Labour Pension tax benefit reduction/limit - what would this mean to those paying in £60k?

greyflanneltrousers

What would this mean to those of us currently paying in £60k into our pensions each year?

Appreciate it's only speculation, but I like to be prepared after reading Martin Lewis' comments on GMTV (quote below) that Labour could reduce the tax benefit in Pensions to a blanket 25%.

How close am I: Assuming the £60k limit remains and using the figures I pay today, my crude maths I estimated I'd have to pay 15% tax on any pension contribs I make - purely on today's figures. Reducing the tax relief to 25%, from 40%. I earn £180k.

I tried to create the formula ignoring my figures today, but I got lost trying to do it. Applying 15% to my current pension contribs seemed to give me what I hoped was a rough estimate. This then will allow me to play with the figures so my take home stays the same and my pension contributions then reduce to ensure I don't go home with less.

Martin's comments...
"They could limit pension tax relief, so that everybody gets the same, the same tax relief as basic rate taxpayers. At the moment, higher rate taxpayers get more from the state toward their pension because they pay more tax."

https://www.birminghammail.co.uk/news/showbiz-tv/martin-lewis-explains-what-labour-29484227

Thank you for any help

Marcon

greyflanneltrousers said:

What would this mean to those of us currently paying in £60k into our pensions each year?

Appreciate it's only speculation, but I like to be prepared after reading Martin Lewis' comments on GMTV (quote below) that Labour could reduce the tax benefit in Pensions to a blanket 25%.

How close am I: Assuming the £60k limit remains and using the figures I pay today, my crude maths I estimated I'd have to pay 15% tax on any pension contribs I make - purely on today's figures. Reducing the tax relief to 25%, from 40%. I earn £180k.

I tried to create the formula ignoring my figures today, but I got lost trying to do it. Applying 15% to my current pension contribs seemed to give me what I hoped was a rough estimate. This then will allow me to play with the figures so my take home stays the same and my pension contributions then reduce to ensure I don't go home with less.

Martin's comments...
"They could limit pension tax relief, so that everybody gets the same, the same tax relief as basic rate taxpayers. At the moment, higher rate taxpayers get more from the state toward their pension because they pay more tax."

https://www.birminghammail.co.uk/news/showbiz-tv/martin-lewis-explains-what-labour-29484227

Thank you for any help

As you say, it's speculation. You wouldn't be paying any tax on pension contributions - you'd just get a lower level of tax relief.

If you're earning £180K, I'm sure you'll be able to get help from an IFA if/when any changes are actually enacted.

greyflanneltrousers

Marcon said:

greyflanneltrousers said:

What would this mean to those of us currently paying in £60k into our pensions each year?

Appreciate it's only speculation, but I like to be prepared after reading Martin Lewis' comments on GMTV (quote below) that Labour could reduce the tax benefit in Pensions to a blanket 25%.

How close am I: Assuming the £60k limit remains and using the figures I pay today, my crude maths I estimated I'd have to pay 15% tax on any pension contribs I make - purely on today's figures. Reducing the tax relief to 25%, from 40%. I earn £180k.

I tried to create the formula ignoring my figures today, but I got lost trying to do it. Applying 15% to my current pension contribs seemed to give me what I hoped was a rough estimate. This then will allow me to play with the figures so my take home stays the same and my pension contributions then reduce to ensure I don't go home with less.

Martin's comments...
"They could limit pension tax relief, so that everybody gets the same, the same tax relief as basic rate taxpayers. At the moment, higher rate taxpayers get more from the state toward their pension because they pay more tax."

https://www.birminghammail.co.uk/news/showbiz-tv/martin-lewis-explains-what-labour-29484227

Thank you for any help

As you say, it's speculation. You wouldn't be paying any tax on pension contributions - you'd just get a lower level of tax relief.

If you're earning £180K, I'm sure you'll be able to get help from an IFA if/when any changes are actually enacted.

Understood re no tax to pay on pension contributions, I was using it as a way to figure out how muh I'd have to reduce my contributions to keep the take home the same. I can't seem to get my head around calculating from scratch with a reduced tax relief.

--It's a funny thing earning what I earn. There are many expectations from others. One of those at the top of the list is that peopl expect me to use an IFA. I am convinced £180k seems more than it is. Other than the £60k pension contribs, once my remaining wage (£120k minus £60k bonus) has been put through the tax ringer I am left with reletively little. And any I do have left goes on overpaying the mortgage. All of this is in an effort to catch up from a pretty poor history with saving/pensions.

I find IFAs aren't interested in me because I don't have a) hundreds of thousands and b) I don't have a pension they can manage. Without exception each of the four IFAs I have spoken to have not given me any confidence.

So I am self-taught when it comes to finances, as I said after a lifetime of not saving at all. And I am much closer to the retirement age than I am from when I started employment if you get my drift I had a coming to Jesus moment with myself. Got myself debt free, and zero budgeting keeps me from wasting money ever again.

Obviously I am fortunate that just at this time in my life I managed to earn what I do, but time is ticking.

MetaPhysical

Respectfully, no one can answer your question.  What the government will or will not do is open to speculation.  However, remember it is not in the nation's interest to have pensioners as paupers.  A well incentivised private pension sector is in everyone's interest - including the government's.  I am sure Rachel Reeves is well aware of that.

Simon11

Without any incite, I would hazard a guess that any changes, like you are suggestion would come into play until the next financial year with the Autumn budget statement giving us the first head's up. Things like this take time for policies to be agreed, HMRC to be prepared and then enough notice for everyone in the UK to get prepared.

Thus I would keep with your existing pension strategy for now (or some people may even consider boasting payments this year, just in case) and we see what happens!

This seems quite useful to read:
https://www.bdo.co.uk/en-gb/insights/tax/what-the-new-labour-government-means-for-tax

Planning for what will happen next

The first key date following the General Election will be the State Opening of Parliament which is planned for 17 July. This will enable the new government to set out its legislative agenda including any specific Bills on its manifesto pledges.

Labour pledged to have a full Office of Budget Responsibility report to support their Budget proposals. The report will take at least 10 weeks to complete. This makes an ‘emergency Budget’ unlikely. Therefore, the earliest the next fiscal event can occur is mid-September, whether this is an Autumn statement or a full Budget, but it may occur later in the Autumn. 

The only other consideration is the ‘first 100 days’ pledges. The Labour manifesto states that the employee rights legislation (“New Deal for Working People”) will be introduced within the first 100 days.

While immediate tax changes may be unlikely, there is little doubt that there will be tax changes under the new government. So while there is no need to panic about future taxes changes, it is sensible to plan ahead and make use of the tax reliefs currently available. For example, now is good time to review your succession and wealth preservation plans.

Please see our 2024/25 tax planning guide for a summary of some key tax ideas that individuals, families and company owners can benefit from by using current tax incentives in UK legislation. 

LHW99

Without any incite, I would hazard a guess that any changes, like you are suggestion would come into play until the next financial year with the Autumn budget statement giving us the first head's up. Things like this take time for policies to be agreed, HMRC to be prepared and then enough notice for everyone in the UK to get prepared.

Hmmm - abolition of the LTA anyone?

michaels

Currently a 60k pension contribution would involve 48k contribution grossed up to 60k by the govt with relief and then a 48k x (45-20)% tax credit via a tax return so the net cost would only be 36k of lost spending power.

Under the new possible 25% flat relief rule then the net cost would be 48k, to reduce this down to 36k the obvious answer is only contribute 36k.

gravel_2

How would this kind of change attach to salary sacrifice pensions, or would it simply not?

leosayer

You may well end up going into analysis paralysis if you start to model the impact of tax changes that haven't even proposed by the government and could be implemented in a number of different ways.

The main challenge until now is how to avoid a situation where pension contributions are taxed on the way in and the way out - which could lead to many paying more tax than if they'd simply avoided pensions and would destroy the incentive to save.

You are in the top 1% of earners in the UK and whilst you no doubt will be paying a whole load of tax you seem to be doing all you can to mitigate than by making the most of the recently raised higher annual allowance. 

The fact that you currently leave yourself with relatively little is entirely your choice thanks to pension contributions and overpaying your mortgage. 

leosayer

gravel_2 said:

How would this kind of change attach to salary sacrifice pensions, or would it simply not?

That's one of many challenges.

I think a flat rate of tax relief is only feasible if the government stops future DC/SIPP contributions and moves everyone to a LISA-style savings pot.

In other words, moving from a EET (exempt exempt taxed) regime to TEE (taxed exempt exempt) as described in the consultation from 2015 linked below.
https://assets.publishing.service.gov.uk/media/5a817985ed915d74e33fe68b/Strengthening_the_incentive_to_save_consultation__print_.pdf

hugheskevi

With an income of £180K, might it not be better to just contribute the amount subject to 45% Income Tax in one year (£30K) and then in the next year use carry-forward to contribute £90K, and thus get back your Personal Allowance, effectively receiving 60% relief on £25,000 of the contribution?