Budget 15th March2023, any pension changes predictions or views?

drjohn67

Poor from the BBC.

Final salary, DB govt pensions are typically based upon the best of the last 3 years. Most public service employees converted (or will soon convert) to the 2015 schemes which are based on career average earnings/contributions. 

Public service pensions are multiplied by 20 (or 20+3 if lump sum) to determine crystallisation value. 1.8M = 90000 per annum would be beyond most public servants and doctors. A senior consultant with 30+ years of service on the old scheme could achieve a pension of £50000-60000 depending on other factors. Hence the move down to 1.0M was a threshold.

Senior managers in the NHS are the big earners in the NHS on the VSM pay scale, designated parking, etc. They might get the 

MPs pensions. Only 20 years to get maximum pension. Average age over 50. Significant turnover is due in the next 1-2 years when many may claim MP pension. They are more likely to benefit from a 1.8M LTA. Admittedly many are independently wealthy or heading for a lobbying role or similar.

We are all in it together? Since 2010 MP income increased by 30% which is in sharp contrast to whatever they meant by "all".

artyboy

Ciprico said:

Having a pension of 1.8M would result in inevitably being a higher rate tax payer in retirement so some pension  benefit is reduced.

I appreciate the tfls and iht still will be beneficial 

I've not done the maths but for basic tax payers saving 20% on tax in and paying 40% on tax exiting does not sound good... 

Really? If Mrs Arty and I go the UFPLS route, we can draw a joint pension of £133,333 without paying a penny of HR tax. And if our pots are around £1.8m by then (not impossible), it would be in the 3-4% "safe" withdrawal range as well.

Most people (myself included) would think that's enough for a reasonably comfortable retirement 

ex-pat_scot

artyboy said:

Ciprico said:

Having a pension of 1.8M would result in inevitably being a higher rate tax payer in retirement so some pension  benefit is reduced.

I appreciate the tfls and iht still will be beneficial 

I've not done the maths but for basic tax payers saving 20% on tax in and paying 40% on tax exiting does not sound good... 

Really? If Mrs Arty and I go the UFPLS route, we can draw a joint pension of £133,333 without paying a penny of HR tax. And if our pots are around £1.8m by then (not impossible), it would be in the 3-4% "safe" withdrawal range as well.

Most people (myself included) would think that's enough for a reasonably comfortable retirement 

Similar (except that Mrs XPS spent most of the last 20 years looking after the army of mini-XPSs, so our retirement provision is based on my pot).

As it currently stands, you can take out £66,666 pa under UFPLS to hit the HR threshold. BR tax would be £7,500 (no NI).
The present LTA £1.073m and the age 75 BCE5a test means that there's a big incentive to start at 55 then depleting the pot asap, if you are anywhere near LTA, else you risk the surplus / growth breaching the limit and getting the age 75 tax bill.
Increasing the LTA means that pressure to deplete as early as possible abates somewhat.

It would be unusual (not impossible) to be a BR taxpayer in accumulation yet a HR taxpayer in retirement, and you do have the opportunity under drawdown to finesse the withdrawals up to the tax thresholds. (remember also that a BR taxpayer could well have had salsac, so 32% tax relief (+ers contrib) on the way in vs 30% (25% tax free and remainder at 40%) on the way out.)
 

Malthusian

westv said:

Even the BBC has a confusing headline when it comes to the LTA - "Pensions to Get Boost as Tax Free Limit to Rise"
Tax free limit to rise? What?

There is a tax-free limit which is rising though - currently you can withdraw up to £268,275 tax-free, which is going up to £450,000 (assuming the LTA does indeed increase to £1.8 million and there's no jiggery-pokery with the 25% tax free cash rule). Not the worst headline I've seen.

Universidad

Spreadsheet_Addict said:

Universidad said:

Spreadsheet_Addict said:

I already think the change to 57 is unjustified- after all its our own money.

How much tax did you pay on it?

I will pay tax when I draw it, like everyone else. Your point?

Are you one of the people who thinks the government owns our income and we are "gifted" tax relief?

I earned it through hard work. I'll pay tax when I withdraw it.  Tax is deferred, not avoided and when I draw my pension and spend it, it'll help the economy as much as anyone in work.

I don't think the government owns our income, but it has a right to a portion of it. The idea that people own the product of their labour is a bit more left wing than I can get behind. Fair play to you though.

Regardless of our opinions, the practical fact of the matter is that the government can tax your income, and can choose to make changes to the rate of tax any time it likes, and that is all that has happened here.

You can take money out of your SIPP any time you like, you just pay more tax if you take it out earlier than certain thresholds. 

It being your own money has little to do with it. You didn't pay tax on the money when you earned it, and you will pay tax when you withdraw it. The government will choose how much.  You put it in a government approved tax wrapper. Guess who controls how that is taxed...

It's not fair, I'd agree with that. Like you, I am truly over having my retirement pulled out of my reach.

But it being your own money is really beside the point.

zagfles

Universidad said:

Spreadsheet_Addict said:

Universidad said:

Spreadsheet_Addict said:

I already think the change to 57 is unjustified- after all its our own money.

How much tax did you pay on it?

I will pay tax when I draw it, like everyone else. Your point?

Are you one of the people who thinks the government owns our income and we are "gifted" tax relief?

I earned it through hard work. I'll pay tax when I withdraw it.  Tax is deferred, not avoided and when I draw my pension and spend it, it'll help the economy as much as anyone in work.

You can take money out of your SIPP any time you like, you just pay more tax if you take it out earlier than certain thresholds. 

Err...what? You seem to have misunderstood how pensions work.

retiringtoosoon

I guess getting a terminal illness counts?

Universidad

zagfles said:

Err...what? You seem to have misunderstood how pensions work.

Your SIPP may not allow you to access your pension earlier than 55, but it's not against the law to do so, and HMRC have a specific tax rate in mind if you do it.

It's a terrible idea of course, but it kind of gives the lie to the notion that "Tax is deferred, not avoided and when I draw my pension and spend it, it'll help the economy as much as anyone in work."

We're all in the tax avoidance game here, folks. It's not just sanctioned, it's recommended, but let's call a spade a spade, and recognise that we're gambling that the tax rules don't change against us along the way.

zagfles

Universidad said:

zagfles said:

Err...what? You seem to have misunderstood how pensions work.

Your SIPP may not allow you to access your pension earlier than 55, but it's not against the law to do so, and HMRC have a specific tax rate in mind if you do it.

Let me remind you what you said: "You can take money out of your SIPP any time you like".

You are wrong. You can't. Not because it's illegal, but because no SIPP provider will allow it, nor will any reputable pension provider, except in extreme circumstances eg terminally ill.

kinger101

Universidad said:

zagfles said:

Err...what? You seem to have misunderstood how pensions work.

Your SIPP may not allow you to access your pension earlier than 55, but it's not against the law to do so, and HMRC have a specific tax rate in mind if you do it.

It's a terrible idea of course, but it kind of gives the lie to the notion that "Tax is deferred, not avoided and when I draw my pension and spend it, it'll help the economy as much as anyone in work."

We're all in the tax avoidance game here, folks. It's not just sanctioned, it's recommended, but let's call a spade a spade, and recognise that we're gambling that the tax rules don't change against us along the way.

Tax minimisation might be a better term
 Avoidance more typically refers to legally reducing one's tax liability n a way parliament did not intend.  

Either way, I'll await the finer details of changes, and then plan best how I might make the new rules work for me.  I think it's likely my contributions will become more asymmetrical.  Avoiding the 60 percent rate and loss of childcare every other year.

I certainly don't think the changes will make me retire later.  If anything, I might now consider the 25% tfls as a mortgage repayment vehicle.