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    • MSE Guy
    • By MSE Guy 14th Oct 10, 9:17 AM
    • 1,628Posts
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    MSE Guy
    MSE News: Pensions tax relief slashed to save 4 billion a year
    • #1
    • 14th Oct 10, 9:17 AM
    MSE News: Pensions tax relief slashed to save 4 billion a year 14th Oct 10 at 9:17 AM
    This is the discussion thread for the following MSE News Story:

    "The tax-free amount people can save is being cut from 255,000 a year to just 50,000 from April next year ..."

Page 1
    • Loughton Monkey
    • By Loughton Monkey 14th Oct 10, 9:29 AM
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    Loughton Monkey
    • #2
    • 14th Oct 10, 9:29 AM
    • #2
    • 14th Oct 10, 9:29 AM
    The 50K is still subject to higher rate relief, though.

    Time, I would think, for a few people to grasp all the cash they can find, and have a major "dump in" before April 6th.
    • WestonDave
    • By WestonDave 14th Oct 10, 9:30 AM
    • 5,038 Posts
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    WestonDave
    • #3
    • 14th Oct 10, 9:30 AM
    • #3
    • 14th Oct 10, 9:30 AM
    I'm guessing that most people who can afford to put more than 50k a year into their pension plans probably don't spend a lot of time on a site called Moneysavingexpert. If you have that much left over, its a fair bet they are on salaries of over 250k a year.
    • stampede
    • By stampede 14th Oct 10, 9:56 AM
    • 236 Posts
    • 393 Thanks
    stampede
    • #4
    • 14th Oct 10, 9:56 AM
    • #4
    • 14th Oct 10, 9:56 AM
    I'm guessing that most people who can afford to put more than 50k a year into their pension plans probably don't spend a lot of time on a site called Moneysavingexpert. If you have that much left over, its a fair bet they are on salaries of over 250k a year.
    Originally posted by WestonDave
    I presume people who have this much money have someone that does this sort of thing for them...why bother mingling with the riff raff...lol
    • dunstonh
    • By dunstonh 14th Oct 10, 9:59 AM
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    dunstonh
    • #5
    • 14th Oct 10, 9:59 AM
    • #5
    • 14th Oct 10, 9:59 AM
    Guy, if you are reading this, your article has made the same mistake the BBC article has. I'm guessing that the source is being copied by the various media outlets.

    i.e.: The Government also plans to reduce the lifetime pensions savings allowance that benefits from tax relief from 1.8 million to 1.5 million from April 2012.

    The lifetime allowance has nothing to do with tax relief. Its the amount a pension fund (or notional fund value) can grow to without suffering a lifetime allowance charge. Someone with a fund value in excess of the lifetime allowance (and without transitional relief) can still contribute to a pension and get tax relief on their contribution.
    Last edited by dunstonh; 14-10-2010 at 10:10 AM.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • BeatTheSystem
    • By BeatTheSystem 14th Oct 10, 10:08 AM
    • 143 Posts
    • 78 Thanks
    BeatTheSystem
    • #6
    • 14th Oct 10, 10:08 AM
    • #6
    • 14th Oct 10, 10:08 AM
    Time, I would think, for a few people to grasp all the cash they can find, and have a major "dump in" before April 6th.
    Originally posted by Loughton Monkey
    Thats the plan. I know quite a few owner managers that are looking into this. Our accountant has even suggested borrowing to do this (obviously subject to a decent forward order book)

    The lifetime limit reduction is a bit of a blow but I suppose it is fair.
    • dunstonh
    • By dunstonh 14th Oct 10, 10:13 AM
    • 98,287 Posts
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    dunstonh
    • #7
    • 14th Oct 10, 10:13 AM
    • #7
    • 14th Oct 10, 10:13 AM
    I presume people who have this much money have someone that does this sort of thing for them...why bother mingling with the riff raff...lol
    Many of them would have applied for primary and/or enhanced transitional relief back in 2006 as well. Enhanced protection disregards the lifetime allowance.

    Over time, the number with transitional relief will fall to zero but those that dont have it are unlikely to be that affected by the changes from a retrospective point of view but will be going forward from a planning point of view.

    I think the biggest losers here are those with small pension pots who could have done triviality but now cant.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • torontoboy45
    • By torontoboy45 14th Oct 10, 10:14 AM
    • 1,025 Posts
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    torontoboy45
    • #8
    • 14th Oct 10, 10:14 AM
    • #8
    • 14th Oct 10, 10:14 AM
    Guy, if you are reading this, your article has made the same mistake the BBC article has. I'm guessing that the source is being copied by the various media outlets.

    i.e.: The Government also plans to reduce the lifetime pensions savings allowance that benefits from tax relief from 1.8 million to 1.5 million from April 2012.

    The lifetime allowance has nothing to do with tax relief. Its the amount a pension fund (or notional fund value) can grow to without suffering a lifetime allowance charge. Someone with a fund value in excess of the lifetime allowance (and without transitional relief) can still contribute to a pension and get tax relief on their contribution.
    Originally posted by dunstonh
    dunston: they're asking for you over on the debate house prices, economy,etc. board. seems they're just as confused on this.
    • Reaper
    • By Reaper 14th Oct 10, 10:47 AM
    • 6,482 Posts
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    Reaper
    • #9
    • 14th Oct 10, 10:47 AM
    • #9
    • 14th Oct 10, 10:47 AM
    One thing nobody has mentioned is that it pretty much destroys Immediate Vesting Personal Pensions which can be useful for pensioners wanting to covert lump sums to a good income.
    • gillsfan
    • By gillsfan 14th Oct 10, 11:01 AM
    • 8 Posts
    • 1 Thanks
    gillsfan
    I'm guessing that most people who can afford to put more than 50k a year into their pension plans probably don't spend a lot of time on a site called Moneysavingexpert. If you have that much left over, its a fair bet they are on salaries of over 250k a year.
    Originally posted by WestonDave
    You need to read the small print. As I see it, even a relatively low income earner in a DB scheme could be trapped by this, particularly if you leave work early with a pension enhancement. Someone on 35k in a 1/60th pension scheme given 6 years enhancement would exceed the 50k allowance.
  • jamesd
    Reaper, how does it do that? A pensioner with no employed income is already limited to 3600 gross pension contributions a year with tax relief and the proposed annual cap is far above that. Where's the benefit of a pension annuity compared to a non-pension annuity that would make an immediate vesting personal pension appropriate for someone who's already retired?

    A prospective pension who's about to retire could presumably use the past years' allowance that was mentioned. Some in this group presumably will be affected by the cap.
    • jem16
    • By jem16 14th Oct 10, 11:45 AM
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    jem16
    You need to read the small print. As I see it, even a relatively low income earner in a DB scheme could be trapped by this, particularly if you leave work early with a pension enhancement. Someone on 35k in a 1/60th pension scheme given 6 years enhancement would exceed the 50k allowance.
    Originally posted by gillsfan
    Can you explain how please?
  • pawnbroker
    Yet again this government shows that it knows absolutely nothing about the way people live. All this to save around 4 Billion ayear. No mention that our contribution to the EU is to rise by 3 Billion a year. How can they justify then ring fencing International Aid at 7 Billion a year and growing. I recently asked my MP how much of the 820,000,000 "gift" to World Bank this year was financed by borrowing, he of course couldn't or wouldn't answer, yet as an MP he must have waved this through parliament. Pensions were virtually destroyed by the last lot and this inept lot look like they are finishing the job.

    I think some real questions should be asked about government expenditure before any attack is made on pensions and other aspects of OUR lives.
    Last edited by pawnbroker; 14-10-2010 at 12:12 PM. Reason: spelling
    • peterg1965
    • By peterg1965 14th Oct 10, 12:21 PM
    • 2,030 Posts
    • 1,715 Thanks
    peterg1965
    You need to read the small print. As I see it, even a relatively low income earner in a DB scheme could be trapped by this, particularly if you leave work early with a pension enhancement. Someone on 35k in a 1/60th pension scheme given 6 years enhancement would exceed the 50k allowance.
    Originally posted by gillsfan
    You may exceed the allowance but in this case I believe the enhancement can be averaged out over 4 tax years, current and previous three, using up unused allowance, which will avoid people having a tax charge in those circumstances.
    • Loughton Monkey
    • By Loughton Monkey 14th Oct 10, 12:21 PM
    • 8,706 Posts
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    Loughton Monkey
    Can you explain how please?
    Originally posted by jem16
    I can understand the thinking. There you are on 90K, with a Final Salary scheme and nearing retirement. You just get a promotion/pay rise to 107K, and the extra money needing to be pumped into the fund would well exceed 100K, let alone the 50K.

    However, large final salary pension schemes are simply not funded at the individual level. Calculations are made at the whole membership level and so no-one could identify any breakdown of this year's 3 million (say) Employer Funding to individual level.

    So I don't know how all this is going to work. Maybe yet another "bonus" for those in FS schemes. In money purchase, you will get trapped if you put in more than your 50K.
    • jem16
    • By jem16 14th Oct 10, 12:27 PM
    • 18,671 Posts
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    jem16
    BBC news on TV happily reporting that from April you will no longer be able to pay 1.8m into your pension all in one go and still gain tax relief if for example you sold a business just as you retired. From April you will be limited to only 50k for tax relief it reports.

    No mention of the fact that you could never pay in 1.8m all in one go with tax relief unless of course you actually earned 1.8m in that last year.
    Last edited by jem16; 14-10-2010 at 12:35 PM.
    • jem16
    • By jem16 14th Oct 10, 12:29 PM
    • 18,671 Posts
    • 11,465 Thanks
    jem16
    I can understand the thinking. There you are on 90K, with a Final Salary scheme and nearing retirement. You just get a promotion/pay rise to 107K, and the extra money needing to be pumped into the fund would well exceed 100K, let alone the 50K.
    Originally posted by Loughton Monkey
    It's not that bit I have a problem with.

    It was the person on 35k who gets a 6yr enhancement to retire early that I was looking for clarification on.
    • Reaper
    • By Reaper 14th Oct 10, 12:33 PM
    • 6,482 Posts
    • 4,837 Thanks
    Reaper
    Reaper, how does it do that? A pensioner with no employed income is already limited to 3600 gross pension contributions a year with tax relief and the proposed annual cap is far above that. Where's the benefit of a pension annuity compared to a non-pension annuity that would make an immediate vesting personal pension appropriate for someone who's already retired?

    A prospective pension who's about to retire could presumably use the past years' allowance that was mentioned. Some in this group presumably will be affected by the cap.
    Originally posted by jamesd
    You are quite right of course. I should have said those about to retire.

    However since I posted I was reading up on the subject and a Sunday Times article says "there is no limit on contributions in the year before retirement". If that rule is not changing then Immediate Vesting Pensions would not be affected at all. Does anybody know if this exception will stay in place?
  • bendix
    I'm guessing that most people who can afford to put more than 50k a year into their pension plans probably don't spend a lot of time on a site called Moneysavingexpert. If you have that much left over, its a fair bet they are on salaries of over 250k a year.
    Originally posted by WestonDave
    Nonsense. I contribute nearly 50,000 a year to my pension scheme and spend a lot of time on this site. And my salary is nowhere near 250k a year.

    FWIW, this is an excellent proposal and so far ahead of Labour's ludicrous alternative announced last year that it's not funny.

    Very clever thinking on the part of the government.
    • Loughton Monkey
    • By Loughton Monkey 14th Oct 10, 1:01 PM
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    Loughton Monkey
    It's not that bit I have a problem with.

    It was the person on 35k who gets a 6yr enhancement to retire early that I was looking for clarification on.
    Originally posted by jem16
    Still the same grey area, I think. For a Defined Benefits scheme anyway. This is because I don't think it's the habit to make any specific additional company funding into the scheme as a direct result of Joe Bloggs having been given his enhancement. It will all be picked up at the next actuarial valuation.

    There are other anomolies. Imagine you just retired, with a final salary pension pot of 1.79 million. Great.

    At next valuation, the actuary tells the company that mortality assumptions have changed, and future interest rate assumptions were reduced. So as a result, another few million to pump in!

    Instinctively, the amount put in simply for your own 'slice' would not only bring you over 1.8 million, but would exceed 50K as well. Except that such a calculation by individual would not be required, and nor would it be calculated.
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