Hammond floating plans to hit pension tax relief

[ayshfm1]

Happens about budget time every year I know but this time I think he'll pull the trigger.

http://www.thisismoney.co.uk/money/pens ... avers.html

He is of course not smart enough to figure the bullet will take him full in the head since he is out of cockup room after his last budget.

Personally I was intending to go full bore Salary Sacrifice from the next budget as I maximise pension contributions before leaving the rat race, so that might end up needing re-thinking.

The reason I think it's more likely is in the next, average Tory voter is 47, so they've concluded they need to buy the youth and that requires money from somewhere. Personally I'd let the youth vote themselves Corbyn, 4-5 years of him would burn them for the rest of their lives. I guess we oldies have let the young have too sheltered a life, having never seen a full on Labour government they simply have no concept of what it really means.

I also despair at one of the other reasons, getting on the housing ladder. Once again we see the idea that putting more money into people pockets somehow addresses the UK housing situation. All more money does is create more housing inflation, the UK housing market is supply and demand. The answer is increase supply or cut demand, neither is easy, though potentially deporting all the EU citizens living here would probably do it, but there are likely to be consequences!

Anyway, clearly now is the moment to ensure this years pension contributions are topped up, I read the last time that they were cooking up anti- avoidance measures to to stop a flood of cash going into pensions to beat a deadline. I'd imagine the moment he announces the measure so the anti-avoidance will cut in.

After that it will depend upon the term of pension contributions, but I would suspect ISA's will be the next best option.

[DrBunsenHoneydew]

The current system of giving tax relief at people's marginal income rate costs £35bn, according to the Pensions Policy Institute's figures, and they estimate a single rate of relief at 20 per cent would cost £22bn while a flat rate set at 30 per cent would be cost neutral.

That £13bn does look like very juicy low-hanging fruit doesn't it?

[TUK020]

Something that has always puzzled me is why the government doesn't just simplify things with a ceiling on total tax relief that can be claimed. So rather than tinker with pensions relief limits, and endless other schemes, why not just limit to toal tax relief that can be claimed as for example £20k?

[Mapfumo]

average Tory voter is 47

Off-topic somewhat, but that's not quite right. The average age of Conservative voters is 50 something. 47 is the lowest age at which more people voted Conservative than Labour in the last election.

See https://yougov.co.uk/news/2017/06/13/ho ... -election/

Interesting thing is that social class is now pretty much uncorrelated with how someone votes. Having a job makes you more likely to have voted Labour and that is the class of people most likely to care about contributions to pensions. The Conservatives win elections through the votes of those who have already retired (63% Conservative to 24% Labour amongst the retired - also the largest age group demographic and the most likely to vote.)

Only small numbers of people who have already retired would be affected by changes to tax relief on contributions to pensions by higher rate taxpayers. Politically, one might argue that people who care about this are hardly going to switch to Corbyn as a result and so it's a safe way to raise revenue.

[Lootman]

Something that has always puzzled me is why the government doesn't just simplify things with a ceiling on total tax relief that can be claimed. So rather than tinker with pensions relief limits, and endless other schemes, why not just limit to toal tax relief that can be claimed as for example £20k?

Or do what the Americans do and have a minimum tax amount you have to pay, to prevent people using deductions, allowances and exemptions to take themselves out of tax altogether.

The Conservatives win elections through the votes of those who have already retired (63% Conservative to 24% Labour amongst the retired - also the largest age group demographic and the most likely to vote.)

The retired also just happen to be the only class of people old enough to know what a non-Blairite Labour government is like to live through as an adult, and how bad that really was.

[Mapfumo]

Something that has always puzzled me is why the government doesn't just simplify things with a ceiling on total tax relief that can be claimed. So rather than tinker with pensions relief limits, and endless other schemes, why not just limit to toal tax relief that can be claimed as for example £20k?

I can just hear Sir Humphrey chuckling away at that suggestion! What would all those people policing the current scheme do if it were simplified?

[DrBunsenHoneydew]

Something that has always puzzled me is why the government doesn't just simplify things with a ceiling on total tax relief that can be claimed. So rather than tinker with pensions relief limits, and endless other schemes, why not just limit to toal tax relief that can be claimed as for example £20k?

I can just hear Sir Humphrey chuckling away at that suggestion! What would all those people policing the current scheme do if it were simplified?

£20k would be a very generous tax deduction wouldn't it? Even the current max of £40k contributions on up to £150k income would only get 40% tax relief, i.e. 40k x 0.4 = £16k. An average earner paying 5% contributions on a £25k salary taxed at 20% gets only £250 relief.

[Lootman]

£20k would be a very generous tax deduction wouldn't it? Even the current max of £40k contributions on up to £150k income would only get 40% tax relief, i.e. 40k x 0.4 = £16k. An average earner paying 5% contributions on a £25k salary taxed at 20% gets only £250 relief.

Anyone getting that little tax relief would surely be better off using ISAs for their retirement, and not paying tax on the other end.

The fastest growing part of the US retirement market is so-called Roth IRAs and 401Ks, where there is no tax relief or deduction for contributions, but all payouts are totally tax free, much like our ISAs only with larger contribution caps and employer matching where appropriate.

For the government the appeal would be getting more tax now but less tax later - always appealing to politicians who can never resist kicking the ball into the long grass.

[swill453]

£20k would be a very generous tax deduction wouldn't it? Even the current max of £40k contributions on up to £150k income would only get 40% tax relief, i.e. 40k x 0.4 = £16k. An average earner paying 5% contributions on a £25k salary taxed at 20% gets only £250 relief.

Anyone getting that little tax relief would surely be better off using ISAs for their retirement, and not paying tax on the other end.

Except it's fairly likely that that 5% contribution could be matched by the employer, an instant 100% gain dwarfing any tax relief.

I'm not aware of any employer who would pay contributions into an ISA rather than a pension.

Scott.

[Lootman]

£20k would be a very generous tax deduction wouldn't it? Even the current max of £40k contributions on up to £150k income would only get 40% tax relief, i.e. 40k x 0.4 = £16k. An average earner paying 5% contributions on a £25k salary taxed at 20% gets only £250 relief.

Anyone getting that little tax relief would surely be better off using ISAs for their retirement, and not paying tax on the other end.

Except it's fairly likely that that 5% contribution could be matched by the employer, an instant 100% gain dwarfing any tax relief.

I'm not aware of any employer who would pay contributions into an ISA rather than a pension.

Sure, but there is no reason why an ISA-type pension plan could not be set up where employer matching is allowed.

That's exactly what Roth 401-K plans do in the US, and they are very popular. Call them something else if you like but this is something I think the UK government could introduce, and maybe will, given their rapacious tax-gathering appetite.

[TedSwippet]

Sure, but there is no reason why an ISA-type pension plan could not be set up where employer matching is allowed.

My megacorp ex-employer indeed did this. Well, sort of. You had to stay in the pension at some minimal level, but it was then possible to re-route a portion of both your own contributions and the employer match into an ISA.

I never participated in that option, but it definitely existed. It is almost certainly very niche at the moment among employers, though. I suspect my ex-employer's setup was designed not for low-paid employees but for those very much at the other end of the remuneration scale, who would have been starting to hit the ridiculous annual allowance taper.

That's exactly what Roth 401-K plans do in the US, and they are very popular. Call them something else if you like but this is something I think the UK government could introduce, and maybe will, given their rapacious tax-gathering appetite.

Indeed. Roth conversion is particularly useful for some situations. I'm surprised that the UK hasn't yet cottoned on and cooked up a way to directly convert part or all of a SIPP into (some form of) an ISA, taxed on conversion and with perhaps added ISA early withdrawal penalties similar to the Roth.

I am actually in the process of converting my 401k into a Roth in gradual stages, over perhaps a decade or more, to help sandbag problems further down the road with RMDs. As an NRA this is a bit fiddly, but currently possible. It remains to be seen whether or not any of the tax reforms currently floating around Congress will derail that plan.

[gadgetmind]

£20k would be a very generous tax deduction wouldn't it? Even the current max of £40k contributions on up to £150k income would only get 40% tax relief, i.e. 40k x 0.4 = £16k. An average earner paying 5% contributions on a £25k salary taxed at 20% gets only £250 relief.

You're forgetting the 60%+ bracket that exists just above £100k of income due to clawback of personal allowance. I've been using sal sac to avoid this for many a year, and getting a 10% bonus on top of "my" contribution from my employer into the pension as a thanks for saving them employer's NI. This way, I can get full Annual Allowance into my pension and keep full personal allowance.

Sadly, this year I won't be able to do this and will also be breaching Annual Allowance (accidentally due to bonus) and LTA due to brexit causing sterling to crash. I'm going to have to withdraw from the company pension scheme.