Change of UK Government and the Risk of

[happyemailer]

So the Lifetime Allowance will be fully abolished in April.

However, it's likely that we will have a new Labour government later in the tax year, and a risk that they might choose to re-instate the allowance.

I'm still working, but very close to retirement - and am lucky enough to have a SIPP that now exceeds the LTA.

I'm thinking that in April it might be prudent to shift everything over the £1M mark into Drawdown (taking 25% as cash) (and reducing pension contributions appropriately, which is OK).

It's true that the government might try and retrospectively take withdrawals between April and any new legislation into account, but if they don't, then this might help mitigate the return of an LTA.

Thoughts?

[JohnB]

As someone at 98% of LTA, I'm thinking the same. I can't see the TFLS going up under Labour, with persistent inflation its value is just going to decline in real terms. Shame it commits me to CGT and DT long term, but those rates are still less than IT, though I expect the difference to narrow as Labour dig us out of the Tory hole.

A lot depends on what record keeping governments can demand of brokers and taxpayers for retrospective charging, and the new rules are not clear on that, and I can't see Labour fighting that battle.

[SebsCat]

I think it's reasonable to assume that the TFLS will be decreased over time, at least in real terms, whoever is in power. Let's face it, it's already nearly 20% less in real terms than it was in April 2020 when the LTA (and hence the TFLS) was last increased.

I'm probably wrong, but my expectation is that Labour won't bring back the LTA. The concept was a reasonable one when it was introduced at a level that was roughly £2.5m in today's money but the systematic cuts since 2010 left it at a level that just caused problems. Reintroducing it at the current level would be stupid whilst doing it at a higher one (or some bodged system with exceptions for certain professions) wouldn't be palatable to Labour. More likely, IMHO, is that Labour will take advantage of the abolition of the LTA and introduction of the new Lump Sum and Lump Sum And Death Benefit allowances to make large pensions less beneficial - both of these allowances can be either left to wither via inflation or actively reduced. There's also the possibility of charging NI on pension income. The net effect of these sort of changes is that there's much less of a tax advantage to having a large pension pot so there's no need to artificially limit the size.

[Lootman]

There's also the possibility of charging NI on pension income.

It is a long time since I made contributions to an employer pension scheme. Thirty years or more. But I am fairly sure that although you got tax relief on the employee contributions, that was limited to income tax and did not include relief on NICs. So applying NICs to payouts from that scheme seems unfair, not that that necessarily rules it out I suppose.

More generally tax changes are often future, sometimes instant but rarely backdated for obvious reasons. So there is a window of opportunity here. Although personally I would at least wait for Hunt's budget next week.

[denimchunky]

I think it's reasonable to assume that the TFLS will be decreased over time, at least in real terms, whoever is in power. Let's face it, it's already nearly 20% less in real terms than it was in April 2020 when the LTA (and hence the TFLS) was last increased.

I'm probably wrong, but my expectation is that Labour won't bring back the LTA. The concept was a reasonable one when it was introduced at a level that was roughly £2.5m in today's money but the systematic cuts since 2010 left it at a level that just caused problems. Reintroducing it at the current level would be stupid whilst doing it at a higher one (or some bodged system with exceptions for certain professions) wouldn't be palatable to Labour. More likely, IMHO, is that Labour will take advantage of the abolition of the LTA and introduction of the new Lump Sum and Lump Sum And Death Benefit allowances to make large pensions less beneficial - both of these allowances can be either left to wither via inflation or actively reduced. There's also the possibility of charging NI on pension income. The net effect of these sort of changes is that there's much less of a tax advantage to having a large pension pot so there's no need to artificially limit the size.

I think I agree on the LTA. The oft-touted carve out for Doctors etc would be ripe for challenge in the courts. I think HM Government have got enough issues on their hands after expensive legal actions over pensions (the McCloud judgement), so I suspect that is not a prospect that they would relish.

[BigTim]

There's also the possibility of charging NI on pension income.

It is a long time since I made contributions to an employer pension scheme. Thirty years or more. But I am fairly sure that although you got tax relief on the employee contributions, that was limited to income tax and did not include relief on NICs. So applying NICs to payouts from that scheme seems unfair, not that that necessarily rules it out I suppose.

More generally tax changes are often future, sometimes instant but rarely backdated for obvious reasons. So there is a window of opportunity here. Although personally I would at least wait for Hunt's budget next week.

Afraid your recollection is wrong, at least for "net pay" pension types which are the most common. Both the employee and employer save on NI as the gross salary is sacrificed as a contribution.

However

Some employer pensions, to ensure that e.g. staff who wouldn't normally paid income tax still benefit form getting their contribution grossed up operate on "Relief at source" basis (NEST pensions operate this way).


https://www.thepensionsregulator.gov.uk ... rangements.