No change to tax free cash on 26 November

m_c_s

hugheskevi said:

Whereas in the past I was considering whether my wife and I should access our DB pensions at age 55 or leave them later, my considerations now are about whether we should access them before age 55 or not (protected minimum pension age from 2006 change). It now looks like I will be a higher rate taxpayer in all years after age 55, so despite poor actuarial reduction factors, moving income from being subject to 40% tax to being subject to 0% or 20% is looking increasingly attractive.

When planning my income cash flow during retirement I assumed, three years ago, that the personal allowance band would stay at £12570 for ever together with the start of the higher rate band at £50270. This, I thought, was a very conservative approach and an unlikely assumption. Now I am not sure about the latter.
The IFS just produced a very interesting paper and I was staggered by the fact that if all tax band allowances are now frozen up to 2030 that will be equivalent to a 3.5 percentage point increase in income tax across all bands. So in 2030 the effective basic rate income tax will be 23.5%. Further freezes beyond 2030 could be devastating for low income retirees as well as bringing more minimum wage workers into income tax. The IFS also state that households who receive means-tested benefits are increasingly likely to also pay income taxes.
This stealthy way of taxing could be quite devastating for income flows. 
How many people have factored this into their retirement cash flow analysis?

IFS paper here:
https://ifs.org.uk/articles/how-are-frozen-tax-thresholds-reshaping-who-pays-personal-taxes

michaels

This is a pain for me as I make no inflation assumptions in my retirement planning and simply work in today's money as I find that easiest to understand.

DRS1

Albermarle said:

MK62 said:

There are more effective ways of raising near term tax revenues than targeting the TFLS........but that doesn't necessarily mean it wouldn't be on the radar for tax revenues over the longer term. I've always doubted that the TFLS upper limit would get slashed from £268,275 to say £100,000 in one fell swoop, but a more modest cut, to say £250,000, at this budget, followed by further "modest" cuts at future budgets could be a quieter way to implement that policy, should it actually be policy, over time.

Far too much potential admin and political headaches for very little reward for the Govt.

I did wonder why the Tories (of all people) brought in the LSA when they abolished the LTA.  Surely from an admin point of view it would have been easier to say you get a 25% TFLS even if your pension pot is £2million.  Instead we have all this stuff with Transitional Certificates and still needing to worry about whether you had one of umpteen different types of protection from the LTA which carries over to the LSA somehow.

I have to say that having a limit in pounds is just a clear invite to a government to play with that pound limit somehow.  And I don't see them increasing it in line with RPI.

RogerPensionGuy

Like m_c_s says, I have also factored in the 12.5K PA and the 40% tax wall will just remain indefinitely.

As keeping it frozen appears to cause very little issues or press outputs, just keep it frozen is simplicity and I guess unfreezing will be very unattractive for press outputs when they refreeze it again.

Maybe reducing is a possibility, anything appears possible these days. 

Albermarle

RogerPensionGuy said:

Like m_c_s says, I have also factored in the 12.5K PA and the 40% tax wall will just remain indefinitely.

As keeping it frozen appears to cause very little issues or press outputs, just keep it frozen is simplicity and I guess unfreezing will be very unattractive for press outputs when they refreeze it again.

Maybe reducing is a possibility, anything appears possible these days. 

I would not jump to any conclusion just yet.
The current bands are frozen until 2028 and the current policy is not to extend that.
Obviously there is a strong temptation to extend that to help balance the books.
However if it is unfrozen from April 2028, that means more cash in 20 Million workers and less tax for pensioners.
Next election will probably be approx one year later, so.....

m_c_s

Albermarle said:

The current bands are frozen until 2028 and the current policy is not to extend that.

This is true and indeed Rachel Reeves is on record saying during her 2024 budget speech:

“Having considered this issue closely, I have come to the conclusion that extending the threshold freeze would hurt working people and take more money out of their pay slips. I am keeping every single promise on tax that I made in our manifesto. There will be no extension of the freeze in income tax and national insurance thresholds beyond the decisions by the previous government. From 2028-29, personal tax thresholds will be uprated in line with inflation once again.”

Another interesting few weeks ahead.

MK62

Grumpy_chap said:

MK62 said:

I've always doubted that the TFLS upper limit would get slashed from £268,275 to say £100,000 in one fell swoop, but a more modest cut, to say £250,000, at this budget, followed by further "modest" cuts at future budgets could be a quieter way to implement that policy, should it actually be policy, over time.

Any tinkering with the TFLS, even the speculation about it being reduced, is probably sufficient to force behaviours whereby individuals reaching the minimum age to access the fund simply draw as much as they are able to.

The media reports that some people were sufficiently spooked before the last budget that they withdrew their TFLS to avoid the speculation.
That seems to be repeating this year.
If there is a cut to, say £250k this budget, then a cut to, say £240k next budget, the outcome would almost certainly be that the majority simply "take the lot" as soon as possible to avoid losing the TFLS in the future.

All aspects of pensions funding need to be balanced and stable for a long term, not a plaything to be done with at the whim of the day.

Perhaps....... I'm not suggesting this is what the government will actually do, but suggesting that IF cutting the LSA was a government policy, it might be done over time rather than all at once (as it was with the LTA). Personally, I think it unlikely it would be reduced to as low as £100k anyway, no matter how any reduction was implemented (but who knows)......in the end, it may just be left to inflation to effectively reduce the LSA, which appears to be the current policy.
However, from a government perspective, having people take TFLS may not be a bad thing as it gets money into the wider economy, even if some of it ends up simply being transferred into ISAs. Many changes in tax policy result in behavioural changes as people adjust to the new reality.....this change is usually anticipated (not always correctly though, it has to be said).
I agree about long term pension planning, but every change of chancellor and/or pensions minister appears to bring a new view on what the role of government should be in that, especially when the public purse is looking a bit light.

LHW99

Many changes in tax policy result in behavioural changes as people adjust to the new reality.....this change is usually anticipated (not always correctly though, it has to be said)

That's the real life problem, especially now that middle earners can research finance things on the internet for themelves, rather than the research only being available to those at the top end of the wealth scale.

MeteredOut

michaels said:

The thing is, given all the noises re policy, how can we trust the 'promises' over the tfls, perhaps even the night before the budget they will decide there is another spending commitment they need to make and that the tfls will pay for it.....

You can't believe the rumours, or the rumours stating that the rumours are just rumours and they cannot confirm or deny whether they are going to implement rumours. Which is why you should ignore the rumours.

Cobbler_tone

Funniest headline for a while: "Rachel Reeves is set to announce a so-called “milkshake tax” in a bid to fill her £20billion budget black hole." that's a lot of milkshakes.

As an aside, have always found the sugar tax bizarre. Choosing one area using sugar to generate tax. I think it would be better placed on things like McDonalds. I guess it has accelerated the move to make 90% of the soft drinks below the threshold, so we can have sweeteners instead....Probably why they now want to throw in milkshakes.
A bit like the impending (rumour alert) EV charge now combustible engines are declining.