October Budget - Pension Tax Relief vs Salary Sacrifice

molerat

Capping the tax free withdrawal to £100K is another one that has been suggested.

MetaPhysical

molerat said:

Capping the tax free withdrawal to £100K is another one that has been suggested.

I've heard the same and another one is removal of TFC completely.  However, what about those that had plans to use the TFC money to pay off mortgages/debt?  I'd suggest more notice is needed if they are to abolish or reduce the figure that "low" to £100k which is hardly a king's ransom these days.  Agreed though, the government have signalled, by removal of fuel allowance for pensioners that they are not afraid of making enemies.

MK62

molerat said:

Capping the tax free withdrawal to £100K is another one that has been suggested.

...though I would suggest that's too big a step.......certainly done in one go. You'd have a real fairness problem there too, in that Bill retired last week with £268k tax free, whereas Ben retires this week and can only have £100k tax free......and so on.....

molerat

MK62 said:

molerat said:

Capping the tax free withdrawal to £100K is another one that has been suggested.

...though I would suggest that's too big a step.......certainly done in one go. You'd have a real fairness problem there too, in that Bill retired last week with £268k tax free, whereas Ben retires this week and can only have £100k tax free......and so on.....

Since when has fairness (or considering the consequences for that matter) ever come into it ?

MK62

Well, people have differing views on what is fair.......

westv

molerat said:

Capping the tax free withdrawal to £100K is another one that has been suggested.

The thing is that that just pushes greater tax collection into the future. I am 100% confident it won't happen. The Government needs tax raising changes now - not in 10 years time.

Grumpy_chap

MetaPhysical said:

She may drop 60k allowance back to 40k for example 

You are not the first person from whom I have heard that mentioned as a possibility in the past week or so.  The other was my IFA.

MetaPhysical said:

She may drop 60k allowance back to 40k for example - or less - or any touching of the DC pot in any way, including accessing TFC will trigger MPAA.

Both the AA and the MPAA rules were revised as recently as this Spring to avoid people taking the early retirement resulting in skills shortages in essential areas.

MetaPhysical said:

Many people, myself included, are using pensions to swerve the perverse marginal tax traps in our system or to move themselves into lower tax bands.  There could be new rules to stop this - with severe consequences to those affected such as losing child allowance.  

Maybe, just maybe, the new Government will take the opportunity of being fresh to the table to completely restructure the taxation system so that all the cliff-edge and inconsistencies in the progressive rate of taxation will be resolved.  Perhaps that's why the PM explained it will be painful, because of the wholescale restructure from a blank sheet to raise the amount of revenue required rather than the total amount of revenue raised.

Hoenir

westv said:

I really don't think we will see anything to discourage pension saving.
It's more likely we will see the current freeze on personal allowances extended or even a reduction in them.

Could be achieved effortlessly at a stroke. Pension allowances are relatively generous. 

Albermarle

MetaPhysical said:

What this very interesting discussion highlights is the vast complexity of the current pension system and that there are many severe unintended consequences involved in meddling.  I think this is why the status quo has been maintained for so long other that some tinkering with the limits.  That's what I think RR will do.  She may drop 60k allowance back to 40k for example - or less - or any touching of the DC pot in any way, including accessing TFC will trigger MPAA.

Many people, myself included, are using pensions to swerve the perverse marginal tax traps in our system or to move themselves into lower tax bands.  There could be new rules to stop this - with severe consequences to those affected such as losing child allowance.  If they did do this then at 57 I will retire as a chartered engineer immediately.  And there lies another problem, because such policy changes will affect the highest and most in demand parts of the workforce (with respect to lower paid and critical workers). Again, laws of unintended consequences apply.  Can we really afford mass retirement when there are such skills shortages in the economy?  To prevent that she could immediately raise the age at which one can touch private pensions from 55 to say 60.  That could have draconian consequences on the plans of older and less healthy people with hardly any notice.

For all these reasons, I think little will change other that some limits tinkering.  We shall see.

I suspect a wide ranging review will be announced.

warrenb

I think one way they could claw back some from SS is to make it subject to NI (which should have the cuts reversed that were given in the last government). The problem they have is if they withdraw SS completely, what is to stop employers saying your salary is now xyz and we will contribute 30% to your pension instead of our current rate (making it the same contribution as it is at present).

They have a problem, but if they were to equalise CGT with IT and re-evaluate Council tax to be a percentage of value rather than banding then they can claw back a huge amount for local authorities without hitting the "every day worker". The problem they then have is that LA's will only look to allow expensive estates to claw in more money.