Starmer's vision quest

[Dorset Boy]

Ok, so you're providing 25% relief rather than 20%. It is additional tax from my point of view (see worked example), because I will still be taxed on the way out. You've generously reduced the overall tax burden from 100% to 95% in my extreme example.

But why should most higher rate tax payers get effective 40% relief on the way in and only pay 20% tax on 75% of their withdrawals in retirement (most people becoming basic rate tax payers in retirement). you may be a fortunate exception.

 

[Psamathe]

But why should most higher rate tax payers get effective 40% relief on the way in and only pay 20% tax on 75% of their withdrawals in retirement (most people becoming basic rate tax payers in retirement). you may be a fortunate exception.

The tax situation with pensions seems a complete mess but I think to resolve it would mean radical changes but changes that I suspect are necessary in the long term anyway. And I can't see any of our current politicians having the capacity to even start to appreciate what's needed (they're too busy meeting with lobbyists and finding ways to accommodate lobbyist interests).

 

[PurplePenguin]

But why should most higher rate tax payers get effective 40% relief on the way in and only pay 20% tax on 75% of their withdrawals in retirement (most people becoming basic rate tax payers in retirement). you may be a fortunate exception.

I'm happy for the 75% figure to change and to stick with untaxed in, taxed out.

Using your example, you are taxed at (20%-40%) on the way in and 15% on the way out, so 35%-55% overall which compares with 40%-60% tax that could be paid at the time. So the best case scenario saves 5%, but has substantial future tax risk with regard to the tax free lump sum, slipping into the higher rate and the general rates of taxation. That might be a risk someone would want to take if they were retiring in the next couple of years, but it is unappealing to me.

 

[Dorset Boy]

I'm happy for the 75% figure to change and to stick with untaxed in, taxed out.

Using your example, the best case scenario is that you are taxed at (20%-40%) on the way in and 15% on the way out, so 35%-55% overall which compares with 40%-60% tax that could be paid at the time. So the best case scenario saves 5%, but has substantial future tax risk with regard to the tax free lump sum, slipping into the higher rate and the general rates of taxation. That might be a risk someone would want to take if they were retiring in the next couple of years, but it is unappealing to me.

Well you could use Isas instead, but no employer contribution as they aren't a Workplace Pension. You'll also contribute having already been taxed at your 40% and paid NI contributions on that income. You will also be limited to £20,000 pa contributions. The benefit is access at any time and no tax paid on withdrawals, but I believe when you do the maths, the pension still works out better for the vast majority of people.

 

[Psamathe]

But why should most higher rate tax payers get effective 40% relief on the way in and only pay 20% tax on 75% of their withdrawals in retirement (most people becoming basic rate tax payers in retirement). you may be a fortunate exception.

I'm happy for the 75% figure to change and to stick with untaxed in, taxed out.

Using your example, the best case scenario is that you are taxed at (20%-40%) on the way in and 15% on the way out, so 35%-55% overall which compares with 40%-60% tax that could be paid at the time. So the best case scenario saves 5%, but has substantial future tax risk with regard to the tax free lump sum, slipping into the higher rate and the general rates of taxation. That might be a risk someone would want to take if they were retiring in the next couple of years, but it is unappealing to me.

For me it's really complex. But people need to be encouraged to save and take some personal responsibility be that for pensions or for that unexpected or even sought after even mid life event (eg a 3rd child).

Suppose two people same job, same income, same circumstances and one lives frugally saving, buying their own home, etc. whilst the other smokes 20 a day, down the pub most nights, overseas holidays, etc. then in retirement should the high living now broke person be given more state financial support because they are not so "well off" (eg paying rent rather than owning their home, etc.)

Retirement is a very long way away for many so encouragement is needed and one significant encouragement is tax efficiency (or lower taxation). And that means not paying as much tax.

 

[PurplePenguin]

Well you could use Isas instead, but no employer contribution as they aren't a Workplace Pension. You'll also contribute having already been taxed at your 40% and paid NI contributions on that income. You will also be limited to £20,000 pa contributions. The benefit is access at any time and no tax paid on withdrawals, but I believe when you do the maths, the pension still works out better for the vast majority of people.

Under your proposal, are people paying tax on employer contributions as well? If so, then ouch. If not, then I can see an obvious work around.

In any case, this idea has come up almost every year for around 10 years, and then the government decides against it at the last minute.

 

[Dorset Boy]

Under your proposal, are people paying tax on employer contributions as well? If so, then ouch. If not, then I can see an obvious work around.

In any case, this idea has come up almost every year for around 10 years, and then the government decides against it at the last minute.

The Government (Treasury) doesn't want to find the workaround for public sector salary related schemes, which is why a flat rate of pension contribution relief has never been implemented. The idea has been around for 20+ years.
The public sector schemes are also one of the reasons that the Treasury are less likely to alter the PCLS situation too.

 

[Stevo 666]

You know what @Stevo 666, that might be the first time you've grasped what I'm saying.

Definitely not the first time Bobz, your points are often quite simple 🙂

 

[First Aspect]

Definitely not the first time Bobz, your points are often quite simple 🙂

Is Bobz your uncle?

 

[BoldonLad]

The Government (Treasury) doesn't want to find the workaround for public sector salary related schemes, which is why a flat rate of pension contribution relief has never been implemented. The idea has been around for 20+ years.
The public sector schemes are also one of the reasons that the Treasury are less likely to alter the PCLS situation too.

Quite. I did wonder why the implications for those in Public Sector with high earnings and generous pension schemes. Hasn’t Gordon Brown “tinkering” resulted in “issues” with NHS Consultants, and, possibly others, for example.

 

[BoldonLad]

Well you could use Isas instead, but no employer contribution as they aren't a Workplace Pension. You'll also contribute having already been taxed at your 40% and paid NI contributions on that income. You will also be limited to £20,000 pa contributions. The benefit is access at any time and no tax paid on withdrawals, but I believe when you do the maths, the pension still works out better for the vast majority of people.

I did actually decide to “hedge my bets” and use a combination of “conventional” pension and ISAs. I would agree, I may have accrued a better pension had I gone 100% pension. My decision was based on distrust of Politicians and what they may do. I am quietly confident that if RfA does begin milking the income tax, my ruse may well prove to have been a smart move.

The additional issue with the ISA route of course is having to choose Investments wisely. So far, I have been either clever or lucky, I make no claims as to which.

Time will tell 😊

 

[briantrumpet]

McSweeney is as much a genius as Dominic Cummings was.

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It's been picked up the the Graun.

https://www.theguardian.com/politic...r-no-10-briefings-ministers-unacceptable-pmqs

Keir Starmer is facing intense pressure over the future of Morgan McSweeney after the prime minister’s chief of staff was blamed for No 10’s pushback against a possible leadership challenge.

After Starmer dodged a question from Kemi Badenoch at prime minister’s questions about whether he had full confidence in his key aide, Downing Street later clarified that he did.

A series of ministers and Labour MPs are pointing the finger at McSweeney for the pre-emptive operation that particularly targeted Wes Streeting, the health secretary, who has responded with undisguised fury.