Lifetime pension allowance to be boosted in budget

[ursaminortaur]

Maybe there should just be a surcharge on any pension income over a certain level? Might be an easier way to claw back tax relief.

Except there is already. Pension Income is taxed in the same way by PAYE as income from employment, so if the annual income is high enough, it runs into the 40% and 45% tax bands. The exception to this being the now restricted "25% tax free cash".

The 25% tax free cash has been restricted to 25% of the LTA limit ever since 2006 when the LTA was introduced. The only change is that with the LTA abolished this is now a separate limit but set to 25% of the final LTA limit ( at least until a future chancellor changes it).

[James]

PS I also want to see an end to a government that is mendacious, corrupt and incompetent. I have just joined the LibDems in the hope that they will be more economically literate.

You could as well join the Greens or the Monster Raving Loony Party for all the chance they will have any influence on the economy in our lifetime.
And to counter the obvious rejoinder, it is a truth universally acknowledged that a party in possession of the majority to do so will not implement PR. Turkeys tend not to vote for Christmas.

[ursaminortaur]

PS I also want to see an end to a government that is mendacious, corrupt and incompetent. I have just joined the LibDems in the hope that they will be more economically literate.

You could as well join the Greens or the Monster Raving Loony Party for all the chance they will have any influence on the economy in our lifetime.
And to counter the obvious rejoinder, it is a truth universally acknowledged that a party in possession of the majority to do so will not implement PR. Turkeys tend not to vote for Christmas.

Although it currently looks like Labour will get a thumping majority at the next general election there are still almost two years to go. Hence it is still possible that Labour might need LibDem support in the next parliament for which, as in their coalition with the Conservatives after 2010, the LibDems would demand a referendum on PR. (Also worth remembering that Labour is attempting to overturn an 80 seat majority in one general election and to do so with boundary changes which from all reports hurt them - I'm not sure there is any precedent since universal suffrage for such a turnaround).

[TUK020]

PS I also want to see an end to a government that is mendacious, corrupt and incompetent. I have just joined the LibDems in the hope that they will be more economically literate.

You could as well join the Greens or the Monster Raving Loony Party for all the chance they will have any influence on the economy in our lifetime.
And to counter the obvious rejoinder, it is a truth universally acknowledged that a party in possession of the majority to do so will not implement PR. Turkeys tend not to vote for Christmas.

I am in a constituency where I suspect that it is only the LibDems who can unseat the Tories

[Lootman]

You could as well join the Greens or the Monster Raving Loony Party for all the chance they will have any influence on the economy in our lifetime.
And to counter the obvious rejoinder, it is a truth universally acknowledged that a party in possession of the majority to do so will not implement PR. Turkeys tend not to vote for Christmas.

I am in a constituency where I suspect that it is only the LibDems who can unseat the Tories

But would anyone vote LibDem unless they believed in PR and rejoining the EU?

Or is hating both the two big parties sufficient reason?

Personally I am hoping for a hung parliament if the Tories can't win again.

[Dod101]

Maybe there should just be a surcharge on any pension income over a certain level? Might be an easier way to claw back tax relief.

Except there is already. Pension Income is taxed in the same way by PAYE as income from employment, so if the annual income is high enough, it runs into the 40% and 45% tax bands. The exception to this being the now restricted "25% tax free cash".

There is of course nothing exceptional about that. Pension income is treated as income. That is after all, what it says on the tin.

Dod

[scrumpyjack]

Except there is already. Pension Income is taxed in the same way by PAYE as income from employment, so if the annual income is high enough, it runs into the 40% and 45% tax bands. The exception to this being the now restricted "25% tax free cash".

The 25% tax free cash has been restricted to 25% of the LTA limit ever since 2006 when the LTA was introduced. The only change is that with the LTA abolished this is now a separate limit but set to 25% of the final LTA limit ( at least until a future chancellor changes it).

Mine isn't restricted and will be a lot higher than that because I opted for enhanced protection in 2006 so there is no LTA for me, but I was not able to put in any more contributions after 2006.

Given that by the time Liebor get in, there will be no LTA, if they reintroduce it, will they have to allow a new Enhanced Protection option so existing pensions are not disadvantage by the introduction of an LTA?

[AF62]

Given that by the time Liebor get in

Spellcheck broken? Or did you mistake this forum for the Daily Mail comments section.

[ursaminortaur]

The 25% tax free cash has been restricted to 25% of the LTA limit ever since 2006 when the LTA was introduced. The only change is that with the LTA abolished this is now a separate limit but set to 25% of the final LTA limit ( at least until a future chancellor changes it).

Mine isn't restricted and will be a lot higher than that because I opted for enhanced protection in 2006 so there is no LTA for me, but I was not able to put in any more contributions after 2006.

Given that by the time Liebor get in, there will be no LTA, if they reintroduce it, will they have to allow a new Enhanced Protection option so existing pensions are not disadvantage by the introduction of an LTA?

There are a few options that they might select that I can think of

1). Probably the meanest option that they might go for. Reinstate the LTA and honour the existing protections if you haven't contributed more ( the numbers who had protections and have broken them by contributing more will be small and rich and could be ignored).

2). Reinstate the LTA and honour the existing protections even if you have contributed more but if those extra contributions take you over the protection limit then that is your problem.

3). Reinstate the LTA and honour the protection limits even if you have contributed more but increase those limits by the maximum* that could have been contributed in the meantime.

4). Reinstate the LTA at a much higher level eg £1.8 million which will get rid of most of the protections. However for you that might be the worst option as they might well conveniently forget about those granted unlimited protection because they had already built up a really large pension before 2006 (alternatively they may just keep that protection and ignore the fact you made extra contributions between now and when they reinstated the LTA since the number holding that protection now will probably be pretty small).

* By maximum I mean the total maximum annual allowance amounts between when the LTA was abolished and when they reinstated it - I wouldn't think that they would increase it to cover you contributing even more by using carry-forward or contributing £40,000 now before the change actually occurs.

[LostInSpace]

From he Telegraph :-
"Steve Webb, a former pensions minister and now partner at LCP, said that the threat of a Labour government could spark a “stampede” of people saving into their pensions today and retiring before Labour overhauls savings rules."

So someone is paying attention - This is my exact plan (as of today at least)

[parallellines]

It would certainly not be worth my restarting contributions as that would immediately mean I lose enhanced protection, and therefore lose the protected TFLS.

What did I say about waiting for the full story?

Members who hold a valid enhanced protection or any valid fixed protections, where this protection was applied for before 15 March 2023, and a certificate or reference number subsequently issued, from 6 April 2023 will be able to accrue new pension benefits, join new arrangements or transfer without losing this protection. They will also keep their entitlement to a higher PCLS.

https://www.gov.uk/government/publicati ... march-2023

I think that poses more questions than it answers, such as how is the higher PCLS calculated? Can you take a lump sum from the post 2023 benefit? Is it the same for all the protections?

[JohnB]

The worst thing about the LTA clause was the BCE structure and test at 75. Otherwise it was clearly a target, which if you hit it after 55 you went into drawdown and stopped contributing. But as defined you were threatened by huge taxes up to 20 years later if your investements had the temerity to do well.

A Labour scheme could be very different. Under Corbyn It could be a vicious wealth tax, under Starmer it will more nuanced and hopefully reflect how inflation has moved the goalposts, and how badly designed the system was

Labour's challenge will be divising something that wont trigger a flood of drawdown requests the month before the new laws come into effect

But with pensions a political football, you might be wise to take the benefits if you can, to be sure of only 15% tax

[servodude]

under Starmer it will more nuanced and hopefully reflect how inflation has moved the goalposts, and how badly designed the system was

A triple lock for income bands?

[TedSwippet]

https://www.gov.uk/government/publications/pension-schemes-newsletter-148-march-2023/pensions-schemes-newsletter-148-march-2023

I think that poses more questions than it answers, such as how is the higher PCLS calculated? Can you take a lump sum from the post 2023 benefit? Is it the same for all the protections?

It seems like it should be fairly straightforward to handle.

• If you have one of the protections, your maximum PCLS was always 25% of the protected LTA. For example, FP2016 has a £1.25M LTA, which means you could take £312,500 tax-free PCLS. After the LTA is abolished, you retain that £312,500 PCLS. You might have taken part of it already; no problem, the rest is still there.
• You can keep on taking lump sums from any of your pension until you hit that limit. New or past contributions; no different. The good news is that you can now restart pension contributions without losing the protection, previously not possible.
• It is not the same for all protections. Specifically, it is 25% of whatever that protection's protected LTA was.

As for how this is tracked ... most likely a much simplified version of the current LTA 'certification' from pension providers. The certificate will no longer indicate the percentage of LTA used -- which, indirectly also indicates the percentage of PCLS used/remaining -- but rather the percentage of PCLS consumed. Once you hit 100%, no more PCLS.

The main open question is probably whether the government will actually do it in this straightforward way.

[parallellines]

https://www.gov.uk/government/publications/pension-schemes-newsletter-148-march-2023/pensions-schemes-newsletter-148-march-2023

I think that poses more questions than it answers, such as how is the higher PCLS calculated? Can you take a lump sum from the post 2023 benefit? Is it the same for all the protections?

It seems like it should be fairly straightforward to handle.

• If you have one of the protections, your maximum PCLS was always 25% of the protected LTA. For example, FP2016 has a £1.25M LTA, which means you could take £312,500 tax-free PCLS. After the LTA is abolished, you retain that £312,500 PCLS. You might have taken part of it already; no problem, the rest is still there.
• You can keep on taking lump sums from any of your pension until you hit that limit. New or past contributions; no different. The good news is that you can now restart pension contributions without losing the protection, previously not possible.
• It is not the same for all protections. Specifically, it is 25% of whatever that protection's protected LTA was.

As for how this is tracked ... most likely a much simplified version of the current LTA 'certification' from pension providers. The certificate will no longer indicate the percentage of LTA used -- which, indirectly also indicates the percentage of PCLS used/remaining -- but rather the percentage of PCLS consumed. Once you hit 100%, no more PCLS.

The main open question is probably whether the government will actually do it in this straightforward way.

I agree that's the natural approach where there is a convenient £ value to base the calculation on, and that approach would indicate no further lump sum on any new contributions. For enhanced protection, the protected lump sum is a percentage of benefit though so that doesn't play out neatly in the same way. I'm sure there is a way of getting to a similar end point, but it would be complicated.

[hiriskpaul]

I have been wondering whether we should buy annuities while the LTA charge is zero. We used up most of our LTAs when we crystallised and have not drawn much since. Consequently we were likely to pay LTA charges when we reached 75, or bought an annuity. Now though we have an opportunity to buy annuities without paying a charge. That should mitigate the age 75 charge should Labour seek to reintroduce it, unless they back charge for it in some way.

Or would it be preferable to wait until the LTA limit is abolished altogether next year, then presumably there would be no LTA test at all?

Annuities are much better value than they have been for many years as well, but my mind is on what might happen in the future with respect to Labour reintroducing some kind of charge.

[moorfield]

Annuities are much better value than they have been for many years as well, but my mind is on what might happen in the future with respect to Labour reintroducing some kind of charge.

Well now that the 25% PCLS has been (technically) decoupled from the abolished LTA limit, I expect that it will be a very easy target for future Chancellors. And like many taxes it will be done by stealth of course.

Consider this, the PCLS amount is currently £268275, yet the average (DC) pension pot size for 55+ folk is £80000. These are the voters that really matter when it comes to pension policy, I would suggest. Pensions are too far off in the future for the Meh Generation to be thinking about just yet.

So the feather-pluckers have a huge scale to play with - £20000 to £268275, before the pips really start squeaking. The first step I think will be to explicitly call £268275 as a standalone PCLS cap in a future budget - a free political gift for Labour if you think about it. And then the floodgates can be opened...

[Alaric]

. The first step I think will be to explicitly call £268275 as a standalone PCLS cap in a future budget - a free political gift for Labour if you think about it. And then the floodgates can be opened...

It was a Blair government that increased the PCLS in the interests of "simplification". There had been a long running rule that tax free cash at retirement had been limited to one and a half times final salary at retirement for defined benefit schemes. For defined contribution schemes it had been 25% of "fund" since personal pensions in 1988. The defined benefit calculation was brought in line with the defined contribution one. QE and other effects increased the multiplier used to place a value on defined benefits with the result that the amount of PCLS from a defined benefit scheme was greatly increased.

[ursaminortaur]

. The first step I think will be to explicitly call £268275 as a standalone PCLS cap in a future budget - a free political gift for Labour if you think about it. And then the floodgates can be opened...

It was a Blair government that increased the PCLS in the interests of "simplification". There had been a long running rule that tax free cash at retirement had been limited to one and a half times final salary at retirement for defined benefit schemes. For defined contribution schemes it had been 25% of "fund" since personal pensions in 1988. The defined benefit calculation was brought in line with the defined contribution one. QE and other effects increased the multiplier used to place a value on defined benefits with the result that the amount of PCLS from a defined benefit scheme was greatly increased.

The tax free lump sum for DB pensions depended very much on the scheme rules but probably the most common was 3 x annual pension rather than one and a half times. The LGPS for instance came with an automatic tax free lump sum of 3 times the annual pension up until its reform in 2008 ( which after A-day in 2006 could be increased to the full 25% by commuting some of the annual pension). Some of these automatic tax free lump sums were even more generous and could amount to more than 25% and eligibility for those was protected in the A-day legislation. Later reforms of DB schemes, as with the LGPS, got rid of the automatic tax free lump sum going forward and meant that to get a tax free lump sum you had to commute some of the annual pension - however generally the commutation rate was terrible meaning that it was often better not to take a full 25% tax free lump sum from DB schemes.

As to DC pensions the legislation for personal pensions actually reduced the maximum DC tax free lump sum from 33% to 25%.

https://www.whatinvestment.co.uk/the-taxfree-lump-sum-your-pension-pot-of-gold-4776/

When the Conservative Government introduced their personal pension rules in 1987, the maximum tax-free lump sum was reduced from 33 per cent of your pension fund to 25 per cent.