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Are we over contributing?

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Comments

  • Pensions_matter_2
    Pensions_matter_2 Posts: 102 Forumite
    Seventh Anniversary 10 Posts
    edited 1 December 2022 at 6:22PM
    As far as I am aware, when the LTA has been reduced in the past the government has tried to help with certain protections for those who might otherwise have been adversely affected given pensions savings already built up. Im sure others will know more about this and expect the rules around them and how they work in practice are complex. An LTA problem is nice to have of course!
  • As far as I am aware, when the LTA has been reduced in the past the government has tried to help with certain protections for those who might otherwise have been adversely affected given pensions savings already built up. Im sure others will know more about this and expect the rules around them and how they work in practice are complex. An LTA problem is nice to have of course!
    Yes, when the LTA was actually reduced, various protections were allowed but, then people often had to stop all pension contributions, so very unfair. 

    Reference 40% tax relief on contributions, the LTA will affect lots of people who only ever got 20% relief.

    Pensions are long term plans for people and changing the rules all the time is just silly.

    DC pensions are probably best used to avoid IHT issues if family money allows this route to be used easily. 

    If they do increase the LTA and reduce the AA, hopefully they will allow AA carry forward rules to go from 3 years to maybe 10 or more to be fair.


  • Albermarle
    Albermarle Posts: 28,986 Forumite
    10,000 Posts Seventh Anniversary Name Dropper
    Reference 40% tax relief on contributions, the LTA will affect lots of people who only ever got 20% relief

    Although there maybe some, I doubt that there will be many, just because someone earning less than £50K, is unlikely to be able to shovel away enough. Plus the attractiveness of pension saving is nowhere near as good for a 20% taxpayer as a 40% one, so the government subsidy to maximise pension at the expense of other assets is mainly for the benefit of the relatively already well off.

    For clarity I personally have significantly benefitted from 40% tax relief, but have never really understood the logic behind it, except that it keeps a certain class of voter happy I suppose.

  • EdSwippet
    EdSwippet Posts: 1,672 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    edited 2 December 2022 at 12:07PM
    Albermarle said:
    ... I personally have significantly benefitted from 40% tax relief, but have never really understood the logic behind it, except that it keeps a certain class of voter happy I suppose.
    Income smoothing. Some career paths offer a short-lived high lifetime income (for example sportsmen and athletes).

    Take a simple case: earn £100k on a single one year PAYE job, no other income. Work from Apr to Mar and the entire £100k falls into one tax year. Work from Oct to Sep though, and it splits across two, for a much lower tax bill. Pension contributions are the one way PAYE earners have of smoothing lumpy income.

    Pensions are deferred income. Pensions above the LTA are deferred income that is intentionally taxed worse than if taken now as income. Reducing the LTA retroactively encompasses more previously deferred income than before.

    Just because you're not affected by something, doesn't mean it doesn't negatively affect (or irritate) others.

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