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  • FIRST POST
    • triplea35
    • By triplea35 26th Sep 18, 5:52 PM
    • 232Posts
    • 72Thanks
    triplea35
    A Flat Rate of Tax Relief?
    • #1
    • 26th Sep 18, 5:52 PM
    A Flat Rate of Tax Relief? 26th Sep 18 at 5:52 PM
    https://www.bestinvest.co.uk/news/autumn-budget-pension-tax-relief-cut

    Having just read this article just wondering what people's views are on a possible flat rate of tax relief, possibly 30%. Is the article pure speculation?

    As a basic rate tax payer it seems fair to me. I may delay making this years lump sum contribution.
Page 4
    • zagfles
    • By zagfles 11th Oct 18, 10:34 PM
    • 13,645 Posts
    • 11,626 Thanks
    zagfles
    One advantage of flat rate is you could probably get rid of both the AA and the LTA. Pension conts would naturally get limited by people wanting to avoid higher rate tax in retirement, since they'd pay a higher rate than the relief they got. There would be no advantage in timing pension conts in particular years, for instance when paying higher rate tax, avoiding child ben charge, increasing tax credits, student loans etc. The TFLS would have to be limited, this could be set at 25% of the current LTA and frozen forever.

    Would obviously need something to deal with people already over the LTA.
    • woolly_wombat
    • By woolly_wombat 12th Oct 18, 9:35 AM
    • 604 Posts
    • 415 Thanks
    woolly_wombat
    They were fairly low percentages though - ISTR the pre-A day maximums varied from around 15% to 25%.
    Originally posted by zagfles
    I think I was told 29% was the maximum, but I can't verify that.
    • zagfles
    • By zagfles 12th Oct 18, 9:43 AM
    • 13,645 Posts
    • 11,626 Thanks
    zagfles
    I think I was told 29% was the maximum, but I can't verify that.
    Originally posted by woolly_wombat
    It varied with the type (and whether you had) a company scheme. For instance I was in a DB scheme at the time and the total limit was 15%, whatever your age, including contributions to the DB scheme. We had to contribute 5% to the DB scheme, so were only allowed to contribute 10% to an AVC/FSAVC.

    For people without a company scheme contributing to a personal pension there was some variation with age AIRI.
    • EdSwippet
    • By EdSwippet 12th Oct 18, 9:49 AM
    • 827 Posts
    • 798 Thanks
    EdSwippet
    From today's FT: Government rules out flat-rate pension tax relief

    Of course, a Government "ruling something out" holds about as much currency as a campaign or manifesto "promise", so there's that ...
    • zagfles
    • By zagfles 12th Oct 18, 11:02 AM
    • 13,645 Posts
    • 11,626 Thanks
    zagfles
    From today's FT: Government rules out flat-rate pension tax relief

    Of course, a Government "ruling something out" holds about as much currency as a campaign or manifesto "promise", so there's that ...
    Originally posted by EdSwippet
    As Sir Humphrey once said, "never believe anything until it's been officially denied"
    • zagfles
    • By zagfles 13th Oct 18, 3:06 PM
    • 13,645 Posts
    • 11,626 Thanks
    zagfles
    The table below shows the salary at which a reduced Annual Allowance would be breached in the career average pension schemes of the main public service pension schemes.

    Salary at which a reduced Annual Allowance would be breached



    With an Annual Allowance of £20,000, huge numbers of public sector workers would routinely breach the Allowance. A Civil Servant earning £54,000 p/a would have a tax charge to pay. It might take a few years to exhaust carry-forward, but then there would be a tax charge every year, despite earning below the Child Benefit taper level.

    The figures are a best-case scenario. The threshold salary values would routinely be lower than this if, for example:
    • The member has above-CPI in-service revaluation of past career-average service (NHS and Teachers' Scheme)
    • The member has final-salary linked past service which has increased by more than CPI
    • The member is making external pension contributions, eg, to a personal pension
    • The member is making extra pension contributions, eg, Added Pension, Added Years, AVCs
    • The member has external income and is subject to the tapered Annual Allowance.
    Originally posted by hugheskevi
    They probably couldn't reduce the AA below about £30,000 if it applies to DB, but they could do what's been suggested a number of times and only apply the LTA to DB, and only apply the AA to DC.

    For instance, the AA (for DC only) could be set at £20,000, the LTA could be redefined as a DB pension limit eg around £52,000pa which is about the current LTA.

    People with both DC and DB would have their max DB pension reduced by perhaps 1/25th of their DC pension input. For transition perhaps the value of DC pot at a particular date eg start of this year plus DC pension input from then on.

    So for example if someone currently has a £500k DC pot and puts in £20k pa for the next 5 years, £600k/25 = £24k is deducted from their "DB pension limit" giving a £28k DB pension limit. If this is exceeded an LTA charge can be paid from their DC fund if they choose, or DB benefits reduced.

    This will be more generous than the current LTA but the govt would almost certainly save a lot by the massive AA cut. And £20k pa would likely result in a similar pension to the max DB pension over a working life accounting for investment growth, so would be broadly fair. Would probably need to up the carry forwards years from 3 to 5 or 6.
    • MDMD
    • By MDMD 13th Oct 18, 3:08 PM
    • 320 Posts
    • 183 Thanks
    MDMD
    I don’t think anyone has a clue - from the DM in the past 24 hours:

    https://www.dailymail.co.uk/money/pensions/article-6268739/Treasury-admits-no-consensus-pension-tax-relief-overhaul.html

    https://www.dailymail.co.uk/news/article-6270709/amp/Philip-Hammond-plots-raid-pension-pots-says-tax-breaks-eye-wateringly-expensive.html
    • EdSwippet
    • By EdSwippet 13th Oct 18, 4:15 PM
    • 827 Posts
    • 798 Thanks
    EdSwippet
    If the government finds the 'cost' of pension tax breaks to be "eye-wateringly expensive", it is only because they have legislated eye-wateringly high levels of tax.
    • NoMore
    • By NoMore 13th Oct 18, 4:36 PM
    • 253 Posts
    • 227 Thanks
    NoMore
    I really hate that they call it a 'cost'.

    Although its a outgoing, its to repay back money which under the current rules they shouldn't have taxed you on. Thats not a cost its basically the same as a shop giving you your change back after you've bought something with a higher denomination.
    • Mistermeaner
    • By Mistermeaner 13th Oct 18, 11:00 PM
    • 2,456 Posts
    • 3,030 Thanks
    Mistermeaner
    I could accept a reduction in 'tax breaks' for dc pensions provider equal changes were made to db pebsions, including all public sector pensions

    Issue for me is that all recent changes have disproportionately impacted dc savers where db get a softer ride

    20x calc for life time allowance probably the starkest disparity
    Left is never right but I always am.
    • Alexland
    • By Alexland 13th Oct 18, 11:04 PM
    • 3,827 Posts
    • 3,125 Thanks
    Alexland
    Looking at the news tonight the DUP MPs might not even support the budget this time so Spreadsheet Phil might be under some pressure to keep it bland and inoffensive.
    • Thrugelmir
    • By Thrugelmir 13th Oct 18, 11:06 PM
    • 61,299 Posts
    • 54,545 Thanks
    Thrugelmir
    Issue for me is that all recent changes have disproportionately impacted dc savers where db get a softer ride
    Originally posted by Mistermeaner
    Paying full rate employees national insurance contributions plus increased employee pension contributions. While receiving 1% pay rises. That's enough to chew on for a while. Takes time to digest.

    Employers are likewise having to fund scheme deficits from contributions on current employees. This money comes out of other budgets. There's a squeeze being applied. That isn't neccessarily visible.
    Last edited by Thrugelmir; 13-10-2018 at 11:09 PM.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • hugheskevi
    • By hugheskevi 14th Oct 18, 12:00 AM
    • 2,075 Posts
    • 2,645 Thanks
    hugheskevi
    Paying full rate employees national insurance contributions plus increased employee pension contributions. While receiving 1% pay rises. That's enough to chew on for a while. Takes time to digest.
    The Annual Allowance has also hit higher earners in the public sector hard, particularly in conjunction with the post-2015 public service pension schemes. The Annual Allowance use of factor 16 makes no differentiation for the normal pension age, so members with normal pension ages of 65-68 have their pension valued as being worth the same as if it were paid at age 60 (the factor 16 having originally been based on analysis assuming the pension started at age 59).

    It is common to see younger (typically early to mid 40s) public sector employees having an Annual Allowance charge with their pension calculated as being worth 16 times the increase in annual pension, to then be offered Scheme Pays to pay the charge, but at a rate below 10 times the increase in annual pension when it comes to paying the charge (effectively doubling the charge if using Scheme Pays, or paying out of post tax income if paying HMRC direct).

    Due to the policy of abatement in the public sector, it is commonly not viable to stay in employment and commence pension early (as you may well do with a DC pension, crystallising to avoid LTA charge on future growth) unless hours are reduced. In many of the jobs affected by Lifetime Allowance considerations, part-time working is not viable due to the seniority level. So whereas the LTA gives a strong incentive to commence pension early, abatement prevents that in many cases in public sector, unless also leaving employment.
    • chucknorris
    • By chucknorris 14th Oct 18, 7:33 AM
    • 9,765 Posts
    • 14,553 Thanks
    chucknorris
    https://www.bestinvest.co.uk/news/autumn-budget-pension-tax-relief-cut

    Having just read this article just wondering what people's views are on a possible flat rate of tax relief, possibly 30%. Is the article pure speculation?

    As a basic rate tax payer it seems fair to me. I may delay making this years lump sum contribution.
    Originally posted by triplea35
    It will be the end of future SIPP contributions from me, what is point of getting 30% tax relief when investing, but paying 40% (which I would be) when taking the pension out? OK the tax free lump sum (TFLS) would make it equal, but I might as well forget about pension and just simply invest. Tax free dividend income wouldn't be enough to encourage me to invest within a pension wrapper, there is also the risk that the TFLS might be removed or reduced at some point in the future.
    Last edited by chucknorris; 14-10-2018 at 8:06 AM.
    Chuck Norris can kill two stones with one bird
    The only time Chuck Norris was wrong was when he thought he had made a mistake
    Chuck Norris puts the "laughter" in "manslaughter".
    I've started running again, after several injuries had forced me to stop
    • Sterlingtimes
    • By Sterlingtimes 14th Oct 18, 10:27 AM
    • 1,565 Posts
    • 3,927 Thanks
    Sterlingtimes
    It will be the end of future SIPP contributions from me, what is point of getting 30% tax relief when investing, but paying 40% (which I would be) when taking the pension out? OK the tax free lump sum (TFLS) would make it equal, but I might as well forget about pension and just simply invest. Tax free dividend income wouldn't be enough to encourage me to invest within a pension wrapper, there is also the risk that the TFLS might be removed or reduced at some point in the future.
    Originally posted by chucknorris
    I understand this logic, but there is a capital gain to be made on the 30% even though it will be taxed later. There is also the possible benefit of tax-free inheritence of the pension where the pension owner dies before the age of 75.
    Solar installed 21 November 2014 > Centre of England > 3,780 Wp > 14 *270 Watt Trina panels > 14 * Enphase micro-inverters > managed by Enlighten Envoy Hub > 19° west of south > 35° pitch > tree shading to east > iBoost > Wattson Anywhere monitoring > Ovo Smart Gateway > Schneider Electric (Drayton) MiGenie smart thermostat.
    • kidmugsy
    • By kidmugsy 14th Oct 18, 11:46 AM
    • 12,187 Posts
    • 8,632 Thanks
    kidmugsy
    There is also the possible benefit of tax-free inheritence of the pension where the pension owner dies before the age of 75.
    Originally posted by Sterlingtimes
    That must surely be for the chop in the next few years.
    Free the dunston one next time too.
    • shinytop
    • By shinytop 15th Oct 18, 12:59 PM
    • 82 Posts
    • 31 Thanks
    shinytop
    So if something like this happens any views on timing? Immediate? From next FY? Would carry forward still apply? Or, putting it another way, should I be topping up the last 3 years now or can I wait until after the budget?
    • Snakey
    • By Snakey 15th Oct 18, 1:14 PM
    • 1,093 Posts
    • 1,298 Thanks
    Snakey
    A flat rate? No way could they get that all sorted out and ready to go overnight, even if they've been writing the legislation in secret.

    Even with "only" an AA change it's unlikely that they would tweak it halfway through the year as that would make it effectively retrospective in some cases - suppose you'd put in £40k on 6 April. They could split the year into a "before" and "after" although I can't see why they would want to (unless they were abolishing carry-forward, but I haven't heard anyone suggesting that will happen).

    Something as simple as an AA reduction could be brought in from next 6 April.

    I'm not rushing to do anything pension-related before the Budget.
    • atush
    • By atush 15th Oct 18, 3:31 PM
    • 17,315 Posts
    • 10,866 Thanks
    atush
    So Phil H says that pension tax relief is too onerous for him.

    So instead of messing about with LTA, and AA etc- the 2 birds with one stone approach is to disallow Salary sacrifice.

    More income tax, more national insurance.
    • michaels
    • By michaels 15th Oct 18, 3:59 PM
    • 21,756 Posts
    • 101,262 Thanks
    michaels
    So Phil H says that pension tax relief is too onerous for him.

    So instead of messing about with LTA, and AA etc- the 2 birds with one stone approach is to disallow Salary sacrifice.

    More income tax, more national insurance.
    Originally posted by atush
    But what of DB - do you just continue to value contributions as being worth much less than it would cost to buy an equivalent annuity?! Would that lead to providers being clever with products that claim to be DB when they are really DC to help people avoid tax?
    Cool heads and compromise
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