Labour's LTA plans?

ader42

In my humble and likely very unpopular opinion I think it would be best for whomever wins the election to completely do away with higher rate tax relief altogether, reduce the £60k limit to match the higher rate tax threshold and eradicate the carry forward. I would also remove the silly personal allowance removal/reduction between £100k and £125k.
 
Surely we want to encourage all people to save a decent amount into pensions, but not millions per person. I believe it would be much better for the country for the highest earners to also be the biggest spenders and not “save” £60k a year for decades. 

We should aim for tax simplicity imho. and that includes not bringing back the LTA. 

LHW99

IMO the LTA is as much a potential penalty on lucky investing. If there is a fixed annual amount that can be put into pensions to earn tax relief, and a limit on the tax-free amount that can be withdrawn, that should sufficiently limit the amount of tax relief the Government is on the hook for without discouraging too many people.

Rules on inherited pensions could perhaps be revised, maybe to "tax-free to beneficiary before SPA" rather than before 75 as now.

zagfles

horsewithnoname said:

zagfles said:

Well this thread has taken a completely OT political turn! Inevitable I guess when politically opinionated people get their hackles up without having anything to say about the specific topic being discussed

Anyway - back on topic, this has got me intrigued. After the much more high profile u-turns on stuff like green spending and banker's bonuses, a u-turn on this relatively minor obscure issue would have gone almost unnoticed. Clearly they've rolled back or completely given up the old class war "eat the rich" approach, after all we've been conditioned to believe bankers are the epitome of greedy capitalists. So why the coy approach to the LTA issue, just vague assurances to select groups which will inevitably lead to accusations of unfairness and discrimination.

I'm starting to suspect they'll make changes which would be irresponsible to announce in advance. For instance flat rate tax relief. This does sort of replicate the LTA, as it provides a tax penalty if you pay higher rate tax in retirement (tax on way out being higher than relief on the way in). The HR threshold is very approximately the level of pension you'd get if at the LTA. So they could argue they are "replicating the principles of the LTA through a fairer more progressive tax relief system"

But announcing this in advance would be crazy. People in higher rate tax close to retirement but unlikely to be in HR tax in retirement would stuff their pensions now to get higher rate relief while they can.

There, another conspiracy theory to discuss, but at least it's on topic

Most people’s financial situation is political. If not for the governments we’ve had I’d be retired now. Damn right it’s political!

Don't get me wrong - it's inevitable that discussion of a political party's pension policy is political, how can it be anything but, what I was was referring to was OT (off topic) political discussion which has nothing to do with pensions like the rubbish about the Tories turning into the BNP/SNP or "reds under the bed" etc. 

DIscussion of pension policy, even speculation, is perfectly valid here just as speculation about future investment returns, safe withdrawals rates etc are, it's discussion about retirement planning and those plans clearly need to consider potential future pension tax policy/rules as well as investment landscape, inflation etc. DIscussion about non pension political issues isn't - MSE used to have a board for that but closed it because there were too many flame wars.

Hoenir

LHW99 said:

IMO the LTA is as much a potential penalty on lucky investing.

Recently has been one of those era's. Money for nothing one could say.  With a bill yet to be paid though. 

zagfles

ader42 said:

In my humble and likely very unpopular opinion I think it would be best for whomever wins the election to completely do away with higher rate tax relief altogether, reduce the £60k limit to match the higher rate tax threshold and eradicate the carry forward. I would also remove the silly personal allowance removal/reduction between £100k and £125k.
 
Surely we want to encourage all people to save a decent amount into pensions, but not millions per person. I believe it would be much better for the country for the highest earners to also be the biggest spenders and not “save” £60k a year for decades. 

We should aim for tax simplicity imho. and that includes not bringing back the LTA. 

With flat rate relief there wouldn't be any need for the AA, that could be abolished too. Higher earners would be penalised for saving too much in their pension if they end up paying higher rate tax in retirement, since they'd pay more tax when drawing the pension than the relief they got, so that would act as a brake on their contributions, so why have the AA as well? It could vastly simplify things by getting rid of both the AA and LTA. 

The big complication with flat rate relief is employer contributions - how do you handle that in a fair way. Abolish sal sac? But that would mean someone in a minimum AE scheme couldn't get full tax relief on more than a tiny amount whereas someone in a gold plated public sector scheme gets employer contributions of 30%+ with full tax relief.

Make employer contributions a taxable benefit? Too complicated, will result is horrible spikes in tax bills especially for DB pensions, wouldn't play well with groups they're trying to appease like doctors and "public sector leaders".

One solution may be to limit employer contributions to the level of the most generous public sector scheme, maybe 40% of salary. That would cover DB schemes and for DC would effectively limit sal sac to something like 20-25% of salary depending what the base employer conts are.

RogerPensionGuy

There's so much ongoing press  reference Labour's full intentions of reinventing the LTA, I just feel if they were intending to U-Turn on such comments and statements they would be best served just leaking it out now before the budget next month and essentially it would go unnoticed in the overall scheme of things.

Irrespective of the budget next month, Labour will roll out its new manifesto during this year and then they will be between a rock and a hard place on their slant on pension issues, if manifesto reveals another 180 degrees swinging and say they will leave alone pensions LTA stuff, they will attract much press about yet another U-Turn, so I'm 90% feeling if they don't U-Turn on pensions before the 6th of March, they will find it hard to actually U-Turn as they will just cause too much voting damage. 

Time will tell.

Cus

Maybe they could reintroduce the LTA but allow some opt out if you invest the amount above the LTA in some pre approved UK growth funds.

They keep banging on about how pension funds don't invest in the UK etc.

zagfles

Cus said:

Maybe they could reintroduce the LTA but allow some opt out if you invest the amount above the LTA in some pre approved UK growth funds.

They keep banging on about how pension funds don't invest in the UK etc.

As mentioned earlier there's already been a move to direct investments towards "approved" investments (ESG etc), especially in workplace defaults funds, I'd expect that to continue/get worse under Labour...

RogerPensionGuy

Getting a "bit" back on topic, LTA and general pension football played by all governments when they like.

I see the LTA a bit like IHT, CGT, SDLT and similar, in the early days they may look reasonable. 

But time and inflation. 

IHT, CGT and SDLT are pretty good examples that we can review easily, they all mostly started off as not directly affecting most folks, but now they are big tax intakes and we generally accept them.

Going back to the LTA in 2006, I think it would be 2.6M now I inflation adjusted, but it's 1.073M, this is a massive real reduction, I can see why any government will reintroduce it and move loads of other goalposts in the deal.

SDLT is now a big reason why people won't buy houses as just two expensive in many cases, people who owned a house and maybe got repossessed or whatever possibly because of silly government rules now cannot be treated like 1st time buyers and pay more taxes, the government kick housing up and down road, but fail to just get more houses built, period, but governments like this, the press are fixated with house prices just going up or just saying their going up to get people to jump on the housing ladder or debt ladder sone call it, just build more houses.

IIRC, CGT was 12K PA and going to 3K in April. 

Years ago, 2% of estates pay IHT, now maybe 10% figures plucked ftlrom the air.

% of people paying SDLT and % of SDLT Getting paid has just ramped up and up over the years.

Again personally,  I've planned for any LTA tinkering as far as is possible by making comprised decisions the last few years and have essentially stopped paid employment due to my view in income and tax paid verses my time.

The longer Labour don't reconfirm their LTA intentions, the more chance they will indeed not U-Turn on this item.

Watt Fun.

Grumpy_chap

RogerPensionGuy said:

LTA and general pension football played by all governments when they like.

I see the LTA a bit like IHT, CGT, SDLT and similar, in the early days they may look reasonable. 

But time and inflation. 

IHT, CGT and SDLT are pretty good examples that we can review easily, they all mostly started off as not directly affecting most folks, but now they are big tax intakes and we generally accept them.

That is not playing political football, though.
That is fiscal drag.
Same as HICBIC, withdrawal of personal allowance, premium rate VED, tax thresholds, 45 pence per mile rate, annual allowance, etc.

LTA does not quite fit into the fiscal drag category as the threshold rose as high as £1.8m before being reduced in steps and then fluttering up slightly to just over the £1m before being scrapped.