Labour's LTA plans?

ewaste

zagfles said:

Well that's constructive criticism. Of course it has bias, as does practically every newspaper story, but Ros at least understands pensions and is usually worth listening to. There's a similar article in the I who can hardly be accused of Tory bias https://inews.co.uk/inews-lifestyle/money/pensions-and-retirement/labour-public-sector-tax-pension-2898569

Labour are being completely irreponsible with this. People need to know now what their plans are, given it looks likely they'll be in power later this year. How can people make plans about their retirement if there is a serious prospect of big adverse rule changes in a year's time?  They keep coming up with reassurances aimed at particular goups, eg their latest “Our solution will reintroduce a lifetime allowance in a way that ensures that we retain public service leaders.” 

Do they think only "public service leaders" matter?

Thank you, I was aiming to be as constructive as that article. Ros may understand pensions but that isn't what the article was about, it was puff piece for consumption by the party faithful to play party politics. Watch out the Labour boogeyman is coming to get you.

The other linked article also lacks substance pretty much because there isn't anything to factually report on until policy is laid out, even then every political party has form for ignoring their own policies and manifestos. "Sources said the Labour Party was still working to establish how the policy will be introduced." 

I completely agree Labour are being irresponsible, some clarity would be nice but then why the double standard? You've not been living under a rock for the past few decades and the Tories in Government have made the previous Labour Governments look absolutely stellar. They've played many games with Pensions and other allowances as has been mentioned it's ironic they created many of the problems that they now say removing the LTA will solve. 

Albermarle

Grumpy_chap said:

Albermarle said:

 abolishing of LTA for DC pensions has increased the amount that can be protected from IHT ( for those who die with DC pots above £1.07M) 

That must be a very small number indeed.
The majority do not have DC pots above the £1m level at any point in their lives.
Some will have the £1M pot and die before retirement.  So they get to exploit the IHT loophole.
Some will have the £1M pot at some point but then deplete the pot during their retirement so below the £1M threshold by the time of death.
Some will have the £1M pot, draw their retirement income and still have a £1M pot remaining by the time of death.  They also get to exploit this IHT loophole.

As tax loopholes go, this is only for those who leave while young or those that had such a large pension pot it remained at £1M by the time of death.
The total of both cohorts must be a very small number.

Probably you are right that the number affected would not be great.

However I was really following the logic that one of the main reasons for the LTA was to cap how much tax relief higher earners could get ( nearly all higher rate tax relief), although the AA also does that by a different route . So making it relatively unattractive to keep adding more to a pension beyond a certain level.
However now a very high earner can theoretically stuff Millions into their DC pot, and keep it all safe from IHT.

Albermarle

zagfles said:

Pat38493 said:

Albermarle said:

Silvertabby said:

RogerPensionGuy said:

A good link below. 
☆☆☆
https://www.telegraph.co.uk/money/tax/income/labours-pension-tax-plot-new-era-of-retirement-inequality/

So, possible that Labour would re-instate the LTA, but exempt public sector workers.

Very 'Animal Farm'.  

The fact that it is an article in the DT about Labour, and using emotive words like 'plot' means it is unlikely to be an objective analysis of the facts.

However if the idea of public sector workers being exempt is a goer, then I suspect it might be more related to IHT.
A higher LTA for a DB pension does not lead to higher IHT avoidance, whilst the abolishing of LTA for DC pensions has increased the amount that can be protected from IHT ( for those who die with DC pots above £1.07M) 

The counter argument there is that anything that's perceived as increasing IHT is perceived a a vote loser by political parties - apparently IHT is a very unpopular tax not just amongst the people who might have to pay it, but even people who probably will never have to pay it - seems a bit odd but apparently that is what polling and focus groups consistently shows.  It seems like even people who probably won't pay IHT see it as unjust and unfair.  (personally I don't agree but I am apparently against the grain there).

With IHT it's not just paying it that's the issue but about all the form filling, about the valuation of personal effects, even household contents like cutlery, plates, chairs etc which people have to do to get probate. I've helped administer 2 estates which were nowhere near the IHT threshold but you still have to go through all this intrusive nonsense at a time of grief.

But on the broader point, yes people generally aren't that selfish, if they see something unfair they don't like it even if it doesn't affect them personally. On the LTA, polls showed about 50/50 support even though the vast majority wouldn't have been personally affected. Same with stuff like higher tax rates for higher earners. Which is why all the Labour election victories in the last almost 50 years have come with a promise not to raise tax rates. 

If the posts on these forums are anything to go ( + people I have talked to personally), the IHT rules are much misunderstood, especially regarding at what level you pay IHT, and how gifting is handled.
Many people seem to think that if you gift money, somehow the recipient will pay tax on it in all circumstances.
These misunderstandings maybe also be part of the reason why IHT is unpopular as many people seem to wrongly think they ( or their family) will be paying it .

michaels

Albermarle said:

Grumpy_chap said:

Albermarle said:

 abolishing of LTA for DC pensions has increased the amount that can be protected from IHT ( for those who die with DC pots above £1.07M) 

That must be a very small number indeed.
The majority do not have DC pots above the £1m level at any point in their lives.
Some will have the £1M pot and die before retirement.  So they get to exploit the IHT loophole.
Some will have the £1M pot at some point but then deplete the pot during their retirement so below the £1M threshold by the time of death.
Some will have the £1M pot, draw their retirement income and still have a £1M pot remaining by the time of death.  They also get to exploit this IHT loophole.

As tax loopholes go, this is only for those who leave while young or those that had such a large pension pot it remained at £1M by the time of death.
The total of both cohorts must be a very small number.

Probably you are right that the number affected would not be great.

However I was really following the logic that one of the main reasons for the LTA was to cap how much tax relief higher earners could get ( nearly all higher rate tax relief), although the AA also does that by a different route . So making it relatively unattractive to keep adding more to a pension beyond a certain level.
However now a very high earner can theoretically stuff Millions into their DC pot, and keep it all safe from IHT.

It would seem to make sense for pensions not to be a vehicle for avoiding tax altogether via relief on the way in followed by no IHT so surely it should be one or the other not both?  Eg whilst it might be unfair to tax already taxed income simply because it is passed on to the next generation, surely a combination of pension and IHT relief should not allow it to pass to the next generation with no tax paid at all?

zagfles

ewaste said:

zagfles said:

Well that's constructive criticism. Of course it has bias, as does practically every newspaper story, but Ros at least understands pensions and is usually worth listening to. There's a similar article in the I who can hardly be accused of Tory bias https://inews.co.uk/inews-lifestyle/money/pensions-and-retirement/labour-public-sector-tax-pension-2898569

Labour are being completely irreponsible with this. People need to know now what their plans are, given it looks likely they'll be in power later this year. How can people make plans about their retirement if there is a serious prospect of big adverse rule changes in a year's time?  They keep coming up with reassurances aimed at particular goups, eg their latest “Our solution will reintroduce a lifetime allowance in a way that ensures that we retain public service leaders.” 

Do they think only "public service leaders" matter?

Thank you, I was aiming to be as constructive as that article. Ros may understand pensions but that isn't what the article was about, it was puff piece for consumption by the party faithful to play party politics. Watch out the Labour boogeyman is coming to get you.

The other linked article also lacks substance pretty much because there isn't anything to factually report on until policy is laid out, even then every political party has form for ignoring their own policies and manifestos. "Sources said the Labour Party was still working to establish how the policy will be introduced." 

Plus direct quotes from Labour saying they'll reintroduce the LTA but protect "public sector leaders". That's substance. 

I completely agree Labour are being irresponsible, some clarity would be nice but then why the double standard? You've not been living under a rock for the past few decades and the Tories in Government have made the previous Labour Governments look absolutely stellar. They've played many games with Pensions and other allowances as has been mentioned it's ironic they created many of the problems that they now say removing the LTA will solve. 

Err... what double standard, I've mention several things the Tories have done in this very thread! Read the thread!

Mind you stellar Labour pensions policy is funny, well about as funny as "skidmarks in a public toilet"

Seriously though, the current LTA problems were obviously caused by the Tories lowering the LTA from the very generous levels under Labour - so ironic that Labour seem to want to go back to the Tories level of the LTA, or so it seems. Rather than the £2.5 million or so it'd be if indexed since Labour were in power

Albermarle

michaels said:

Albermarle said:

Grumpy_chap said:

Albermarle said:

 abolishing of LTA for DC pensions has increased the amount that can be protected from IHT ( for those who die with DC pots above £1.07M) 

That must be a very small number indeed.
The majority do not have DC pots above the £1m level at any point in their lives.
Some will have the £1M pot and die before retirement.  So they get to exploit the IHT loophole.
Some will have the £1M pot at some point but then deplete the pot during their retirement so below the £1M threshold by the time of death.
Some will have the £1M pot, draw their retirement income and still have a £1M pot remaining by the time of death.  They also get to exploit this IHT loophole.

As tax loopholes go, this is only for those who leave while young or those that had such a large pension pot it remained at £1M by the time of death.
The total of both cohorts must be a very small number.

Probably you are right that the number affected would not be great.

However I was really following the logic that one of the main reasons for the LTA was to cap how much tax relief higher earners could get ( nearly all higher rate tax relief), although the AA also does that by a different route . So making it relatively unattractive to keep adding more to a pension beyond a certain level.
However now a very high earner can theoretically stuff Millions into their DC pot, and keep it all safe from IHT.

It would seem to make sense for pensions not to be a vehicle for avoiding tax altogether via relief on the way in followed by no IHT so surely it should be one or the other not both?  Eg whilst it might be unfair to tax already taxed income simply because it is passed on to the next generation, surely a combination of pension and IHT relief should not allow it to pass to the next generation with no tax paid at all?

It is that sort of idea ( amongst others ) that has been tossed around by the IFS,

zagfles

Albermarle said:

Grumpy_chap said:

Albermarle said:

 abolishing of LTA for DC pensions has increased the amount that can be protected from IHT ( for those who die with DC pots above £1.07M) 

That must be a very small number indeed.
The majority do not have DC pots above the £1m level at any point in their lives.
Some will have the £1M pot and die before retirement.  So they get to exploit the IHT loophole.
Some will have the £1M pot at some point but then deplete the pot during their retirement so below the £1M threshold by the time of death.
Some will have the £1M pot, draw their retirement income and still have a £1M pot remaining by the time of death.  They also get to exploit this IHT loophole.

As tax loopholes go, this is only for those who leave while young or those that had such a large pension pot it remained at £1M by the time of death.
The total of both cohorts must be a very small number.

Probably you are right that the number affected would not be great.

However I was really following the logic that one of the main reasons for the LTA was to cap how much tax relief higher earners could get ( nearly all higher rate tax relief), although the AA also does that by a different route . So making it relatively unattractive to keep adding more to a pension beyond a certain level.
However now a very high earner can theoretically stuff Millions into their DC pot, and keep it all safe from IHT.

A very high earner would be subject to the AA taper and so pay a 45% AA charge on all except £10k pa of the "millions" they stuff into their pension, and then whoever inherits it would have to pay income tax when drawing it unless the high earner dies under 75. Hardly a sensible strategy.

If they wanted to avoid IHT then rather than stuffing their pension they could just give out of earnings, gifts from income don't count for IHT even if the giver dies within 7 years.

It would be a completely daft strategy except maybe in unusual niche circumstances.

RogerPensionGuy

michaels said:

So it looks like I might be able to avoid the punitive LTA charge by taking my DB early with a reduction whereas previously I was looking to build a guaranteed income bridge by investing most of my DC into index linked gilts / a fixed term rpi annuity.  Not the end of the world but it just means that less of my pension will be inflation protected and more will be subject to SOR risk (swr)

Edit - even taking it and retiring at earliest point leaves me dangerously close to LTA based on current high market levels.  I may need a complete rethink of my pension strategy over the next 15 months

The consensus is to only plan against known regulations but in this case it would seem sensible to also factor in announced policy...

I agree many people say only plan for stuff known, but with 17 years of football pensions and governments appear to be happy with inventing the LTA, letting it rise, then lowering it, freezing it, then up it 7.3%, then remove it, but pick 25% of 1.073M as max TFLS forever. Then the players who invented the LTA want to bring it back ASAP and potentially activate forestalling measures whilst they decide what to do, then a few U Turns and the game re-starts.

Just think back a year ago, a prudent saver/pension investor activated a pot way over 1.073M and paid loads of tax/charges, had person just delayed activation his results would of been so much nicer, remember before last March, the LTA was rumoured at various numbers, 800K 900K 1.2M 1.5M and 1.8M, but bang it went and now we could see the football re-found and they will kick it backwards and sideways for another 17 years I guess.

So I plan for both today and my guessing on what football they will play, role on the 6th of March when the Cons lay their next batch of traps for the Labs.  

RogerPensionGuy

ex-pat_scot said:

I hit the magic 55 in a few months...
Watching with (vested) interest in the current political noises.
Not overly concerned, selfishly, as I will have the flexibility to react quickly to any changes.
I'm planning on taking the full TFLS asap, and use it to feed into the mortgage, wrap into 2x ISAs.
There's no point in leaving it in the SIPP, where its value erodes against inflation and it would be vulnerable to political risk.
I think the chance of retrospective TFLS / LTA tax is vanishingly small in the short and medium term.

Of course, if a snap election is called tomorrow, then I'd be slightly alarmed that a day 1 new government might announce immediate changes, just before I can touch the pension - either in pushing back the age of earliest access from 55, or in the amount / process for tax free and LTA.
I don't think a snap election is likely before May. I think the current incumbents are torn between a despair-led scorched earth policy, and a desperate hope of things somehow getting better before they have to call the election at the end of the year.

Looks to me like the longer the Cons keep pulling the fishing tackle in the sand, the more the Labs with bite and bite and U-Turn and U-Turn and the Lab win at the next election will be minor and their U-Turns will ensure it will just be 5 year stretch, enough time to erode more confidence in pensions, what a mess. 

RogerPensionGuy

Below is copy/paste from the link at the bottom. This is why Labour needs to comment now on its view because people are making decisions because the time between an election call and result and Anti-Forestalling being applied is not enough time to protect expectations. 

.Possible Action By Labour

• Anti-Forestalling Legislation:  We can see a Labour government having an emergency budget and introducing legislation overnight to ensure that anyone who triggers taking pension benefits in 2024/25/26 (i.e., after the date of any emergency budget) to avoid taxes when there is no LTA, will be included in any new LTA and exceeding the limit thereby creating new excess over LTA tax charges.

***
https://www.financialadvice.net/will_labour_bring_back_the_lifetime_allowance_and_how/video/2004/32