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

MK62

What it'd mean is that you'd simply get less tax relief than you get now......but whether this will happen is pure speculation atm, and doubtful in the near future, at least imho, as it wasn't mentioned in Labour's election manifesto......but who knows after year or two though.

That said, the money needed for the govt's plans is going to have to come from somewhere, and given the constraints they've placed on themselves re income tax, NI, VAT and borrowing, then I'd be surprised if this, along with salary sacrifice pension contributions, weren't considered for "adjustments"......

Grumpy_chap

I do not expect the £60k AA to be reduced, but my speculation is no more valid than anyone else's speculation.

The Chancellor is speaking at present, so there may be a further steer by the end of the day, or even by lunchtime.

@gravel_2 has highlighted the obvious other matter - employer pension contributions - that would also need to be resolved if pension contribution tax relief is to be restricted.  As this makes it more complex, and the expectation that anything will be assessed by Whitehall ahead of announcement, Autumn Statement or March Budget is the earliest we really expect to see anything concrete start to be mixed.

greyflanneltrousers

hugheskevi said:

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?

I broadly get what you are saying, but not enough to be able to answer your question. I have been contributing the full amount, £40k then £60k for a few years (more than three) now so I doubt I can do what you suggest.

greyflanneltrousers

leosayer said:

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

Gravel's original comment is really what I should have asked. My pension is salary sacrefice into a company pension.

This is what I was trying to figure out how it would work. It's too much for my little brain to figure out.

I am afraid that EET and TEE stuff goes way over my head.

greyflanneltrousers

leosayer said:

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. 

Thank you. And yes, it's silly to speculate now but it's very much in my nature to over-prepare, to a fault unfortunately. I like to play out scenarios so when something does change I am in a position where I've done the leg work.

Yes, the big pension contribs and the mortgage overpayment does then leave me with relative little - and I think it's where the assumption of people that when you earn upwards of £180k that you are somehow 'rich'. I think I am fairly representative of what people in my situation do. Although there are lots who spend spend spend. I know this because for all my working career I have suffered from lifestyle creep. Only in the past few years have I recognised it and sorted my finances out.

It was quite an eye-opener that you don't need a big wage to secure your financial future. You just need time. Small amounts from the start of a working career go easily match, if not out perform, someone (like me) who has never saved and realised this later in their career. As a conequence I am shoveling large amounts into my pension. Whereas if I'd pay from the age of 16 for example I could be putting away £50 per month for 50 years and have a healthier pension pot that I do now.

It should be taught in schools. And I've fortunately prepared my kids for this - they've got pensions as teens that are bigger than I had when I was 40!

Hence my need to plan plan plan because I am afraid of (almost) repeating the same mistakes I have done for the past X years.

Marcon

greyflanneltrousers said:

leosayer said:

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

Gravel's original comment is really what I should have asked. My pension is salary sacrefice into a company pension.

This is what I was trying to figure out how it would work. It's too much for my little brain to figure out.

I am afraid that EET and TEE stuff goes way over my head.

You and a great many others! Which is why advice from an IFA would go a long way towards helping you - and you can afford such advice when many can't. 

I rang a couple of IFAs with whom I deal regularly on a professional (rather than personal) basis and quoted your comment: '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.'

The answer was the same in both cases - nothing to stop you asking for one-off advice on a particular aspect of your finances, and they'd expect most competent IFAs to accept a client on that basis; and if you've spoken to four IFAs and 'not been given any confidence' then possibly the problem lies with your expectations/attitudes.

Might be worth pondering their comments?

Hoenir

There's always endless speculation. Change of Government or not. Best thing to do is plan with the rules as they are. Anything else is a waste of productive time. 

greyflanneltrousers

gravel_2 said:

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

This is the question I should have asked.

I've been trying to wrap my head around how it would work with my company (salary sacrifice) pension and for some reason I can't fathom it.

greyflanneltrousers

Marcon said:

greyflanneltrousers said:

leosayer said:

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

Gravel's original comment is really what I should have asked. My pension is salary sacrefice into a company pension.

This is what I was trying to figure out how it would work. It's too much for my little brain to figure out.

I am afraid that EET and TEE stuff goes way over my head.

You and a great many others! Which is why advice from an IFA would go a long way towards helping you - and you can afford such advice when many can't. 

I rang a couple of IFAs with whom I deal regularly on a professional (rather than personal) basis and quoted your comment: '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.'

The answer was the same in both cases - nothing to stop you asking for one-off advice on a particular aspect of your finances, and they'd expect most competent IFAs to accept a client on that basis; and if you've spoken to four IFAs and 'not been given any confidence' then possibly the problem lies with your expectations/attitudes.

Might be worth pondering their comments?

Yes, I did consider if it was me, not them.

Honestly, I am an agreeable and friendly person. I approached each of them with total open-mindedness. I love to learn and knew I was uneducated in matters of personal finance.

I didn't originally have this line in my reply, but the trauma of dealing with these IFA runs deep. So here goes: reading what your IFAs said in reply honestly scares the hell out of me even more. They fit to their stereotype that's for sure. If a customers expectation is not established in the first meeting my argument would be that is the fault of the IFA, not the customer. Rule 1 of customer care/sales. I was left with the assumption that people that use IFAs have enough money to not want to understand how to look after it. Whereas at my level of net worth there isn't enough to justify it. Literally I was left thinking that I wasn't a big enough deal for them. And yes I could have paid fo one-off advice, but it become very clear very quickly that it is the recurring revenue that is of most interest to them. And I get it.

(note this was at a time when my finances were all over the place. each of the first three IFAs below were found via Unbiased, and I quickly figured out that this is simply a lead gen website once you pull back the covers)

IFA 1: Offered to take my £10k savings and 'sort everything' not stipulating what the money would go towards. They even wanted me to meet the IFA establishment owner at their house in what increasingly felt like a hot-house (literally) meeting. When I finally questionned the plan, I was met with a complete reversal and then a couple of pleading emails and calls to win my business.

IFA2: Told me to come back once I had £500k in my pension and didn't work for the same company!

IFA3: Told me how he loved money and how dire my situation was and how I needed to work quickly. It was a bizarre situation. It was like speaking to a car salesman. I wanted to hear an IFA tell me how they love helping people. Loving money is not what you want to hear. On one hand I could understand him taking that approach, but it is crass and cringey.

It was at this point I realised I needed a financial planner/IFA.

IFA4: Was a financial planner too. He was recommended via a friend. His reaction to my financial situation was disinterest. Unlike my friend, that had come into some money, his reaction to the list of debts and spending was "we don't spend this amount on cars, food, going out but admitedly my wife manages every single penny, she could tell you how much we spent on carrots this and every previous year".

I found the entire process quite humiliating. But to their credit they actually did serve a purpose. Through the depression of their styles I heard enough to allow me to bolster my knowledge.

I set about educating myself. It took a year to properly understand everything. And then a second year to really make use of what I had learned. Luckily the decisions I had made early on at the start of the process were good ones.

I now run our family like a small business. As you say (thank you) I am doing a good job to minimise my tax. I even use my bonus as a third income into the house - it has it's own budget too.

Going into the IFA hunt I actually had no expectation. I was ready to be told. Now I understand the difference between IFAs and financial planners. The expectation if I try to think back going into an IFA was they would review my finances and help me maximise and minimise. Help me budget. Help me ensure my pension was invested according to my risk.

As it stands, I am finding the core set of financial experts on YouTube allow me to do it myself.

Interestingly, after the event, I spoke to friends on similar earnings to me and it's not a dissmiliar story. Some first hand, some third hand, and some probably still affected by the scandles of the 1980s. It's one of distrust.

One of the IFAs happened to be SJP. I've since read about them in the press and it does not surprise me. What I found with this particular IFA is they simply ignored my thank you email and my wish to proceed with being helped. I sent another follow-up, literally no reply.

That's when I literally said to myself out loud "if you want something doing in this life, you can't wait for someone else to fix it, you've got to go and find the solution". So I did.

I suspect the world of financial advice is changing. This next generation are far more savvy. And as I said, I've taught my young kids exactly what pensions and investments are. Their 'portfolio' is better than mine will ever be. They are barely teens and they now understand compounding.

Why personal finance isn't taught at school is such a shame.

dunstonh

Marcon said:

greyflanneltrousers said:

leosayer said:

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

Gravel's original comment is really what I should have asked. My pension is salary sacrefice into a company pension.

This is what I was trying to figure out how it would work. It's too much for my little brain to figure out.

I am afraid that EET and TEE stuff goes way over my head.

You and a great many others! Which is why advice from an IFA would go a long way towards helping you - and you can afford such advice when many can't. 

I rang a couple of IFAs with whom I deal regularly on a professional (rather than personal) basis and quoted your comment: '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.'

The answer was the same in both cases - nothing to stop you asking for one-off advice on a particular aspect of your finances, and they'd expect most competent IFAs to accept a client on that basis; and if you've spoken to four IFAs and 'not been given any confidence' then possibly the problem lies with your expectations/attitudes.

Might be worth pondering their comments?

General practitioner IFAs will happily provide transactional advice.   If the cost is unlikely to be viable for the benefit, most would say so. 

Those firms that exist to hoover up assets under management may not be interested, but most of them are FAs or transitioning to FA.

And there is always the issue that over half of people who speak to an FA believe they are speaking to an IFA.   Just this weekend, our community facebook page had another post asking for IFA recommendations.   Not a single company named in response was an IFA.   
 
There is an IFA in our county that has a £250k minimum, but that is because they have positioned themselves in the prestige/high net worth market, and their services are aimed at them, and anyone outside of that is not in their target market.  The director of that firm told me that they won't break the £250k minimum unless it's the family of a client as it would dilute their brand and reputation.   They are the only IFA in the county that I know wouldn't accept a client with £180k, even on transactional.