Govt Pensions Consultation Due September

[winkie]

Got my statement....don't expect to get that in real terms ie the value as it stands today.....we know the rich pensioners today are in the higher rate tax band and are very or exceptionally comfortably well off (some get more in pension than they got working with RPI compounded over 30 years or more) still and get their freebies courtesy of the government ......we know that other pensioners that own their homes outright, paid for over their working lives just about manage on a small state pension if they are careful about how they spend their money.... there are many people that did not have an occupational pension or pay into a private pension, many more reaching retirement age have little savings and no personal pension, possibly one or two that add up to a few thousand pounds, nothing like enough to pay them an income for life.

In the future it will fair even worse....the new initiative to save a few pounds a month with employer adding a couple of pounds will not be nearly enough for many middle aged people.....they will now probably cash it and spend it anyway......what about the growing numbers of renters.....with a growing demographic of elderly people inc sick, stressed, disabled and mentally ill how will they pay their rents on a state pension?....it aint going to get any better.....only for those who got 40% tax relief, paid in their max into isas and pensions or in lucrative final salary schemes........the gap between the have it all and more, and the have not enough to pay the monthly bills is growing daily.....anyone who can't see that is blind and needs to open their eyes.

[White Craw]

Under present taxation, for someone who will be on the full single tier pension there would be no income tax anyway until this added to any other income (occupational pension or other) was more than the personal allowance, planned to be £12,500 by 2020.

Taxed in, tax free out is fraudulent.

[stormymonday_2011]

Under present taxation, for someone who will be on the full single tier pension there would be no income tax anyway until this added to any other income (occupational pension or other) was more than the personal allowance, planned to be £12,500 by 2020.

Taxed in, tax free out is fraudulent.

It is a fraud on those with small pension pots since their pensions would not be enough to attract tax when paid out anyway even with the state pension added. Basically Osborne is going to tax their payments into the pension fund and give them nothing in return when it is paid out since it would not have been taxable under the current system. They lose the tax relief on their payments but get nil benefit at the other end.

[Si1]

It is a fraud on those with small pension pots since their pensions would not be enough to attract tax when paid out anyway even with the state pension added. Basically Osborne is going to tax their payments into the pension fund and give them nothing in return when it is paid out since it would not have been taxable under the current system. They lose the tax relief on their payments but get nil benefit at the other end.

This

[durhamborn]

It is a fraud on those with small pension pots since their pensions would not be enough to attract tax when paid out anyway even with the state pension added. Basically Osborne is going to tax their payments into the pension fund and give them nothing in return when it is paid out since it would not have been taxable under the current system. They lose the tax relief on their payments but get nil benefit at the other end.

Exactly that was my point.This would be a massive attack on anyone with a small pension.The only way to then use up your tax allowance would be work or BTL.

The new dividend changes tie in with this as well.

For low paid people the personal allowance is crucial.If this was about tax relief he would simply limit the 40% band.Seems to me he wants to have a bigger allowance so he can slash benefits but doesnt want the workers to have it once they retire.I doubt even a three line whip though would stop Tory rebels on this one.

[Si1]

I doubt even a three line whip though would stop Tory rebels on this one.

Well thank goodness they only have a 10 seat majority

[stormymonday_2011]

Exactly that was my point.This would be a massive attack on anyone with a small pension.The only way to then use up your tax allowance would be work or BTL.

The new dividend changes tie in with this as well.

For low paid people the personal allowance is crucial.If this was about tax relief he would simply limit the 40% band.Seems to me he wants to have a bigger allowance so he can slash benefits but doesnt want the workers to have it once they retire.I doubt even a three line whip though would stop Tory rebels on this one.

Ross Altmann is not very keen on the idea and she is Pensions Minister in this administration and has a background in the Pensions industry so Osborne is going to meet resistance at the top of government. Apparently the only country to try the model being floated by Osborne is New Zealand and it saw Pension savings drop as a result. Edited July 26, 2015 by stormymonday_2011

[Frugal Git]

Full disclosure - my plan at this time was this. Work part time as lower rate tax payer.

Pay almost everything above personal allowance into pension during working life, until pot is large enough that i can continue to grow it to the lifetime pension allowance, given a conservative growth estimate.

At that point, no further pension payments (approx 10 years away). Go back to being a considerable tax payer at work and as before - given i cost the state zip - plenty more tax in vat, council tax, fuel duty etc as i do now.

At retirement age, take 25% lump, buy a house or the best motorhome going and drawdown from pension pot at personal allowance in retirement. Keep on working and pay marginal rate on rest.

*I am no burden on the state using this method - in fact my whole method is based on prudently looking after myself, with no reliance on anyone else.*

Anything left in the pot at my death will go to family wither as tax free sum if i go before 75, or the effective trust fund after. I expect that to be another big sum.

The only reason i started to do this was ridiculous house prices btw.

If the rules change, i will have to revisit this plan - no problem. I fully expect their to be as many loopholes as there are right now anyway.

I would rather not be taxed on way in, as i have no plans to exceed personal allowance to live on on the way out.

If the change happens, so be it. I'm not a buy to letter - i won't moan. I took a risk based on rules i thought were sensible. So George, its fine as it is.

[Frugal Git]

Final addenum. I don't think the tax grab if it comes will necessarily mean a mandatory grab on previous gross (i.e. relief added) contributions.

I expect there to be a choice on it. Lose the relief on them, and convert to a pot that will always be tax free.

Keep them (to be held on a separate pot - like protected/non rights were), and expect to be taxed on them at withdrawal, but as i can't belive he'd withdraw the personal allowance, no worries. Same as now basically.

Any contribs henceforth would be under new rules. Could be good, could be bad. Worse case scenario is that i ignore pensions for anything more than getting the employer match contrib, and just max isas. Be interesting to see how salary sacrifice is tackled.

The rules will be made, and those of us who love going through them with a fine tooth comb will be just fine.

[Si1]

Being a consultation, do we as citizens have any input, do we express it by writing to our MP? Or what?

[Frugal Git]

Being a consultation, do we as citizens have any input, do we express it by writing to our MP? Or what?

https://www.gov.uk/government/consultations/strengthening-the-incentive-to-save-a-consultation-on-pensions-tax-relief

Yep we can write. Download the pdf and the address is at the bottom of the doc.

I'm going to write that no changes should be made. If people cannot be bothered to make the time to understand the system, and go into buy to let, nothing will change this (pension system wise - other chnages might) and more fool them.

(Edit - failing that, give us all 30% relief - suits me!)

Edited July 26, 2015 by Frugal Git

[StainlessSteelCat]

An incredible piece of doublethink. Increase the incentive to save by doing the reverse.

[Save me from the madness!]

What i love is the incorrect language like with 'tax' credits where the money has nothing to do with refunding the tax someone has paid and can frequently exceed the tax they are paying.

Giving people 30% 'relief' isn't a relief unless they a 40% tax payer. All this talk about the 'cost' to the HMRC of the existing relief, well the cost is nil, the money was never there's in the first place. It like saying people's personal allowance is costing HMRC money.

The current system seems pretty fair to me as people can have irratic earnings over a lifetime and why should that factor be penalised when saving for a pension. Also couples aren't penalised if one partner earns lots and another earns very little.

Given the hole this country is in with regard to pensions you'd think the government would want to be encouraging people, not penalising them.

[Frugal Git]

What i love is the incorrect language like with 'tax' credits where the money has nothing to do with refunding the tax someone has paid and can frequently exceed the tax they are paying.

Giving people 30% 'relief' isn't a relief unless they a 40% tax payer. All this talk about the 'cost' to the HMRC of the existing relief, well the cost is nil, the money was never there's in the first place.

Sorry - yes i meant to change what i had written to reflect the fact that it would be a 10% bonus above the 20% for a basic rate tax payer. I completely agree thay my language was incorrect. I'm posting from a phone, and its a pain to edit and sometimes post before thought. Edited July 27, 2015 by Frugal Git

[shindigger]

Pension planning is now a complete nightmare as the Government simply can not leave the system alone.

This is the umpteenth consultation or green paper on the topic.

Moreover as experience shows the tax relief the Chancellor gives today can be withdrawn tomorrow so there is no guarantee that any proposal to switch the tax relief to payments made at retirement will be honoured when it comes to time to collect the pension

It is par for the course for Osborne who is an aggressive tax raising Chancellor as the BTL brigade have

found out

Indeed a cursory glance at the budget figures for tax yield he is harvesting compared with his Labour predecessors is revealing

Camerons government have increased taxes far in excess of any changes in inflation or GDP growth

National Account Taxes yielded £490 billion in Labours last year of office, By contrast the tax yield was over £ 600 billion in 2015

One thing this government has not done is cut taxes

No doubt this is in part a response to the unholy mess that Brown left his successors but it is a bit surprising that Labour did not make a point of highlighting the fact in the 2015 General Election.

Anyway however the 'reforms are wrapped up you can guarantee Osborne will be wanting to to front load the yield so he can benefity from it politically

Not sure how the proposals will benefit current retirees as their pensions are doubtless going to stay liable to income tax as earnings under Schedule E as they are now and Brown removed the tax relief on dividends that pension schemes enjoyed years ago.

Agreed. There is NO WAY any sentient being could ever rest on their laurels where pensions are concerned unless you are some soon to retire MOD type on some final salary beano.

I have around £25-30k in a contracted out pot with Aegon. Ive not paid in to it for donkeys years. I want it out as soon as im able under the trivial commutation laws.

The state pension, should i live long enough to receive it, i will look upon as a bonus. Im 49, expect my state pension age to be 70-71 by the time i get there....

"There is no money" i think was the phrase.

Edited July 27, 2015 by shindigger

[19 year mortgage 8itch]

It is a fraud on those with small pension pots since their pensions would not be enough to attract tax when paid out anyway even with the state pension added. Basically Osborne is going to tax their payments into the pension fund and give them nothing in return when it is paid out since it would not have been taxable under the current system. They lose the tax relief on their payments but get nil benefit at the other end.

How is this fraud?

Its certainly a worse deal but how is it fraud?I ask about the concepts of fairness and simplicity because, well, people seem to be more militant when it affects them.

[19 year mortgage 8itch]

I wasn't hiding that. And remember, I'm a lower rate payer so my relief is 20%.

I'm not 'benefiting' massively. Anyone can do what I'm doing. They just have to structure their life differently, admittedly some may need the income now - but those are 99% of the time circumstances of their own making. The rest who genuinely could do it, if they haven't got the guts to do it thats not my problem. All I'm looking to do is maximise tax efficiency as someone who is an average earner.

I maintain that the current system is fair. I don't want 40% relief, because i don't pay 40% tax. But if george wants to give us all 30%, I'll keep my mouth shut and take it!

Simplicity and Fairness?

Pensions, simple?

Is anything fair? I don't think the current system passes a sniff test when I see the other examples of 'fairness' being implemented.

[19 year mortgage 8itch]

What if I suggested that pension contribution tax relief was dependent on the number of children you have. Surely no one would be foolish enough to have children now on the basis that they benefit in 30years+ unlike the tax credit position. And even if you were foolish enough you'd need to be productive to contribute. And without a willing and able population in the future, no one gets a 'pension' so people having children keeps the economy going...

Now, does that sound fair?

(waits for HPCers to explode)

[Frugal Git]

And without a willing and able population in the future, no one gets a 'pension' so people having children keeps the economy going...

Now, does that sound fair?

(waits for HPCers to explode)

The *state* pension in its current requires a willing and able working population to pay its liabilities.

A private one, depending on the assets it is invested in, very much does not have to do so.

Exactly why i would like to see the end of the state pension as it is and move to a funded model that isn't a ponzi.

I do not for the life of me understand why you have a problem with people who are genuinely trying to save for their old age in a sensible, prudent manner - whilst keeping within the rules.

[Frugal Git]

Simplicity and Fairness?

Pensions, simple?

Is anything fair? I don't think the current system passes a sniff test when I see the other examples of 'fairness' being implemented.

Not once have you adequately explained why its unfair in its current form. All this talk around tweaking it if you have children etc is nonsense - children are a choice. We are talking about an individual's ability to manage their future without being a burden on anyone in a sensible fashion.

Lay out exactly what the issues you have are properly.

[StainlessSteelCat]

I agree making people pay tax on pension contributions is not fraud - but describing it as a means to encouraging people to save into a pension is certainly iffy. Unless, of course, they are adopting the Chinese approach to welfare where lack of certainty and virtually no welfare has turned an entire nation into savers.

Is the current system fair? Hard to say. Clearly you have to be earning a decent wedge to think about contributing to anything other than the state pension. Still more, to benefit from the higher rate of tax relief. Realistically though - given uncertainty about whether you'll be alive to claim it, inflation, government meddling etc, there have to be some pretty compelling advantages to saving in a pension v sticking it in an ISA or simply spending the cash. Osbourne is clearly wondering how much he can turn the screw before the savers become spenders (which from his perspective, having more spenders is not necessarily a bad thing either).

[bankstersparadise]

What i love is the incorrect language like with 'tax' credits where the money has nothing to do with refunding the tax someone has paid and can frequently exceed the tax they are paying.

Giving people 30% 'relief' isn't a relief unless they a 40% tax payer. All this talk about the 'cost' to the HMRC of the existing relief, well the cost is nil, the money was never there's in the first place. It like saying people's personal allowance is costing HMRC money.

The current system seems pretty fair to me as people can have irratic earnings over a lifetime and why should that factor be penalised when saving for a pension. Also couples aren't penalised if one partner earns lots and another earns very little.

Given the hole this country is in with regard to pensions you'd think the government would want to be encouraging people, not penalising them.

+1 Yes, "Please save me from this madness"!

[Frugal Git]

To an extent any pension involves a time when you are longer contributing and you rely on those younger. By not having children you are effectively parasitizing off his children. And if he had not had the 'choice' of having children and giving up the opportunity to save for his own future, then you would not be able to selfishly pursue your own interests.

Rationally, I cannot afford to have children, provide them with a home (because of house prices) *and* save for my future.

So i made a concious decision. If i defer spending a pot of my earned income to provide for myself when i am unable to earn adequately further, i fail to see the selfishness or parasitical nature of that.

Edited July 27, 2015 by Frugal Git

[StainlessSteelCat]

Equally, it takes a village (or a nation) to raise a child. Many parents will not be paying the full cost of raising their child. As a non-parent I'm happy to contribute to other people's children's schooling and other needs as well as those of older people who have retired. That's because is the right thing to do - and also practical. I have previously benefited from others labour when I was a child, and will do again when I get older.

Both Frugal Git and Mortage 8itch are investing in the future for the good of themselves and others. Just taking different routes.

Edited July 27, 2015 by StainlessSteelCat

[libspero]

I take full advantage of the tax breaks currently available by paying salary over the 40% rate into a private pension.

As the system stands, I am in a good position.. I save 40% on what I put in, in the knowledge that at worst I'm likely to pay 20% when I come to draw it out (probably closer to 10-15%).

This is a great deal and incentive for me to save into a pension. But it is a rubbish deal for people earning in the 20% band and offers no incentive to save at all.

I don't like the idea of moving to a tax up front system like ISAs, salary sacrifice works well, but I do think the goal posts need to be moved for fairness.. such as, 30% tax break regardless of your earning bracket. At this rate saving is still attractive to higher rate earners, but a better incentive for lower rate earners with an effective 10% top up from the government.

To me that would be the "fair" system".