The inevitable pre-budget speculation on pensions

aroominyork

Marcon said:

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.

So if you leave a SIPP to your spouse, is it placed in flex-access drawdown with all withdrawals taxed at the surviving spouse's marginal rate? 

QrizB

aroominyork said:

Marcon said:

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.

So if you leave a SIPP to your spouse, is it placed in flex-access drawdown with all withdrawals taxed at the surviving spouse's marginal rate? 

If the deceased was over 75, yes.

aroominyork

QrizB said:

aroominyork said:

Marcon said:

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.

So if you leave a SIPP to your spouse, is it placed in flex-access drawdown with all withdrawals taxed at the surviving spouse's marginal rate? 

If the deceased was over 75, yes.

And if under 75, still ringfenced in a SIPP but with all withdrawals tax free? And when the surviving spouse dies, the same process applies for the (child or other) beneficiaires?

Then under current rules and with a view to estate planning, it makes sense to spend down the 25% tax free before touching crystallised funds – so long as that would not move you into a higher tax bracket when you later draw the crystallised funds. For example, you have £100,000 and want an income of £8500:

i)                    Take £2500 tax free and £7500*80% = £8500. SIPP balance £90,000

ii)                   Take £8500 tax free. SIPP balance £91,500 (of which £34,000 is crystallised but that is irrelevant if you die).

Cobbler_tone

Has anyone actually read how much a reduction of the TFLS to say £100k would be worth to the government? It’ll be on a spreadsheet somewhere and understandably gets disproportionate airtime on a pension forum. It wouldn’t cause a ripple for most.
I think there is a pretty much a 100% guarantee that there are going to be some negative impacts in the budget. There always is and their requirements aren’t going to be met purely via fiscal drag of existing limits of tax, pensions etc. They’ve pretty much stated that a workers tax and NI won’t be changed….yet.
I know someone who was very negatively impacted by the immediate change to stamp duty due to an unavoidable week delay.

ClashCityRocker1

I think fiscal drag WILL serve most of the Government's taxation needs. The rest is keeping their nerve as we work through global issues. 

But I am not sure the Government will keep their nerve!

I think there is a case for reworking the whole income tax/NI system - probably taxing wealthy pensioners a bit more. But it would be a brave chancellor who did so, especially after saying they wouldn't.

GunJack

ClashCityRocker1 said:

I think there is a case for reworking the whole income tax/NI system - probably taxing wealthy pensioners a bit more. But it would be a brave chancellor who did so, especially after saying they wouldn't.

But then what's a "wealthy pensioner"??

ali_bear

Two things to expect:

1) The govt will continue to incentivize pension savings through the tax system
2) The govt will continue to close loopholes that allow tax avoidance through various abuses such as agricultural land ownership, etc. 

PattiTelongo

Even if there is a change to TFLS limit and that’s a big if then I’m sure there will be plenty of notice and it won’t happen overnight. I’m certainly not looking to pull the trigger on my lump sums based on what might happen as that seems a bit daft. I’ll reassess after the budget not before based on what certain newspapers would have you believe. 

Silvertabby

GunJack said:

ClashCityRocker1 said:

I think there is a case for reworking the whole income tax/NI system - probably taxing wealthy pensioners a bit more. But it would be a brave chancellor who did so, especially after saying they wouldn't.

But then what's a "wealthy pensioner"??

In Labourspeak, any pensioner who doesn't qualify for means tested benefits.  Remember what they said last year when they limited the winter fuel allowance to those in receipt of Pension Credit? -  "that they were limiting this payment to just those who really needed it".  

Silvertabby

Just my gut feeling, but I don't think they'll limit the tax free lump sum any further (now £268K, down from £450K at its peak).  Doing so would p. off the very people they can't afford to p. off - the very senior civil servants.