Consequences if the Pension LTA tax is re-introduced by Labour?

zagfles

tiring33 said:

vincit_veritas said:

Could Labour use the values originally recorded during the now defunct LTA crystallization events (BCE 1 to 4) or would that be regarded as "retrospective" taxation? 

As others have said 'they could do anything', but it does seem unlikely (to me at least) that any new Government would re-introduce the LTA in a way that would apply a charge to funds that have previously been crystallised (via BCE1-4 etc) under the current rules. If all or part of your pension funds have passed through any of these LTA/BCE tests and these funds still sit in your pension in drawdown, would they really ask you to pass these funds through the tests again and potentially pay an LTA charge on them? I just don't think that's likely.

Even if you go into drawdown and crystallise funds this year, paying a 0% LTA charge on funds in excess of the LTA, I can't believe they would reintroduce the LTA in a way that would make you do the test again on these funds, just because they disagreed with the 0% rate. Having said that, if they have a significant parliamentary majority they have the power to do anything they want, hopefully we will see more details from them as we get closer to the next election.

One thing to watch out for would be the age 75 test on crystallised funds ie BCE5A. If the LTA is reintroduced I guess it would apply to BCE5A so someone who doesn't need their pension yet but fully crystallises now to avoid the LTA charge, if they leave the pension to grow without drawing the growth they'd get hit by the LTA at age 75

Daniel54

zagfles said:

Daniel54 said:

I can’t read the Telegraph article,but usually these days that doesn’t matter

In any case,ignore Rayner .The key person is Rachel Reeves who is a very bright bunny.Oxford and MSc in economics  from LSE ,followed by working at BoE  and HBOS.

Similar to Liz Truss then (PPE Oxford, economic director at C&W). Very reassuring

Removing or capping the IHT free element of DC pensions would be more effective financially and politically than messing around with the lifetime allowance.In my view,it would also be easily justified.

It would. As such, it's not their (current) policy.

Truss went down the Tufton Street rabbit hole and is now blaming the deep state ( see her Heritage foundation speech ) for resisting her policies.Self evidently,the deep state failed in this endeavour as she blew up the long term gilt market notwithstanding

Reeves is understandably avoiding tax and spending commitments at this point in time and I don’t expect much greater clarity until we come to the time of the next election.

dunstonh

In any case,ignore Rayner .The key person is Rachel Reeves who is a very bright bunny.Oxford and MSc in economics  from LSE ,followed by working at BoE  and HBOS.Successfully led the 2011 opposition to the originally proposed maximum 2 year increase in state pension age under the 2011 act.Shadowed the DWP brief subsequently

Rachel Reeves has played loose with the truth.  For example she said:  ""The budget was a chance for the government to unlock Britain's promise and potential. But the only surprise was a £1bn pensions bung for the one per cent, a move that will widen the cost of living chasm."

The 1% comment which is a favourite of Labour.      
1)  Your pension allowance was tapered if you are a higher earner.   Right down to £4,000 a year.     So, with an annual allowance of £4,000, there are not going to be many high earners building million pound pension funds.
2)   You are starting to see teachers, nurses, train drivers, police officers, fireman and any many other public sector workers hitting or on track to breach the LTA.       You only need a salary of over £50k plus to find yourself at risk with long service DB schemes.   So, are people earning £50k+ a year really in the top 1%?

Reeves is disingenuous and playing the Labour "wealth is bad" card.

zagfles

Daniel54 said:

zagfles said:

Daniel54 said:

I can’t read the Telegraph article,but usually these days that doesn’t matter

In any case,ignore Rayner .The key person is Rachel Reeves who is a very bright bunny.Oxford and MSc in economics  from LSE ,followed by working at BoE  and HBOS.

Similar to Liz Truss then (PPE Oxford, economic director at C&W). Very reassuring

Removing or capping the IHT free element of DC pensions would be more effective financially and politically than messing around with the lifetime allowance.In my view,it would also be easily justified.

It would. As such, it's not their (current) policy.

Truss went down the Tufton Street rabbit hole and is now blaming the deep state ( see her Heritage foundation speech ) for resisting her policies.Self evidently,the deep state failed in this endeavour as she blew up the long term gilt market notwithstanding

That was the one good thing that came from the farce. You could buy index linked gilts with a positive yield at last.

I had to google Tufton Street. It seems to be the subject of conspiracy theories rather than the source! But we digress...

Reeves is understandably avoiding tax and spending commitments at this point in time and I don’t expect much greater clarity until we come to the time of the next election.

Apart from LTA reintroduction. They made that clear pretty quick.

But good to know we're in safe hands with Oxford economics graduates

german_keeper

I thought this was a pensions forum. I wonder if you would be so good as to consider taking your party political broadcasts elsewhere.

zagfles

german_keeper said:

I thought this was a pensions forum. I wonder if you would be so good as to consider taking your party political broadcasts elsewhere.

It's inevitable party politics is going to get discussed in a thread about a political party's pension policy, but you're right in that it has gone a bit OT. Always seems to be kick started by people who don't usually post here about pensions...

It's a valid topic for this board I think, as it's discussing pension planning and potential rule changes and how to plan for them, and there's some good stuff in this thread particularly the post from more_complicated_than_that so would urge the mods not to delete the thread, maybe just close it if it descends into a political flame war.

leosayer

Albermarle said:

Removing or capping the IHT free element of DC pensions would be more effective financially and politically than messing around with the lifetime allowance.In my view,it would also be easily justified.

Such as removing the blanket exemption and having a new nil rate band for pension pots, set at < £500K .

Will be some technical difficulties around trust law, but I would not be surprised to see something like that. Better get spending !

I struggle to see how pensions could be brought into the scope of IHT.

Fundamentally, IHT is calculated on the value of the deceased's estate and pensions aren't included in that because they are held in a trust which is never owned by the deceased. The trustee decides who the beneficiaries are.

That's why the LTA charge is only chargeable when you crystallise (ie. become entitled to) values over the LTA. 

It's a knotty problem for Labour to solve, if they get in.

MK62

I doubt many "ordinary" people wanted the LTA abolished, whilst at the same time having their personal allowance frozen for five years...

zagfles

leosayer said:

Albermarle said:

Removing or capping the IHT free element of DC pensions would be more effective financially and politically than messing around with the lifetime allowance.In my view,it would also be easily justified.

Such as removing the blanket exemption and having a new nil rate band for pension pots, set at < £500K .

Will be some technical difficulties around trust law, but I would not be surprised to see something like that. Better get spending !

I struggle to see how pensions could be brought into the scope of IHT.

Fundamentally, IHT is calculated on the value of the deceased's estate and pensions aren't included in that because they are held in a trust which is never owned by the deceased. The trustee decides who the beneficiaries are.

That's why the LTA charge is only chargeable when you crystallise (ie. become entitled to) values over the LTA. 

It's a knotty problem for Labour to solve, if they get in.

It would be simple to solve in the same sort of way as the LTA is sometimes charged and income tax is sometimes applied to inherited pensions. So not directly IHT but a similar end result.

For instance there could be a tax charge on designating funds to a beneficiary, similar to BCE 5C, but applying regardless of LTA usage, age, or whether the original pot was crystallised. Or there could be an income tax charge on drawdown regardless of age of death. Or a combination of the two, for instance a 25% tax charge on designation and then income tax on drawdown, which would sort of replicate IHT but in a more "progressive" way.

Albermarle

Rachel Reeves has played loose with the truth
Reeves is disingenuous

I would say both those qualities are actually necessary qualifications to be a successful politician. See the last PM as a perfect example !

Anyway to back to the OP, it is interesting to speculate about LTA in future ( and IHT, income tax on beneficiary pensions etc ) but effectively we are all in the dark.