Will the Pension LTA be Re-Invented by any Government?

RogerPensionGuy

ader42 said:

I find the £268k tax-free limit to be irritating as in my opinion it unfairly punishes successful investing.

I completely agree but, guessing it puts a little anchor at the 1,070M post, but maybe setting a nice flat easy to understand figure at 1.8 or 2M would be just be too simple rather than making it just anyway people won't engage with pensions. 

1.2, 1.5M would of been a more sensible line in the sand and remove the 1,073,100 silly nbr.

Grumpy_chap

dunstonh said:

It was only in later years that the LTA became a political football and moved to hitting middle earners.   When the LTA was created, there was never any expectation that train drivers, nurses, teachers, self employed etc would get near the LTA.

Such is the problem of any "allowance" or "withdrawal of allowance" (under any name) set by Politicians and the attractiveness of fiscal drag where "do nothing" still allows tax take to increase even though the promise "not to increase taxes" has been met:

• Pension LTA and AA - until altered at the last budget because the effect had become undesirable
• HICBIC
• £100k withdraw personal allowance for Income Tax
• VED supplement for expensive cars

I am sure the list just goes on and on.

QrizB

ader42 said:

I find the £268k tax-free limit to be irritating as in my opinion it unfairly punishes successful investing.

You're right, it should be abolished. There's no good reason (beyond historical precedent) to let pensioners take 25% of their pension tax-free.

Pat38493

QrizB said:

ader42 said:

I find the £268k tax-free limit to be irritating as in my opinion it unfairly punishes successful investing.

You're right, it should be abolished. There's no good reason (beyond historical precedent) to let pensioners take 25% of their pension tax-free.

Wouldn’t there be a lot of people for whom putting the money into the pension would be pointless if there was no TFC - i.e. anyone not paying 40% tax but with a full state pension?

ader42

Even if one is only a 20% tax rate payer (effective 25% on way in) pensions would be pretty pointless for all but the most wealthy without the 25% tax free on the way out.

People would just invest upto £20k a year into an ISA with immediate access instead of waiting until “pension age”.

Bimbly

RogerPensionGuy said:

The auto enrolment looks like a good change and hopefully they will at least nudge up the minimum 8% to maybe 10% after this economic cycle and cost of living looks more stable and better

While I agree that getting young people to save more for their retirement is a good thing, the danger of putting up the minimum pension payment is that even more people are likely to opt out of pension contributions entirely. That maybe "wrong", but with the financial constraints on the young these days, you can hardly blame them. https://www.theguardian.com/money/2023/sep/04/britons-cut-pension-contributions-hargreaves-lansdown-abrdn

It would help if employees understood more about pensions. One colleague was concerned that paying into a pension meant he was paying tax twice on the money (once on the contribution and again on withdrawal), so I explained it is actually very tax efficient. Not that he thinks adding to a pension is that necessary because, with things as they are, he doesn't think he'll be able to retire. Meanwhile, many of the young people in the office fell into auto enrolment rather than opt into the more generous company scheme because the minimum for that was higher by a couple of percent. Even though employer contributions are so much more generous (match + 2%). I tried to explain the company scheme was better, but got shouted down. Eventually, one savvy young person managed to persuade most of them to switch to the better scheme, but it was hard work.

Pat38493

Why not just make it compulsory to contribute to a pension if you are an employee?  I suspect that is already the case in a lot of other countries.

Grumpy_chap

Pat38493 said:

Why not just make it compulsory to contribute to a pension if you are an employee?  I suspect that is already the case in a lot of other countries.

That would make no difference to who is affected by LTA.  One assumes those affected by LTA were already making contributions well above any minimum level

Malthusian

Pat38493 said:

Why not just make it compulsory to contribute to a pension if you are an employee?  I suspect that is already the case in a lot of other countries.

It is also the case in the UK - National Insurance and State Pension. Assuming your earnings are over the relevant thresholds.
(Many other countries still have an earnings-linked element to their state pensions - as we did in the UK before the idea of richer people getting more taxpayers' money than poorer people become too poltically unpopular and SERPS / State Second Pension was fully abolished in 2016. This is why people in other countries tend to have larger "state pensions" than those in the UK. At least if they are well-off enough for people in the UK to pay attention to them.)
Forcing people to put money into the coffers of private companies is a non-starter politically, even if it is a good idea for many people. For the most vulnerable in society it would just be an extra tax (as their small pension pots would be taxed away via means-tested benefits) while enriching private companies on the way via fees. Hence the "opt-out" system.
The fundamental reason some people don't save into pensions is because they want to spend the money now. All the misconceptions they come up with about pensions ("I'll taxed twice" "I won't live long enough to claim it" "the pension company will go bust" blah blah) are then invented after the fact to justify the decision they've already made.
It is impossible to change their understanding unless they first change their mindset and start valuing their future.

EdSwippet

RogerPensionGuy said:

Looking like politically the government(whichever) will need to let the last changes settle down a fair while or it will knock general confidence in pensions we have in the UK. 

What confidence is that? I have none.