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Increase by what rate?

dealtn
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Re: Increase by what rate?

#389027

Postby dealtn » February 23rd, 2021, 8:56 am

joey wrote:Hello all. I’ve recently begun consolidating some old pension pots into a SIPP. I run my own company so will be contributing to the SIPP from my business. I had thought to increase my contributions by inflation each year by e.g. doing an annual review each January and making the adjustment on the basis of the rate for the preceding 12 months. However, it has been suggested to me that the average weekly earnings index might be a better yardstick by which to increase contributions. If there are any other people in the same boat as me (limited company director) then I’d be interested to know what you do. Thanks.


I doubt it will make any practical difference. They are likely to be closer to each other than doing nothing. The first step is to recognise, and then do something. Which you are doing. Seeking perfection is unnecessary and impractical precision I would say.

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Re: Increase by what rate?

#389095

Postby xxd09 » February 23rd, 2021, 11:12 am

Aged 74 so a long time since I ran my own business
I used to fill my SIPP with as much as I could especially in good years-£40000 pa is the current limit I think?
Take advantage of the tax breaks which may be removed at any time
40% tax relief is hard to beat as a savings incentive
Watch out for the Life Time Allowance limits as an eventual problem
xxd09

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Re: Increase by what rate?

#389667

Postby taken2often » February 24th, 2021, 6:16 pm

Another one bit the dust. I checked that my reply was there it has now disappeared

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Re: Increase by what rate?

#389674

Postby xxd09 » February 24th, 2021, 6:24 pm

I certainly used both ISAs and SIPPS
You are right -ISAs give you financial flexibility before 55 when SIPPs can be used
In an ideal world one would use both to the maximum possible
xxd09
PS -a refinement some use is to prioritise the equities part of your savings portfolio in the ISA and bond part in your SIPP
Bonds grow slower so LTA problems arise -if at all -at a later date helping you to plan your pension contributions in a more judicious manner

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Re: Increase by what rate?

#389808

Postby taken2often » February 24th, 2021, 11:26 pm

The pension is your insurance if you go out of business, so you put in as much as you can afford. An ISA is good but if you were bankrupt it goes. We made sure that we paid no corporation tax, put the profits into the Pension.

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Re: Increase by what rate?

#390307

Postby Hardgrafter » February 26th, 2021, 3:56 pm

I second the comments about Life Time Allowance.

Very easy in last few years of stock market growth to accidentally exceed £1.073 million limit. It started off as a £1.8m limit, and my fund was way lower than that 10 years ago - about £400k. then I retired in 2020, and found I was way over ...

With LTA limit being index linked, and long term stock growth being in region of 3 to 4 % above inflation.

The chancellor could get a windfall if he raised the final salary multiplier to a realistic 40x instead of 20x. Great way to get civil servants to retire ....

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Re: Increase by what rate?

#390863

Postby ursaminortaur » February 28th, 2021, 11:39 am

Hardgrafter wrote:The chancellor could get a windfall if he raised the final salary multiplier to a realistic 40x instead of 20x. Great way to get civil servants to retire ....


Only if he wanted to destroy the NHS by getting all the top doctors to retire early. Although their main complaint in recent years was about the annual allowance a number are already retiring early because of the LTA limit so changing the multiplier would almost certainly lead to many more doing so.

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Re: Increase by what rate?

#391072

Postby DrBunsenHoneydew » March 1st, 2021, 9:38 am

ursaminortaur wrote:
Hardgrafter wrote:The chancellor could get a windfall if he raised the final salary multiplier to a realistic 40x instead of 20x. Great way to get civil servants to retire ....


Only if he wanted to destroy the NHS by getting all the top doctors to retire early. Although their main complaint in recent years was about the annual allowance a number are already retiring early because of the LTA limit so changing the multiplier would almost certainly lead to many more doing so.

If they did change the multiplier there would likely be some form of "protection" at the implementation date analogous to what happened whenever the LTA itself was reduced.
I agree they should change it, perhaps to a more dynamic factor, e.g. 100 minus Age at Retirement Crystallization

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Re: Increase by what rate?

#391106

Postby ursaminortaur » March 1st, 2021, 11:16 am

DrBunsenHoneydew wrote:
ursaminortaur wrote:
Hardgrafter wrote:The chancellor could get a windfall if he raised the final salary multiplier to a realistic 40x instead of 20x. Great way to get civil servants to retire ....


Only if he wanted to destroy the NHS by getting all the top doctors to retire early. Although their main complaint in recent years was about the annual allowance a number are already retiring early because of the LTA limit so changing the multiplier would almost certainly lead to many more doing so.

If they did change the multiplier there would likely be some form of "protection" at the implementation date analogous to what happened whenever the LTA itself was reduced.
I agree they should change it, perhaps to a more dynamic factor, e.g. 100 minus Age at Retirement Crystallization


The two types of protection which were available were

Individual protection which only applied if you already had more in your pension pot than the new LTA and which set your individual LTA limit to the minimum of the old LTA and the amount you had on the day the limit changed.
or
Fixed protection which allowed you to continue to use the old LTA limit but stopped you making any further pension contributions.

Taking either of those with a DB pension pretty much meant you had to defer the pension. Hence although such protections would be useful to the individuals involved providing something like them if the multiplier were increased probably wouldn't stop a lot of doctors retiring early.

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Re: Increase by what rate?

#391110

Postby DrBunsenHoneydew » March 1st, 2021, 11:26 am

ursaminortaur wrote:
DrBunsenHoneydew wrote:
ursaminortaur wrote:
Only if he wanted to destroy the NHS by getting all the top doctors to retire early. Although their main complaint in recent years was about the annual allowance a number are already retiring early because of the LTA limit so changing the multiplier would almost certainly lead to many more doing so.

If they did change the multiplier there would likely be some form of "protection" at the implementation date analogous to what happened whenever the LTA itself was reduced.
I agree they should change it, perhaps to a more dynamic factor, e.g. 100 minus Age at Retirement Crystallization


The two types of protection which were available were

Individual protection which only applied if you already had more in your pension pot than the new LTA and which set your individual LTA limit to the minimum of the old LTA and the amount you had on the day the limit changed.
or
Fixed protection which allowed you to continue to use the old LTA limit but stopped you making any further pension contributions.

Taking either of those with a DB pension pretty much meant you had to defer the pension. Hence although such protections would be useful to the individuals involved providing something like them if the multiplier were increased probably wouldn't stop a lot of doctors retiring early.


I was in exactly this position.
When I took Individual Protection 2014 at age 55, the protected LTA figure awarded was based on what your DB scheme would pay out at its normal scheme retirement age of 60, assuming no further contributions.
But by retiring early at 57 say, without further contributions after age 55 the actual LTA used up would not be that protected amount because the pension taken at 57 would be actuarily reduced by about an eighth, because it will be paid for 3 extra years.
This gave scope to continue to pay contributions from age 55 to 57 to increase the actual LTA used by age age 57 back up to what it would have been at 60 without contributions.

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Re: Increase by what rate?

#391825

Postby ursaminortaur » March 3rd, 2021, 1:32 pm

LTA limit frozen in budget.

https://www.theguardian.com/uk-news/2021/mar/03/budget-2021-key-points-rishi-sunak

Fixing the public finances

The chancellor says the government will take a “fair” approach to “fixing the public finances”.

The government will not raise national insurance, income tax or VAT, but will freeze personal tax thresholds – as anticipated.

The personal allowance will remain at £12,750 until 2026. The higher-rate threshold will increase to £50,270 next year, and also remain at that level.

The inheritance tax threshold, pensions lifetime allowance, annual exempt allowance from capital gains tax and VAT exemption threshold will also be frozen.

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Re: Increase by what rate?

#391867

Postby swill453 » March 3rd, 2021, 3:53 pm

ursaminortaur wrote: The personal allowance will remain at £12,750 until 2026.

Er, that's wrong.

It's currently £12,500, the Chancellor announced it's going up by £70 to £12,570 next year, then it will stay there until 2026.

Scott.

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Re: Increase by what rate?

#391941

Postby ursaminortaur » March 3rd, 2021, 6:33 pm

swill453 wrote:
ursaminortaur wrote: The personal allowance will remain at £12,750 until 2026.

Er, that's wrong.

It's currently £12,500, the Chancellor announced it's going up by £70 to £12,570 next year, then it will stay there until 2026.

Scott.


You are correct

https://www.ft.com/content/2f1829d4-89e5-4b58-9394-28da615cc0ae

UK Budget 2021: the chancellor’s speech in full
.
.
.
We’ve nearly doubled the income tax personal allowance over the last decade, making it the most generous of any G20 country.

We will of course deliver our promise to increase it again next year to £12,570, but we will then keep it at this more generous level until April 2026.

The Higher Rate threshold will similarly be increased next year, to £50,270, and will then also remain at that level for the same period.


However the Guardian's transposition error seems to be being repeated elsewhere

https://www.independent.co.uk/news/uk/politics/budget/budget-2021-tax-vat-rishi-sunak-b1811791.html

Income tax thresholds - Thresholds at which people start to pay income tax or move into a new bracket will be frozen. The personal allowance will remain at £12,750 until 2026.

Though given this is the pensions board I was trying to highlight the fact that the Lifetime allowance limit will not be increasing by CPI as it has done since 2018 rather than looking at the income tax personal allowance.

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Re: Increase by what rate?

#392035

Postby ursaminortaur » March 3rd, 2021, 11:00 pm

ursaminortaur wrote:LTA limit frozen in budget.

https://www.theguardian.com/uk-news/2021/mar/03/budget-2021-key-points-rishi-sunak

Fixing the public finances

The chancellor says the government will take a “fair” approach to “fixing the public finances”.

The government will not raise national insurance, income tax or VAT, but will freeze personal tax thresholds – as anticipated.

The personal allowance will remain at £12,750 until 2026. The higher-rate threshold will increase to £50,270 next year, and also remain at that level.

The inheritance tax threshold, pensions lifetime allowance, annual exempt allowance from capital gains tax and VAT exemption threshold will also be frozen.


Just to add this freeze in the LTA limit is expected to last until at least 2025/2026.

https://www.gov.uk/government/publications/budget-2021-overview-of-tax-legislation-and-rates-ootlar/budget-2021-overview-of-tax-legislation-and-rates-ootlar

As announced at Budget, legislation will be introduced in Finance Bill 2021 to remove the annual link to the Consumer Price Index increase for the next 5 fiscal years.

This will maintain the standard Lifetime Allowance at £1,073,100 for tax years 2021 to 2022 to 2025 to 2026.


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