Budget Day - will there be an immediate clamping of taking 25% Tax Free from Pension?

Exodi

Sam_666 said:

Here we go again. Just like last budget time, gossip and speculation post will become norm.
Boring. 

I'm starting to feel the same way - not this again. I still remember the same thing last time from last year, where this forum was subsequently flooded with regretful people asking how to put their tax free lump sum back in.

I won't even touch on the situation of paying for a legal professional and then using ChatGPT...

While it might be theoretically possible, the government is limited by political realities.

Completely abolishing the LSA and announcing it with immediate effect would inevitably cause absolute pandemonium. Did you not see what happened when they tried to reduce entitlement to a few hundred quid WFP?

Making any changes to the pension system with immediate effect would dramatically undermine confidence in the pension system. If the government wants people to save into pensions (and thus, not be completely reliant on the state in retirement), they know they can not just make changes with no notice. If people have genuine concerns that they can't rely on their pensions in retirement, they won't pay in to them.

What I suspect is most likely to happen is the LSA limit will be frozen, another form of fiscal drag. I appreciate Torsten Bell has suggested a reduction of the LSA to £40k, though of course he is an economist, not a politician. Likewise, I'm sure even he appreciates it would be foolish to do it with immediate effect. Much pension-related legislation is phased in over a decade, however dropping the LSA from £268,275 to £40,000 would cost a basic rate tax payer nearly £50k in additional tax - this isn't a small sum that can be quickly replenished in a few years. As an aside, inevitably it would only cause even further inter-generational resentment at the possibility of another ladder being pulled up from the younger generation. With widespread pessimism on the future of the state pension for young people, significantly reducing or scrapping the LSA on private pensions would mean that not being able to afford a house will be the least of their worries. Now imagine, the furor if this was announced while simultaneously maintaining the triple lock... (I've seen very little speculation on the scrapping of the triple lock, despite most economists and realists accepting it needs to happen). Like I said, tinkering with the LSA is as much a political decision as it is an economic one.

I'm with the FA, removing the LSA entirely with little or no notice is so unlikely I'd bet my house on it. I suspect the only reason he says 97% is because he knows well that he shouldn't make any guarantees in his line of work.

And also I agree with his comments that there would be mayhem. Protests like we've never seen before.

Eldi_Dos

Dazed_and_C0nfused said:

snootybutnice said:

I've asked my financial advisor about this, and he insists that the government is highly unlikely to remove the 25% tax free we can obtain from our personal pension - in fact he said '97% it will not happen' - he also continued to say if it were to happen, the Government is already short on money so if everyone took out 25% of their tax free money to avoid this charge, there would be mayhem. 

He also explained that it's not like a rate increase which can be done immediately - so this has to be legally voted in. However in ChatGPT it says if it's voted through months later in the Finance Bill they could backdate it to budget day - so waiting until after the vote wouldn't help us as the date may already be locked in. Equally ChatGPT says they may announce the change from next tax year. 

Which is the truth?

You just need to check with Rachel Reeves cleaner and you have the full set 😉

There is a anecdote that JFK's dad Joseph decided it was time to pull out of the market before the Wall Street Crash when his shoe shine boy started giving him stock tips and telling him how well he was doing in the market.

phlebas192

Exodi said:

What I suspect is most likely to happen is the LSA limit will be frozen, another form of fiscal drag. I appreciate Torsten Bell has suggested a reduction of the LSA to £40k, though of course he is an economist, not a politician. 

Torsten Bell is an MP so, yes, he is a politician! He's also the Permanent Under-Secretary of State for Pensions in the Treasury. So I wouldn't dismiss any idea he put forward now. But I think the £40k figure comes from a 2019 Resolution Foundation report so written 5 years before he became an MP. What people say before and after they are elected can be very different! Personally, I very much doubt the LSA will be reduced and certainly not immediately.

That said, if I had a SIPP at or close to £1.073m then I wouldn't wait to take the TFLS in the hope that some future government might increase the LSA!

Exodi

phlebas192 said:

Exodi said:

What I suspect is most likely to happen is the LSA limit will be frozen, another form of fiscal drag. I appreciate Torsten Bell has suggested a reduction of the LSA to £40k, though of course he is an economist, not a politician. 

Torsten Bell is an MP so, yes, he is a politician! He's also the Permanent Under-Secretary of State for Pensions in the Treasury. So I wouldn't dismiss any idea he put forward now. 

I didn't mean it literally, though perhaps I should have sad "at heart" at the end of my sentence to avoid any confusion, my apologies.

I'm certainly not dismissive of any ideas he's put forward, in fact quite the opposite - many of the ideas he's made in the past I think make an incredible amount of sense, yes including the ones that effect me. Though realistically many are also unlikely to be popular as they're wide-reaching.

phlebas192 said:
But I think the £40k figure comes from a 2019 Resolution Foundation report so written 5 years before he became an MP. What people say before and after they are elected can be very different! 

Of course, but this is a thread about speculation and given the government has not provided any commitment on potential points of pension reform at this point, we can either close down discussions with a "no speculation" rule (which I don't disagree with to be honest)" or discuss the speculation, which might including discussing sources past and present.

phlebas192 said:
Personally, I very much doubt the LSA will be reduced and certainly not immediately.

That said, if I had a SIPP at or close to £1.073m then I wouldn't wait to take the TFLS in the hope that some future government might increase the LSA!

Agree on both these points. And if I may add to it, especially if the government is to simultaneously continue their commitment to the triple lock. The optics would be horrendous.

To be honest, the optics of cutting the LSA would be awful regardless - this would come just months after the DWP released a press release stating that "Tomorrow’s pensioners are on track to be poorer than today’s" and that "Retirees in 2050 are on course for £800 or 8% less private pension income than those retiring today."

Torsten Bell himself was quoted in the press release saying "The original Pensions Commission helped get pension saving up and pensioner poverty down. But if we carry on as we are, tomorrow’s retirees risk being poorer than today’s. So we are reviving the Pensions Commission to finish the job and give today’s workers secure retirements to look forward to." 

Pulling the LSA rug from underneath peoples feet with short-term or immediate effect is hardly providing a secure retirement which is why (like you) I seriously doubt it would ever happen.

Albermarle

Baldytyke88 said:

Sam_666 said:

Here we go again. Just like last budget time, gossip and speculation post will become norm.
Boring. 

It's months away, rather early for budget speculation?

The right wing press in particular have been speculating wildly already for a couple of months at least.
Although it is not really informed speculation in most cases, just scaremongering to sell papers/get clicks. 

molerat

https://uk.finance.yahoo.com/news/leading-pension-experts-consider-cashing-125259235.html

Two of Britain’s most prominent pension experts have said they are planning to raid their savings pots amid fears Chancellor Rachel Reeves could slash the tax-free lump sum.

Dazed_and_C0nfused

molerat said:

https://uk.finance.yahoo.com/news/leading-pension-experts-consider-cashing-125259235.html

Two of Britain’s most prominent pension experts have said they are planning to raid their savings pots amid fears Chancellor Rachel Reeves could slash the tax-free lump sum.

Although what they actually said seems quite different!

“I think the risk is real and immediate. I’ve never known a set of political and fiscal circumstances when a tax raid on pensions, and in particular the tax-free lump sum, has been more likely.

As a consequence, I’m personally actively considering bringing forward the withdrawal of a tax-free lump sum from my pension.

I’d be taking the money within the next few years anyway, so the risk argument for me is more in favour of acting early from a precautionary point of view.”

The other apparently said "ditto".

Exodi

molerat said:

https://uk.finance.yahoo.com/news/leading-pension-experts-consider-cashing-125259235.html

Two of Britain’s most prominent pension experts have said they are planning to raid their savings pots amid fears Chancellor Rachel Reeves could slash the tax-free lump sum.

I think stuff like this is exactly what people mean when they complain about right-wing scaremongering (note the article is a repost from the Telegraph).

The headline: "Leading pension experts consider cashing in tax-free lump sums before Budget"

The content: "Most experts advise against cashing in on your pension in a panic, as the withdrawal cannot be reversed."

The alleged expert also mentions "I’d be taking the money within the next few years anyway" yet detail like this doesn't always translate over to the thousands of eyes reading the headline and the other similar headlines the telegraph is churning out on a near hourly basis and making knee-jerk decisions. The other expert literally only said "ditto" on Twitter, and the Telegraph decided this was sufficient enough to title the article with that headline.

It really is morally bankrupt to fearmonger with such serious topics, all to drive engagement. We are seeing people asking about cashing in their LSA on here (who hadn't considered it before) daily now.