'broadest shoulders' are affected.
3. Wait.
4. Begin painting the new allowance as a 'loophole', or a 'complication', or 'unfair'.
5. Remove it, citing 'tax simplification'.
6. Spend the extra cash.
7. Repeat.

nigelbb

Simes122 said:

Mick70 said:

Maybe get rid of the NI loophole but keep the actual tax relief ?

Is the NI a loophole?  NI is not payable in retirement- I’m sacrificing salary now, for when I’m a pensioner.  When I’d have no liability for NI.

National Insurance is only levied on earnings. You will not pay NI on a pension. The bonus of not paying NI when you reach state pension age only applies if you work.

MEM62

Mick70 said:

Many folk I know have been investing in holiday lets rather than traditional pension pots as their pension savings 

Hardly the most efficient vehicle for retirement planning.  

Albermarle

EdSwippet said:

Dazed_and_C0nfused said:

Scrapping carry forward would be relatively straightforward and could be sold as generally not adversely impacting those at the lower end of the income scale.

Would also help simplify pensions a little.

Indeed. This would be an example of a cynical government strategy tactic that is, unfortunately, all too common. It runs somewhat along these lines:

1. Change the tax system to increase taxes.
2. Mitigate or eliminate the effects on 'lower earners', or 'the majority of taxpayers', or 'hard working families' by introducing a new allowance or similar, so that only the 'broadest shoulders' are affected.
3. Wait.
4. Begin painting the new allowance as a 'loophole', or a 'complication', or 'unfair'.
5. Remove it, citing 'tax simplification'.
6. Spend the extra cash.
7. Repeat.

Although scrapping carry forward, would only really affect people who are higher earners anyway< and not even that many of them ?

Also it must be the most misunderstood part of pension rules, looking at the number of posters on this forum confused by it!

 I will pay tax in retirement at HR thus it would be grossly unfair for relief to be less than my expected tax.

Although many people pay some 40% tax in employment, the % paying 40% tax in retirement must be pretty small. This forum has many posters sitting on relatively large pension pots/assets/DB schemes etc, but paying 40% tax after retiring is rarely mentioned.
So I guess you will be one of the 'broad shoulders' they talk about !

EdSwippet

Albermarle said:
...

 I will pay tax in retirement at HR thus it would be grossly unfair for relief to be less than my expected tax.

Although many people pay some 40% tax in employment, the % paying 40% tax in retirement must be pretty small. This forum has many posters sitting on relatively large pension pots/assets/DB schemes etc, but paying 40% tax after retiring is rarely mentioned.
So I guess you will be one of the 'broad shoulders' they talk about !

Please attribute the above correctly. I didn't write it.

Workerdrone

I am curious about what will happen. I've never been in the position to be a 40% taxpayer although I do put just over £16k a year into pension via salary sacrifice and employers contribution. I suppose a reduction in tax relief is unlikely to touch me personally as its my intention to also be below the HR tax band when in drawdown, changes to the salary sacrifice rules or indeed any levelling of the BR relief to 25/30% flat rate would mean I'd carefully need to look at how I am accumulating.

Albermarle

EdSwippet said:

Albermarle said:
...

 I will pay tax in retirement at HR thus it would be grossly unfair for relief to be less than my expected tax.

Although many people pay some 40% tax in employment, the % paying 40% tax in retirement must be pretty small. This forum has many posters sitting on relatively large pension pots/assets/DB schemes etc, but paying 40% tax after retiring is rarely mentioned.
So I guess you will be one of the 'broad shoulders' they talk about !

Please attribute the above correctly. I didn't write it.

Sorry for the confusion, I was trying to cram two subjects on one post !

hugheskevi

Albermarle said:

Although scrapping carry forward, would only really affect people who are higher earners anyway and not even that many of them ?

I've seen many people earning £30-£40,000 breach the Annual Allowance due to long service, promotion, and final salary-linked service. Carry forward prevents them from having a charge due - the lowest salary I've seen a charge due on is around £50,000-£60,000 and that was a trivial charge resulting from two promotions in fairly quick succession.

For example, someone earning £35,000 in the Civil Service who has 30 qualifying years in the Premium pension scheme and is promoted with a pay increase of 10% would have a pension input just over £40,000.