The inevitable pre-budget speculation on pensions

aroominyork

In the run-up to last year’s budget there was forum chat about whether the expected rise in CGT would happen overnight. The majority thought it would probably kick in the following tax year. Anyone who sold assets just before the budget on the basis they could B&B them back if the rise was delayed, is free to have a little gloat here.

Now we have the same dilemma ahead of 26 November about the tax-free lump sum – which is not B&B-able. Given the ease of arranging to take your full TFLS the day after the budget, isn’t it likely that any change would be immediate, eg capping the TFLS at say £100k, with no penalty for higher amounts taken before budget day?

Is it also likely that tax-free withdrawals by your heirs if you die under 75 will be in the Chancellor’s sights, as she wants to stop pensions being used as an inheritance planning tool? It is sometimes written that heirs would be taxed twice if they paid income tax on withdrawals from inherited pensions after the estate has already been subject to IHT. I don’t agree. Ignoring the heir’s 25% TFLS, the amount they draw down is 60% of the legator’s net contribution, so it is a straight IHT deduction. If there is no IHT, the heir’s withdrawal after tax is the same as the legator’s net contribution. This example assume 20% tax at both ends.

Finally, if any finance journalists are reading this, can I plead with them to try not to use the term ‘grieving families’ in every paragraph they write on the subject.

RogerPensionGuy

This will be an enjoyable thread. 

I've been following pensions for years and I just feel it's a long pension football game, unable to plan very effectively, just trying to duck & dive hoping it will not be too bad. 

Trying to predict pension changes is just so hard, the scrapping of the LTA was pretty unexpected in my opinion and now I just guess what may or may not happen, I use the example of scrapping the LTA as my guidelines, mostly predictable, but be prepared for anything they like to try, they can always just change it again down the road a bit. 

Pension treatment and continuous rules and goalposts moves are just terrible, I've just made a few more guesses and have decided to remove all my PCLS to avoid getting caught and then at least I can ignore all the press media outputs every year, what a mess. 

***

https://www.gov.uk/government/publications/abolition-of-the-lifetime-allowance-from-6-april-2024/abolition-of-the-lifetime-allowance-lta

aroominyork

RogerPensionGuy said:

Pension treatment and continuous rules and goalposts moves are just terrible, I've just made a few more guesses and have decided to remove all my PCLS to avoid getting caught and then at least I can ignore all the press media outputs every year, what a mess. 

I could do that also, and since about 25% of my SIPP is in a gilt index fund I would just swap it for an unwrapped low coupon gilt of similar duration. But that would mean that, as much as I plan to live i) until 2027 and ii) until age 75, if I didn't reach those milestones the inheritance benefits of i) no IHT and ii) heirs making tax free withdrawals would be lost. Is that the choice that has to be made?

RogerPensionGuy

aroominyork said:

RogerPensionGuy said:

Pension treatment and continuous rules and goalposts moves are just terrible, I've just made a few more guesses and have decided to remove all my PCLS to avoid getting caught and then at least I can ignore all the press media outputs every year, what a mess. 

I could do that also, and since about 25% of my SIPP is in a gilt index fund I would just swap it for an unwrapped low coupon gilt of similar duration. But that would mean that, as much as I plan to live i) until 2027 and ii) until age 75, if I didn't reach those milestones the inheritance benefits of i) no IHT and ii) heirs making tax free withdrawals would be lost. Is that the choice that has to be made?

I guess people could move wealth out of SIPPs on the 5th of April 2027 for IHT housekeeping, but I am not bothered too much about IHT after I expire.

My view about now talking all 268K TFLS is because I am over that 268K limit and I don't think it will go up, but they may place strange restrictions on it, previously when the TFLS was reduced they introduced various protections which were helpful in some cases, but not so helpful for others as they had to stop contributions to maintain whatever protection made available to them.

If I was way under the TFLS limit and SIPP was getting inputs and investment trending it up I would not take TFLS now as a balanced decision IMHO, but I have little faith in the treatment of pensions.

Reference low coupon gilts, these can be handy to use especially if paying 40 or 45% income tax, there's plenty of info on here and YouTube about gilts and the good and bad of these items.

  

kinger101

RogerPensionGuy said:

aroominyork said:

RogerPensionGuy said:

Pension treatment and continuous rules and goalposts moves are just terrible, I've just made a few more guesses and have decided to remove all my PCLS to avoid getting caught and then at least I can ignore all the press media outputs every year, what a mess. 

I could do that also, and since about 25% of my SIPP is in a gilt index fund I would just swap it for an unwrapped low coupon gilt of similar duration. But that would mean that, as much as I plan to live i) until 2027 and ii) until age 75, if I didn't reach those milestones the inheritance benefits of i) no IHT and ii) heirs making tax free withdrawals would be lost. Is that the choice that has to be made?

I guess people could move wealth out of SIPPs on the 5th of April 2027 for IHT housekeeping, but I am not bothered too much about IHT after I expire.

My view about now talking all 268K TFLS is because I am over that 268K limit and I don't think it will go up, but they may place strange restrictions on it, previously when the TFLS was reduced they introduced various protections which were helpful in some cases, but not so helpful for others as they had to stop contributions to maintain whatever protection made available to them.

If I was way under the TFLS limit and SIPP was getting inputs and investment trending it up I would not take TFLS now as a balanced decision IMHO, but I have little faith in the treatment of pensions.

Reference low coupon gilts, these can be handy to use especially if paying 40 or 45% income tax, there's plenty of info on here and YouTube about gilts and the good and bad of these items.

  

I wouldn't advocate tax planning based on what might happen but if I already had hit the age to take TFLS and was at or near the current limit, I'd also be taking it.

I just don't see it ever being increased, so inflation will continue to erode it.  

RogerPensionGuy

The government have essentially modified pensions in to a golden goose in my head. 

The groath/wealth of DC pensions will just increase, no LTA(currently) and now they have plonked DC under the IHT umbrella.

Governments can just sit back and the IHT take will just roll up & up and help pay the bills. 

Did I read only 4% of estates currently pay IHT, frozen IHT bands, high house inflation and the increase in DC will certainly see that 4% figure getting very inflated these next many decades, it maybe a bit slow, but IHT revenue is all well planned out. 

Just another eight weeks of press & media rumours to enjoy before we hear nothing surprising I suspect. 

aroominyork

RogerPensionGuy said:

Just another eight weeks of press & media rumours to enjoy before we hear nothing surprising I suspect. 

Torsten Bell is a red herring? (Sounds like a football chant.)

RogerPensionGuy

aroominyork said:

RogerPensionGuy said:

Just another eight weeks of press & media rumours to enjoy before we hear nothing surprising I suspect. 

Torsten Bell is a red herring? (Sounds like a football chant.)

Unlike a few years ago when the  government scrapped the LTA, that was a massive change and very helpful for people hoping to attain good security in retirement. 

I feel the music has changed now and people with pensions over XX £s and obviously TFLS over XX £s are viewed very differently to just a few years ago and I won't be surprised about any changes to pensions, in fact even if they decided to change nothing, they will probably do little odd changes just to keep pension rules nice a fluid in our heads so we don't get overly upset when we personally don't like any changes.

aroominyork

RogerPensionGuy said:

aroominyork said:

RogerPensionGuy said:

Just another eight weeks of press & media rumours to enjoy before we hear nothing surprising I suspect. 

Torsten Bell is a red herring? (Sounds like a football chant.)

Unlike a few years ago when the  government scrapped the LTA, that was a massive change and very helpful for people hoping to attain good security in retirement. 

I feel the music has changed now and people with pensions over XX £s and obviously TFLS over XX £s are viewed very differently to just a few years ago and I won't be surprised about any changes to pensions, in fact even if they decided to change nothing, they will probably do little odd changes just to keep pension rules nice a fluid in our heads so we don't get overly upset when we personally don't like any changes.

If the legator dies aged over 75, under current rules do beneficiaires of a SIPP get a 25% TFLS on previously uncrystallised funds, or do they pay tax at the marginal rate on all withdrawals they make? And is the rule different depending on whether the SIPP is passed to a spouse or to someone else, eg a child after the surviving spouse dies?

Marcon

aroominyork said:

If the legator dies aged over 75, under current rules do beneficiaires of a SIPP get a 25% TFLS on previously uncrystallised funds, or do they pay tax at the marginal rate on all withdrawals they make? And is the rule different depending on whether the SIPP is passed to a spouse or to someone else, eg a child after the surviving spouse dies?

There's no tax free 25% on an inherited pension.

RogerPensionGuy

aroominyork said:

RogerPensionGuy said:

aroominyork said:

RogerPensionGuy said:

Just another eight weeks of press & media rumours to enjoy before we hear nothing surprising I suspect. 

Torsten Bell is a red herring? (Sounds like a football chant.)

Unlike a few years ago when the  government scrapped the LTA, that was a massive change and very helpful for people hoping to attain good security in retirement. 

I feel the music has changed now and people with pensions over XX £s and obviously TFLS over XX £s are viewed very differently to just a few years ago and I won't be surprised about any changes to pensions, in fact even if they decided to change nothing, they will probably do little odd changes just to keep pension rules nice a fluid in our heads so we don't get overly upset when we personally don't like any changes.

If the legator dies aged over 75, under current rules do beneficiaires of a SIPP get a 25% TFLS on previously uncrystallised funds, or do they pay tax at the marginal rate on all withdrawals they make?

With so much changes ongoing I'm only guessing how stuff will pan out. 

My current view is SIPPs are deep in IHT & marginal tax so from estate planning I'm giving them small space or only a small % of holdings. 

Using an annuity with a guarantee period or value protection will hopefully have no less value for others after my expiry, but nothing is certain only more changes all the time.

A good example of changes and inability to plan is people who transfered from DB to DC making plans and then the government plonked SIPPs in to the IHT bucket.