Looking to Protect My 25% Tax-Free Lump Sum

Bostonerimus1

bolwin1 said:

Bostonerimus1 said:

Do not make decisions based on rumours and conspiracy theories. It amazes me that people are so easily influenced by what they read in newspapers and particularly online. Anyway the 25% tax free lump sum always struck me as strange as why should you get a tax break on the way into an pension and also on the way out? That's "double non-taxation". From an objective stand point all tax deferred contributions and growth should be taxed when taken out of a pension and the transfer of wealth when a DC pension passes to beneficiaries should come under the IHT regime. The allowances and level of those taxes are a more valid point of debate IMO.

Scrapping the 25% tax free allowance would make saving for a pension for basic rate taxpayers almost pointless, given the 20% tax threshold would almost all be taken up by the state pension. Saving 20% on the way in and paying 20% on the way out isn't particularly enticing, especially considering the reduced flexibility with a pension. People would use ISAs instead & would be much more likely to use them prior to pension age, leaving them much poorer in retirement. There are valid arguments for reducing the tax free lump sum, but scrapping it completely would be a very damaging thing to millions of lower paid workers.  

The lower tax bill now and all the tax free growth are still nice to have, but I agree that the large tax bands that start at 20% and jump to 40% are not conducive to planning to have a lower income in retirement and maybe pay a lower marginal tax rate in retirement. That would work best for high earners who intend to live frugally in retirement. Tax deferred pension tax free lump sums aren't that common and are a great current benefit...I believe Ireland gives a tax free pension allowance of 200k euros which is another approach.

RogerPensionGuy

The link below shows how when previously various governments negatively reduced tinkered with DC, PCLS, LTA, TFLS, 25% Tax Free Cash & the like they put  in place various protections that were helpful for some people, but not for all. 

It's all a bit confusing in my opinion and just helps to switch off people to sensible pension planning, but should they yet again negativity treat DC pensions, they may likely just make more variations of protections for people with DC/SIPP pensions. 

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https://www.gov.uk/guidance/taking-higher-tax-free-lump-sums-with-lifetime-allowance-protection
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(Obviously no need to adjust any government generous DB gold-plated pensions, these can be left alone getting increases via the tax payers)