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

HeyYeah

The rumors I've read in the press (Guardian and FT) are:

1. Inc LTA & Annual allowance
2. Inc retirement age to 68 for everyone who is 54 or younger

I'm hoping for #1, although I'm not quite at the LTA and probably won't hit it given the age I wish to retire, it would simplify my planning/spreadsheets not to have to take it into account. Also I'll put more in my pension and less in my ISA, I would be affected by #2 as I'm at the top end of that banding, so would have to work for longer.

aldershot

MoneySavingGerbil said:

That's kind of my point though. The LTA is one of several factors and not enough in itself to make most people quit solely because they've hit it.

Point taken and you’re right of course that the LTA is not the only factor but it does act as a trigger. There are many threads here over the years on how much is enough. This of course is hugely subjective and is different for every individual, but hitting the LTA changes one’s personal tax planning in a major way, as pension saving for high earners is very tax efficient, and causes one to make decisions that, if it were not there, or a factor, one might make differently. 

This might sound all a bit first world problems but I would suggest the workforce is losing highly productive high earners to early retirement through the unintended consequences of poor tax legislation (eg NHS consultants). 

zagfles

Qyburn said:

Unless I miss something the Annual Allowance, at least as it affects DC pensions, can only be a limit for the really well off.  Those who year after year have more than £40,000 spare earnings that they know they won't need to access until they reach pension age.

I believe there are other factors with DB pensions, something like including the increase in accrued benefits.  I don't really understand that but it sounds almost as if it was equivalent to including increased value of DC pension investments as well as actual contributions.  If there's some anomaly meaning that the AA affects low paid employees with DB pensions, then maybe it would be better to fix that rather than lifting the limit to benefit mainly top earners.

Low earners with long service in a final salary schemes can see a massive spike in their pension input amount, possible way above the AA, if they get a payrise.

But the main problem is with higher earners in jobs desperately needed eg NHS consultants, who due to the combination of the AA and LTA and the inflexibility of their DB scheme end up getting so heavily taxed that they don't consider it worthwhile continuing to work.

They can't really change the NHS pension scheme, because they made a promise of no more pension changes for IIRC 25 years or so in public sector pensions when they made the last lot of changes. They can't really change the tax rules to single out specific occupations, or treat DB even more favourably than DC, because that would clearly be unfair and discriminatory.

So that's why they're looking at increasing the LTA and AA. However, they're unlikely to end up anywhere near the levels they were under the last Labour govt.

Workerdrone

HeyYeah said:

The rumors I've read in the press (Guardian and FT) are:

1. Inc LTA & Annual allowance
2. Inc retirement age to 68 for everyone who is 54 or younger

I'm hoping for #1, although I'm not quite at the LTA and probably won't hit it given the age I wish to retire, it would simplify my planning/spreadsheets not to have to take it into account. Also I'll put more in my pension and less in my ISA, I would be affected by #2 as I'm at the top end of that banding, so would have to work for longer.

You had me worried there for a moment on point 2, until I read the article and realised it only applied to SPA. Ive never bothered to include SPA in my workings as I plan to go at 60. If its still there for me at 68, I'll just reduce my drawdown accordingly

Universidad

Qyburn said:

Unless I miss something the Annual Allowance, at least as it affects DC pensions, can only be a limit for the really well off.  Those who year after year have more than £40,000 spare earnings that they know they won't need to access until they reach pension age.

Different people will have different definitions for "well off", but it's not impossible for fairly ordinary people to breach it in circumstances that aren't massively uncommon.

Let's say your salary is 48000, and your employer pays 17.45% to your 3% into a workplace DC scheme. You're already 1/4 of the way there.

Your pre-tax salary is 4000. Now, if you put 2500 per month into a SIPP, you will breach the annual allowance. Difficult for most people to do - put 2500 of 4000 into a pension.

But if you're a double income family, the kids have just finished Uni, you've inherited a pot of money, or finished paying off your mortgage early and are just now realising you're not well prepared enough for retirement...

Any of the above aren't untypical for someone in their mid 50s.

Qyburn said:

I believe there are other factors with DB pensions

Yes, it's easier to breach AA on a DB pension scheme, because it's effectively 16x the increase in your annual pension (plus any lump sum, and some calculation about inflationary rise).

This means you can't increase your annual pension by more than 2500 per year without definitely breaching it.

Let's say you're on the same £48,000 and in a DB scheme with 2.32% accrual. You're already nearly halfway to the AA limit.

Now let's say you put 1100 to one side each month and pay for Added Pension with it... definitely do-able, as it only costs you 800-ish of "real" money, which is probably less than most peoples mortgages these days... well, again, you've breached the AA.

westv

Workerdrone said:

HeyYeah said:

The rumors I've read in the press (Guardian and FT) are:

1. Inc LTA & Annual allowance
2. Inc retirement age to 68 for everyone who is 54 or younger

I'm hoping for #1, although I'm not quite at the LTA and probably won't hit it given the age I wish to retire, it would simplify my planning/spreadsheets not to have to take it into account. Also I'll put more in my pension and less in my ISA, I would be affected by #2 as I'm at the top end of that banding, so would have to work for longer.

You had me worried there for a moment on point 2, until I read the article and realised it only applied to SPA. Ive never bothered to include SPA in my workings as I plan to go at 60. If its still there for me at 68, I'll just reduce my drawdown accordingly

It would affect thousands who are in the CS Alpha pension though.

NedS

westv said:

Workerdrone said:

HeyYeah said:

The rumors I've read in the press (Guardian and FT) are:

1. Inc LTA & Annual allowance
2. Inc retirement age to 68 for everyone who is 54 or younger

I'm hoping for #1, although I'm not quite at the LTA and probably won't hit it given the age I wish to retire, it would simplify my planning/spreadsheets not to have to take it into account. Also I'll put more in my pension and less in my ISA, I would be affected by #2 as I'm at the top end of that banding, so would have to work for longer.

You had me worried there for a moment on point 2, until I read the article and realised it only applied to SPA. Ive never bothered to include SPA in my workings as I plan to go at 60. If its still there for me at 68, I'll just reduce my drawdown accordingly

It would affect thousands who are in the CS Alpha pension though.

Or any other DB scheme where NRA is linked to SPA

Albermarle

Unless I miss something the Annual Allowance, at least as it affects DC pensions, can only be a limit for the really well off.  Those who year after year have more than £40,000 spare earnings that they know they won't need to access until they reach pension age.

It does mainly affect people with significantly higher than average earnings, but as already explained the £40K for a DC pension includes tax relief and employer contributions, so you do not need £40K spare your self to reach it. Especially if you get 40% tax relief and the employer is reasonably generous with their contributions.

I think most people adding £40K are also at the stage where other costs, like a mortgage, are no longer an issue and they are already maybe near ( or already past) the age when they can take the pension.

Grumpy_chap

Albermarle said:

It does mainly affect people with significantly higher than average earnings, but as already explained the £40K for a DC pension includes tax relief and employer contributions, so you do not need £40K spare your self to reach it. Especially if you get 40% tax relief and the employer is reasonably generous with their contributions.

I think most people adding £40K are also at the stage where other costs, like a mortgage, are no longer an issue and they are already maybe near ( or already past) the age when they can take the pension.

AND / OR (to add to your thoughts) - at one of the cliff-edge points where the marginal tax rate (income tax plus NI) plus consideration of HICBIC or free childcare results in a high marginal tax rate so the nett cost to contribute to pension becomes very small in return for the value of pension contributions received.

hugheskevi

NedS said:

westv said:

Workerdrone said:

HeyYeah said:

The rumors I've read in the press (Guardian and FT) are:

1. Inc LTA & Annual allowance
2. Inc retirement age to 68 for everyone who is 54 or younger

I'm hoping for #1, although I'm not quite at the LTA and probably won't hit it given the age I wish to retire, it would simplify my planning/spreadsheets not to have to take it into account. Also I'll put more in my pension and less in my ISA, I would be affected by #2 as I'm at the top end of that banding, so would have to work for longer.

You had me worried there for a moment on point 2, until I read the article and realised it only applied to SPA. Ive never bothered to include SPA in my workings as I plan to go at 60. If its still there for me at 68, I'll just reduce my drawdown accordingly

It would affect thousands who are in the CS Alpha pension though.

Or any other DB scheme where NRA is linked to SPA

It will be interesting to see the justification for the increase should it occur, as I do not believe that data on longevity would support an increase from everything I have seen on longevity days analysis over the last few years 

More likely is that govt would change it's belief that 32% of adult life should be spent in retirement to whatever figure is needed to support a change to age 68. The 32% figure has already been changed from an original 33.3% figure.

That would in turn mean that public service pension age is not linked to changing longevity, but to changing govt beliefs about appropriate retirement age.

I never understood why NPA in public service pension schemes couldn't just be linked to an actuarially calculated Longevity Adjustment Factor as used by several private sector pension schemes, instead of the much more subjective and politically determined State Pension age.