Reducing window to draw pension income at basic rate

Altior

ali_bear said:

Well, hm. The opposite of Trussenomics, or not living on the never-never. Taking difficult decisions now for the longer term good. 

Nobody wants higher taxes, as has been pointed out it acts as a brake on growth and we badly need that. But it is necessary. 

That's not specific at all. Referencing a budget that was proposed more than three years ago and never implemented has nothing to do with the changes proposed this week.

'Taking difficult decisions' is also extremely nebulous, and can be attached to any fiscal policy change. For example, implementing a two child benefit cap could be argued as difficult, and removing it could equally be argued as difficult!

Higher tax rates can result in lower taxes collected overall, as they create changes in behaviour to avoid paying them. No need to look beyond this forum to find evidence of that!

What I'm looking for is an explicit definition of the nebulous term you used. 'the UK will be paying its way'

The inference is that the UK wasn't 'paying its way' before Wednesday, and now it will be. I genuinely don't know what a country paying its way means in the context you used it. There's certainly no indication that we (UK) won't be spending more than tax revenue at any time during this parliament. So it certainly doesn't relate to the country's debt pile. The budget adds to it. The UK hasn't defaulted on any sovereign debt liabilities in recent history, so it doesn't relate to that either.

Alexland

Triumph13 said:

If that means that high earners have to keep working (and paying taxes) for longer, then so much the better, because as far as economic growth and govt finances go that's a double win.  People like me that retire early are a drain on productivity and economic growth  

Even without a huff I expect if narrowing the window in which personal pensions can be drawn at basic rate will just cause people to retire earlier and make them less likely to keep working and over-accumulate assets similar to the effect the LTA had once you have accumulated around that sort of pension valuation.

Especially now people with DC schemes have access to good value IL annuities or gilts to support a drawdown strategy there is less sequence of return risk and any leftovers might be subject to inheritance tax so why bother working any longer than required?

finbaar

Qyburn said:

You write as if you think an increase in State Pension is a bad thing, making you worse off.

This. 100% this. Paying tax is not a bad thing. By all means be efficient, but worrying about having too much money is a bit crazy.

poseidon1

Altior said:

ali_bear said:

Well, hm. The opposite of Trussenomics, or not living on the never-never. Taking difficult decisions now for the longer term good. 

Nobody wants higher taxes, as has been pointed out it acts as a brake on growth and we badly need that. But it is necessary. 

That's not specific at all. Referencing a budget that was proposed more than three years ago and never implemented has nothing to do with the changes proposed this week.

'Taking difficult decisions' is also extremely nebulous, and can be attached to any fiscal policy change. For example, implementing a two child benefit cap could be argued as difficult, and removing it could equally be argued as difficult!

Higher tax rates can result in lower taxes collected overall, as they create changes in behaviour to avoid paying them. No need to look beyond this forum to find evidence of that!

What I'm looking for is an explicit definition of the nebulous term you used. 'the UK will be paying its way'

The inference is that the UK wasn't 'paying its way' before Wednesday, and now it will be. I genuinely don't know what a country paying its way means in the context you used it. There's certainly no indication that we (UK) won't be spending more than tax revenue at any time during this parliament. So it certainly doesn't relate to the country's debt pile. The budget adds to it. The UK hasn't defaulted on any sovereign debt liabilities in recent history, so it doesn't relate to that either.

As regards recent history ( at least in my living memory) UK came dangerously close to debt default in the 1970s  were it not for an IMF bail out - 

https://ukandeu.ac.uk/what-can-rachel-reeves-learn-from-the-1970s-imf-crisis/#:~:text=Perhaps in the face of,the Institute for Fiscal Studies.

The UK does not have anything  like America's  growth economy  to underpin its ability to issue eye-watering quantities of sovereign debt or to issue such debt at a yield it can comfortably afford to service let alone repay.   

Accordingly the international investment markets when considering whether to lend to the UK (and at what rates) are comforted if they can see Britain's citizens as a whole shouldering higher tax burdens that not only cover social and infracture spending  but also ensures the debt burden is serviced, with no hint of default. Printing more pounds would not be an acceptable alternative to the UK 'paying its way' (basic macro economics), in that regard the international markets are entirely ruthless.

One need only look at the measures Greece had to endure to obtain an IMF bailout and stay  in the EEC, after events following the global financial crash.

 Amongst the  measures implemented, Greece's pensioners had to endure massive cuts in state pensions receivable, health care cuts, reductions in public spending in addition to tax rises. The eventual outcome of all this?, noticeably lower rates to borrow on the international markets compared to UK.

Greece had admittedly become somewhat of a basket case, but what it had to endure to stay afloat should be an object lesson to all economies living beyond their means ( leaving aside the notable exception of America).

Triumph13

Alexland said:

Triumph13 said:

If that means that high earners have to keep working (and paying taxes) for longer, then so much the better, because as far as economic growth and govt finances go that's a double win.  People like me that retire early are a drain on productivity and economic growth  

Even without a huff I expect if narrowing the window in which personal pensions can be drawn at basic rate will just cause people to retire earlier and make them less likely to keep working and over-accumulate assets similar to the effect the LTA had once you have accumulated around that sort of pension valuation.

Especially now people with DC schemes have access to good value IL annuities or gilts to support a drawdown strategy there is less sequence of return risk and any leftovers might be subject to inheritance tax so why bother working any longer than required?

Quite possibly, if they can't get the other side of the equation established, ie a culture of using a GIA to make unwrapped savings.  It's one of those 'Well I wouldn't start from here' situations.

ukdw

Re the 31k+SP figure in today's money - if you push that back to April 21 when the freeze first started it will be probably closer to £21k+SP in April 21 terms.

Up until now and going forward I was planning to base my drawdown strategy quite a lot influenced by keeping within the 20% band - which has meant no rises for the last few years - but I was hoping that my pension would eventually start going up when they started increasing the 20% limit.   Another downside of my current strategy is that I will likely get no day to day benefit from reaching state pension age - as drawdowns would reduce in line with state pension receipt.

The further pushing out of my pension pay freeze to 2031, plus the 2027 40% IHT on anything left in the pension is making me rethink my 'tax tail wagging' strategy -  

Have asked my IFA to model a new strategy based on max sustainable inflation increasing drawdown - irrespective of tax efficiency.   Have also asked for my state pension matching drawdown reduction to be removed from the strategy too.

Its going to be hard choosing to pay 40% - I tried it for a few months a couple of years ago - but didn't like it - so reduced my drawdowns for the rest of the year a lot to get the year back into the 20% territory.

michaels

flaneurs_lobster said:

I'm being deliberately simplistic but why the terror of paying tax at a rate above basic? 

You still get to keep most of the money.

 

Strange. I did not read the op as being about not wanting to pay tax, merely about the efficiency of using a pension compared to other forms of saving.

Sadly I suspect I will also end up paying 40% tax on money that saved 20% tax and no NI on the way in.

I am currently keeping my taxable income down to maximise the savings allowance, university loan entitlement and university bursary entitlement, but part of this is via putting 3.6k including 20% releif into my pension. If this is taxed at 30% (inc tfls) on the way out then it may well be the wrong strategy.

JamTomorrow

I can see 'tactical divorces' becoming ever more attractive for people in a situation with the majority of a couples pension provision being with one person who willl need to extract some of their pension at 40% rather that the 20% they had planned/modelled in their spreadsheets.  Makes me wonder how there is an asesssment of what constitutes a tactical divorce, especially if a few years later there is a reconciliation and the couple remarries as these things do happen.  I guess it is in the same grey area as not raising taxes on working people.

Alexland

ukdw said:

Re the 31k+SP figure in today's money - if you push that back to April 21 when the freeze first started it will be probably closer to £21k+SP in April 21 terms.

Good point yes that's' a real eye opener in how much can change in a decade as the window to draw personal pension income at basic rate will have reduced by around 45%.

If this trend continues then there will be basic rate taxpayers who never get 40% relief wondering why they are paying 40% in retirement on a material proportion of their deferred earnings especially if the pension access age gets further pushed back to 60 and SP to 70. There are already some of us on this thread who might have done that with some of our pensions.

For me the only saving grace is my protected access age enabling me to spread over a longer period and the enhanced yield on IL gilts enabling my drawdown rate to be much higher than previously expected.

michaels said:

Strange. I did not read the op as being about not wanting to pay tax, merely about the efficiency of using a pension compared to other forms of saving.

Well nobody wants to pay more tax than necessary but yes it's me coming to terms with pension contributions no longer being worthwhile a few years earlier than expected. End of a 20+ year AVC journey for me while still in my mid 40s. Glad I still have a few more years of LISA filling left.

JamTomorrow said:

I can see 'tactical divorces' becoming ever more attractive for people 

I've done a divorce and there was a pension sharing withdrawal but still I find myself in this position so maybe I need more divorces? Maybe the trick is to not build up a massive pension for the partner in parallel so there is more to transfer. Divorce was so painful I could probably never marry again even for tactical reasons.

Triumph13

ukdw said:

Its going to be hard choosing to pay 40% - I tried it for a few months a couple of years ago - but didn't like it - so reduced my drawdowns for the rest of the year a lot to get the year back into the 20% territory.

I feel your pain. Personally I'm trying to concentrate on the tiny upsides, such as getting 25% cashback on my gift aid contributions