Are we over contributing?

SpeedSouth

zagfles said:

The effective relief would be a combination for instance you'll have a cut off point at which tax credits taper to zero, which will depend on what elements you're entitled to eg number of children, childcare, disability etc. So if it's say £40k, then between say £20k and £40k the overall effective relief would be TC taper (41%) plus tax (20%) plus NI if sal sac (12%) plus any employer NI saving they share. Plus possibly student loan repayments. But between £40k and £50k the marginal rate is lower as no tax credits taper. So you'd need to work out the overall combined rate. Plus the other thing which will complicate the equation is the income rise/fall disregard, which could move the tax credit zero taper point up or down by £2500 if your assessed income changes wrt to last year.

You're wife's income going into a SIPP if you can afford it and are happy to tie it up till retirement is a no brainer, as presumably her £12k salary means she's unlikely to trouble the LTA (unless she's going to earn massively more in later years), and she'd possibly have spare PA when retired, so even without the tax credits saving it's worth doing. Assuming she's contributing to a RAS scheme.

I'll have to look at the effective rates then, thanks for the explanation.  I think I'd need to use the calculators to find that taper.

Wife as you say is a no brianer.  Currently she has DB with employer but only accuring £250 a year so she will never trouble the LTA.  At present no problem tying that up.

Will carry on for now then, until the tap gets turned off.

draiggoch

Might be an idea for you to start a LISA for your wife since it would be another £5000 per year for her including Government contribution. This would be unavailable until she is 60 but all tax free.

SpeedSouth

draiggoch said:

Might be an idea for you to start a LISA for your wife since it would be another £5000 per year for her including Government contribution. This would be unavailable until she is 60 but all tax free.

Yeah I did open myself an LISA as well before I turned 40, so I have that available for the next 9 years too. At present they are not funded given it doesn't come off the net income.  I will likely use these once we lose TC relief. 

RogerPensionGuy

Bottom link is the history of the LTA for the last 10 years, it appears impossible to plan well as it's such a moving feast/revenue collection stream from prudent pension savers doing the right thing.

LTA was 1.8M in 2011/2012 and I put that figure on a compound calculator at just 3% and that shows current figure would be over 2.4M but it's less than 1.1M currently.

The LTA is currently frozen at £1,073,100 until 06Apr2026 and I was surprised this wasn't extended until 06Apr2028 like much other stuff on the last budget a few weeks ago and very relieved it wasn't reduced to 800/900K as has been spoken about previously.

 LTA treatment/moments are just bonkers in my opinion as sensible planning cannot be achieved and the results are various, some people have essentially given up on pensions to some degree and others are loading up pensions very heavily in the early years in case the LTA goes down or remains frozen, looking at the LTA treatment the last 10 years anythink is possible.

A poster on another thread here mentioned in Denmark(I think) any pension rule changes need a 10 year lead time, in the UK it just needs a lot less ( https://www.pensionsage.com/pa/Spring-Budget-2021-LTA-frozen-until-April-2026.php )

https://www.gov.uk/government/publications/rates-and-allowances-pension-schemes/pension-schemes-rates

Secret2ndAccount

I agree that the implementation has been somewhat untidy. However, in a society that aims to place "the greater burden on the broadest shoulders", what justification is there for giving freebies to people who have a pension most could only dream about. The LTA doesn't prevent you from saving for retirement. It doesn't even  prevent you from saving into a pension. It just withholds tax relief once you've had the first million of pension. Personally, I see no justification for 40% tax relief on pension contribs either. It's regressive - it's a gift only available to the highly paid. Someone earning 20k (a) can't access it; (b) couldn't afford to access it if it was available.

Albermarle

Bottom link is the history of the LTA for the last 10 years, it appears impossible to plan well as it's such a moving feast/revenue collection stream from prudent pension savers doing the right thing

An alternative view could be that reducing LTA is a sensible move to limit how much relatively wealthy people can fill their boots with very generous 40% tax relief.

Pat38493

Albermarle said:

Bottom link is the history of the LTA for the last 10 years, it appears impossible to plan well as it's such a moving feast/revenue collection stream from prudent pension savers doing the right thing

An alternative view could be that reducing LTA is a sensible move to limit how much relatively wealthy people can fill their boots with very generous 40% tax relief.

Effectively this is already happening by freezing it.  I guess it will probably just continue.

EdSwippet

Albermarle said:
An alternative view could be that reducing LTA is a sensible move to limit how much relatively wealthy people can fill their boots with very generous 40% tax relief.

Reducing the annual allowance would have achieved that perfectly well going forwards.

In contrast, repeated LTA reductions adversely affect past pension contributions, made in good faith before the reductions (and in some cases, before the government even ginned up the LTA). This is where the sense of injustice arises.

Albermarle

EdSwippet said:

Albermarle said:
An alternative view could be that reducing LTA is a sensible move to limit how much relatively wealthy people can fill their boots with very generous 40% tax relief.

Reducing the annual allowance would have achieved that perfectly well going forwards.

In contrast, repeated LTA reductions adversely affect past pension contributions, made in good faith before the reductions (and in some cases, before the government even ginned up the LTA). This is where the sense of injustice arises.

You are right in that reducing the AA would have made more sense, rather than successive tinkering with/reducing the LTA.
However I do think that some people forget, that a lot of the reason they have built up a large pot in the first place, is due to the generosity of 40% tax relief. It is not just a case of a greedy tax mad government trying to grab your prudently saved pension, as it is sometimes portrayed. It is more a case of give and take.

Pat38493

Albermarle said:

EdSwippet said:

Albermarle said:
An alternative view could be that reducing LTA is a sensible move to limit how much relatively wealthy people can fill their boots with very generous 40% tax relief.

Reducing the annual allowance would have achieved that perfectly well going forwards.

In contrast, repeated LTA reductions adversely affect past pension contributions, made in good faith before the reductions (and in some cases, before the government even ginned up the LTA). This is where the sense of injustice arises.

You are right in that reducing the AA would have made more sense, rather than successive tinkering with/reducing the LTA.
However I do think that some people forget, that a lot of the reason they have built up a large pot in the first place, is due to the generosity of 40% tax relief. It is not just a case of a greedy tax mad government trying to grab your prudently saved pension, as it is sometimes portrayed. It is more a case of give and take.

As discussed on another thread recently, I think some people would tend to see this as a kind of double taxation - i.e. if my pension savings would be subject to income tax on the way out, why should they also be subject to income tax on the way in.

I guess they could tinker with the way the tax system works on withdrawals to soften the blow a bit.