Donate to Remove ads

Got a credit card? use our Credit Card & Finance Calculators

Thanks to johnstevens77,Bhoddhisatva,scotia,Anonymous,Cornytiv34, for Donating to support the site

Could the Lifetime Pension Allowance be Abolished?

Including Financial Independence and Retiring Early (FIRE)
AsleepInYorkshire
Lemon Half
Posts: 7383
Joined: February 7th, 2017, 9:36 pm
Has thanked: 10514 times
Been thanked: 4659 times

Could the Lifetime Pension Allowance be Abolished?

#441564

Postby AsleepInYorkshire » September 12th, 2021, 9:07 am

Pensions: Boris Johnson and Rishi Sunak told to abolish lifetime allowance

The threshold from which you start paying tax is currently at £1,073,100. Chancellor of the Exchequer Rishi Sunak announced in March that the threshold will be frozen until 2026, meaning many people could be dragged into the tax net.

AiY

JohnB
Lemon Quarter
Posts: 2497
Joined: January 15th, 2017, 9:20 am
Has thanked: 677 times
Been thanked: 997 times

Re: Could the Lifetime Pension Allowance be Abolished?

#441567

Postby JohnB » September 12th, 2021, 9:13 am

But economist at the Institute of Economic Affairs, Julian Jessop, tells Express.co.uk that the lifetime allowance threshold makes planning pensions more difficult, and should be abolished.


I tend not to read stories which start "campaigners"

AsleepInYorkshire
Lemon Half
Posts: 7383
Joined: February 7th, 2017, 9:36 pm
Has thanked: 10514 times
Been thanked: 4659 times

Re: Could the Lifetime Pension Allowance be Abolished?

#441571

Postby AsleepInYorkshire » September 12th, 2021, 9:25 am

JohnB wrote:
But economist at the Institute of Economic Affairs, Julian Jessop, tells Express.co.uk that the lifetime allowance threshold makes planning pensions more difficult, and should be abolished.

I tend not to read stories which start "campaigners"

Tell that to the suffragettes

AiY

EthicsGradient
Lemon Slice
Posts: 571
Joined: March 1st, 2019, 11:33 am
Has thanked: 33 times
Been thanked: 231 times

Re: Could the Lifetime Pension Allowance be Abolished?

#441575

Postby EthicsGradient » September 12th, 2021, 9:52 am

AsleepInYorkshire wrote:
JohnB wrote:
But economist at the Institute of Economic Affairs, Julian Jessop, tells Express.co.uk that the lifetime allowance threshold makes planning pensions more difficult, and should be abolished.

I tend not to read stories which start "campaigners"

Tell that to the suffragettes

AiY

It's hard to think of anyone further away from the suffragettes than an economist at the IEA. Donald Trump, perhaps? I wouldn't call him a 'campaigner' so much as "lobbyist for the richest people in the country".

Boots
2 Lemon pips
Posts: 178
Joined: August 1st, 2021, 2:51 pm
Has thanked: 153 times
Been thanked: 116 times

Re: Could the Lifetime Pension Allowance be Abolished?

#441587

Postby Boots » September 12th, 2021, 11:32 am

It certainly seems odd in the extreme that we have moved in the space of about 20 years from a position where people were being encouraged to make better pension provision, to having three simultaneous contribution limits. We have Current Year Taxable Earned Income & £40k p.a. & Lifetime Allowance.

I presume that the perceived problem is rich people "stuffing" their pension with sackfulls of money. But surely there should be a simpler solution than the multiple levels of restrictions we have at the moment? Should we still have Higher Rate Tax Relief?

It is interesting to reflect on the Lifetime Allowance started was £1.8m in 2010 - 2012. If it had been inflation linked, it would be over £2.2m now.

AsleepInYorkshire
Lemon Half
Posts: 7383
Joined: February 7th, 2017, 9:36 pm
Has thanked: 10514 times
Been thanked: 4659 times

Re: Could the Lifetime Pension Allowance be Abolished?

#441591

Postby AsleepInYorkshire » September 12th, 2021, 11:55 am

Boots wrote:It certainly seems odd in the extreme that we have moved in the space of about 20 years from a position where people were being encouraged to make better pension provision, to having three simultaneous contribution limits. We have Current Year Taxable Earned Income & £40k p.a. & Lifetime Allowance.

I presume that the perceived problem is rich people "stuffing" their pension with sackfulls of money. But surely there should be a simpler solution than the multiple levels of restrictions we have at the moment? Should we still have Higher Rate Tax Relief?

It is interesting to reflect on the Lifetime Allowance started was £1.8m in 2010 - 2012. If it had been inflation linked, it would be over £2.2m now.

I'd suggest this "problem" is similar to the Care Tax issue just introduced. Successive governments have kicked the can up the road and not really sorted the issue of pensions out. I'd like to caveat that statement if I may please before grandstanders decide to turn yet another thread into a political argument. I've used the term successive governments in general. If you want to discuss specific governments and there policies and actions regarding pensions please start another thread elsewhere. Thank you

The concern I have is that "tinkering" seems to suit the moment and the need, regardless of protecting the individuals rights.

It doesn't bode well for those who are young to open a pension as the amount of "tinkering" they face may be as much if not more than I have seen over the last 40 years. It does make one think.

AiY

Urbandreamer
Lemon Quarter
Posts: 3122
Joined: December 7th, 2016, 9:09 pm
Has thanked: 347 times
Been thanked: 1025 times

Re: Could the Lifetime Pension Allowance be Abolished?

#441592

Postby Urbandreamer » September 12th, 2021, 12:06 pm

The LTA was introduced 15 years ago. Hence many of us are old enough to remember a time when it didn't exist.

I think that we should also all recognise that there are arguments both for and against it. It is without doubt true that even modest earners (standard rate tax payers) can hit the current limit. All that is needed is sufficient surplus income to contribute and significant compounding over a long life. Indeed if a pension is started at birth and the maximum that a non-earner can pay deposited each year, 4% compound interest would cause the LTA to be exceeded by state pension age. There are compound interest calculators on the web, put the numbers in yourself it you doubt me*.

We should also recognise that the tax treatment of pension savings reduces the tax collected. We could argue about the merit of different taxes, but the government / state needs money. Witness the recent increase in NI and dividend tax. I seriously doubt that the government will consider abolishing the LTA.

Arguments about the wealthy benefiting, totally ignore the example that I gave of forward thinking people able to contribute modest amounts for long periods.

*Use a contribution figure of £300pcm, which is £240+tax.

XFool
The full Lemon
Posts: 12636
Joined: November 8th, 2016, 7:21 pm
Been thanked: 2608 times

Re: Could the Lifetime Pension Allowance be Abolished?

#441670

Postby XFool » September 12th, 2021, 4:30 pm

Boots wrote:It certainly seems odd in the extreme that we have moved in the space of about 20 years from a position where people were being encouraged to make better pension provision, to having three simultaneous contribution limits. We have Current Year Taxable Earned Income & £40k p.a. & Lifetime Allowance.

I presume that the perceived problem is rich people "stuffing" their pension with sackfulls of money. But surely there should be a simpler solution than the multiple levels of restrictions we have at the moment? Should we still have Higher Rate Tax Relief?

Ah well!

Once upon a time, a long time ago now, when pensions were (simply*) pensions, nobody was or even needed to be very much interested in the inner workings of pensions.

But, as I said, that was a long time ago now... :)


* And not, for instance, potentially also rich people's intergenerational Super-ISAs

ursaminortaur
Lemon Half
Posts: 6945
Joined: November 4th, 2016, 3:26 pm
Has thanked: 449 times
Been thanked: 1718 times

Re: Could the Lifetime Pension Allowance be Abolished?

#441675

Postby ursaminortaur » September 12th, 2021, 4:51 pm

Urbandreamer wrote:The LTA was introduced 15 years ago. Hence many of us are old enough to remember a time when it didn't exist.


Before it was introduced at A-day in 2006 there were severe age related restrictions to how much of your earnings you could contribute to a pension. For most people the annual allowance of £215,000 and Lifetime allowance of £1.5 million introduced in 2006 were no problem at all and the lifetime allowance served a real purpose in stopping extremely large earners from getting ridiculous amounts of tax relief by contributing £215,000 gross every year. Once the coalition government reduced the annual allowance to £50,000 in 2011/2012 and to £40,000 in 2014/2015 that purpose pretty much disappeared and the reductions in the lifetime allowance just became a tax grab.

EthicsGradient
Lemon Slice
Posts: 571
Joined: March 1st, 2019, 11:33 am
Has thanked: 33 times
Been thanked: 231 times

Re: Could the Lifetime Pension Allowance be Abolished?

#441677

Postby EthicsGradient » September 12th, 2021, 5:07 pm

XFool wrote:
Boots wrote:It certainly seems odd in the extreme that we have moved in the space of about 20 years from a position where people were being encouraged to make better pension provision, to having three simultaneous contribution limits. We have Current Year Taxable Earned Income & £40k p.a. & Lifetime Allowance.

I presume that the perceived problem is rich people "stuffing" their pension with sackfulls of money. But surely there should be a simpler solution than the multiple levels of restrictions we have at the moment? Should we still have Higher Rate Tax Relief?

Ah well!

Once upon a time, a long time ago now, when pensions were (simply*) pensions, nobody was or even needed to be very much interested in the inner workings of pensions.

But, as I said, that was a long time ago now... :)


* And not, for instance, potentially also rich people's intergenerational Super-ISAs

That is what I suspect the IEA economist would be aiming for - without a lifetime limit, a pension could become a way to avoid a lot of inheritance tax. I can accept that a somewhat higher limit than at present (especially with gilt returns lower than in the past) can be argued for, but I wouldn't trust the IEA to actually be advocating for anyone apart from the rich people who fund them - and he suggested it was abolished, rather than increased.

Alaric
Lemon Half
Posts: 6035
Joined: November 5th, 2016, 9:05 am
Has thanked: 20 times
Been thanked: 1401 times

Re: Could the Lifetime Pension Allowance be Abolished?

#441680

Postby Alaric » September 12th, 2021, 5:20 pm

Urbandreamer wrote:
I think that we should also all recognise that there are arguments both for and against it. It is without doubt true that even modest earners (standard rate tax payers) can hit the current limit. All that is needed is sufficient surplus income to contribute and significant compounding over a long life.


The other route is to be a reasonably high earner in an employment with a defined benefit scheme. They are protected to an extent by the 20 times multiplier understanding the value of their benefits, but even so, there are stories of shortages of experienced staff because of the tax avoiding incentives given to such individuals to avoid overtime, cut their working hours or even to retire early.

AWOL
Lemon Slice
Posts: 563
Joined: October 20th, 2020, 5:08 pm
Has thanked: 366 times
Been thanked: 277 times

Re: Could the Lifetime Pension Allowance be Abolished?

#441690

Postby AWOL » September 12th, 2021, 5:55 pm

AsleepInYorkshire wrote:Pensions: Boris Johnson and Rishi Sunak told to abolish lifetime allowance

The threshold from which you start paying tax is currently at £1,073,100. Chancellor of the Exchequer Rishi Sunak announced in March that the threshold will be frozen until 2026, meaning many people could be dragged into the tax net.

AiY


The experts ideas about abolishing the tax free lump sum and higher rate relief suggest that they don't really get how pensions work at all. They are what the American's call "deferred tax accounts" and the incentives on them are there to encourage people to provide for themselves rather than waiting until old age and relying on benefits such as Pension Credits. Removing the tax free lump sum would be difficult as it is written into the terms of many final salary pensions and as it has a significant impact on people's retirement wealth removing it for people that are close to retirement would likely be challenged in the courts by campaign groups, pension funds, and trade unions. At the very least the government would be sensible to have a long consultation followed by a notice period to enable people to adapt. This means that the government that made the change would see little of the benefits.

I think the real problem is that it would reduce pension saving. There are already people who choose not to have pensions in order to benefit from pensions credit (my brother in law for one has this as his plan although he hasn't even researched which benefits he will get but is working on a spend everything so I will get maximum support from the state strategy, with a wealth tax lurking in the shadows he may have the last laugh!).

A number of people I know didn't bother about pensions until they started paying 40% tax and then they were suddenly very enthusiastic. The people I have in mind work in the charitable sector and are Guardian readers rather than Telegraph reading bankers. I think the 40% relief is a good thing. Another issue with removing it is that it may make the playing field even more uneven in comparison with Final Salary schemes in the public sector but this depends on exactly how it's done.

Personally now that I am only entitled to save £3600 into a pension a year if a flat relief was higher than the basic rate then I'd get a nice wee boost but I don't think it's the right thing even if it benefits me.

To return to the original article.... I don't think this opinion will influence Sunak at all!

UncleEbenezer
The full Lemon
Posts: 10692
Joined: November 4th, 2016, 8:17 pm
Has thanked: 1459 times
Been thanked: 2965 times

Re: Could the Lifetime Pension Allowance be Abolished?

#441691

Postby UncleEbenezer » September 12th, 2021, 6:00 pm

Boots wrote:It certainly seems odd in the extreme that we have moved in the space of about 20 years from a position where people were being encouraged to make better pension provision, to having three simultaneous contribution limits. We have Current Year Taxable Earned Income & £40k p.a. & Lifetime Allowance.

It looks like a move away from the Thatcher-era idea of providing our own pensions, back towards the post-war socialist idea that the state provides all. My recollection from the Thatcher era was a declared intention to allow the state pension very gradually to lose its importance and decline as a proportion of national wealth, as future generations made our own provision.

Bear in mind that during the time the LTA has got ever more onerous, the basic state pension has also risen a lot and an economically-nonsensical triple-lock was introduced. One more aspect of the return of socialist Britain.

Oh, and in my view, the LTA makes a lot more sense than annual contribution limits that just serve to penalise anyone with a lumpy income. I wonder if feminists could be persuaded to take that up, on the grounds that a lumpy lifetime income may be associated with childcare responsibilities?

ursaminortaur
Lemon Half
Posts: 6945
Joined: November 4th, 2016, 3:26 pm
Has thanked: 449 times
Been thanked: 1718 times

Re: Could the Lifetime Pension Allowance be Abolished?

#441694

Postby ursaminortaur » September 12th, 2021, 6:19 pm

UncleEbenezer wrote:
Boots wrote:It certainly seems odd in the extreme that we have moved in the space of about 20 years from a position where people were being encouraged to make better pension provision, to having three simultaneous contribution limits. We have Current Year Taxable Earned Income & £40k p.a. & Lifetime Allowance.

It looks like a move away from the Thatcher-era idea of providing our own pensions, back towards the post-war socialist idea that the state provides all. My recollection from the Thatcher era was a declared intention to allow the state pension very gradually to lose its importance and decline as a proportion of national wealth, as future generations made our own provision.

Bear in mind that during the time the LTA has got ever more onerous, the basic state pension has also risen a lot and an economically-nonsensical triple-lock was introduced. One more aspect of the return of socialist Britain.


The trouble with allowing the state pension to wither away was that it was/is in many cases the only pension that people had.
Even today with NEST, which was only introduced fairly recently, there is no compulsion to save into a pension - you can opt-out. And for low earners even if they save into a pension such as NEST the eventual pension built up is likely to be pretty meagre.

The nearest to a compulsory pension is the state pension as you are forced to pay NICs when in employment. If the state pension isn't enough to live on then you end up with the government having to supplement it with pension credits or other benefits. The 75p rise was the final straw and led to the introduction of the minimum 2.5% rises and then eventually to the restoration of a link with earnings via the triple lock.

scrumpyjack
Lemon Quarter
Posts: 4817
Joined: November 4th, 2016, 10:15 am
Has thanked: 606 times
Been thanked: 2676 times

Re: Could the Lifetime Pension Allowance be Abolished?

#441699

Postby scrumpyjack » September 12th, 2021, 6:38 pm

I think it would have been better to have contribution limits and no LTA. The lumpy income problem can be dealt with by allowing carry forward/back in determining the maximum contribution. The governments main concern seems to be the 'tax cost' of contributions, not the ultimate size of the pot.

The state has an interest in encouraging people to make provision for their pensions but only to the extent that they don't become a burden on the state, not to the extent that they have a pension that makes them a higher rate tax payer. The claim that tax relief is only tax deferral would be true if there were no tax free lump sum. The TFLS only needs to be large enough to encourage pension savings, not 25% of an unlimited pension pot.

The major problem is ensuring fairness between DB and DC pensions, whilst not deterring DB people from working. The true market value of an index linked DB pension is a lot more than the 20 multiplier used by HMRC so that is an inequity.

The other factor to take into account is ISAs. They are another form of tax advantaged savings so their existence needs to be taken onto account in deciding how much people need incentivising to save for their pension.

XFool
The full Lemon
Posts: 12636
Joined: November 8th, 2016, 7:21 pm
Been thanked: 2608 times

Re: Could the Lifetime Pension Allowance be Abolished?

#441700

Postby XFool » September 12th, 2021, 6:40 pm

UncleEbenezer wrote:
Boots wrote:It certainly seems odd in the extreme that we have moved in the space of about 20 years from a position where people were being encouraged to make better pension provision, to having three simultaneous contribution limits. We have Current Year Taxable Earned Income & £40k p.a. & Lifetime Allowance.

It looks like a move away from the Thatcher-era idea of providing our own pensions, back towards the post-war socialist idea that the state provides all. My recollection from the Thatcher era was a declared intention to allow the state pension very gradually to lose its importance and decline as a proportion of national wealth, as future generations made our own provision.

Yeah... No possible problems with that eh? :roll:

Mind you, mentioning "the Thatcher-era" and "pensions" in the same breath might well be on track - even if not intended as such!

XFool
The full Lemon
Posts: 12636
Joined: November 8th, 2016, 7:21 pm
Been thanked: 2608 times

Re: Could the Lifetime Pension Allowance be Abolished?

#441704

Postby XFool » September 12th, 2021, 6:51 pm

ursaminortaur wrote:The 75p rise was the final straw and led to the introduction of the minimum 2.5% rises and then eventually to the restoration of a link with earnings via the triple lock.

I remember that!

It was all Gordon Brown's fault, wasn't it? Well, he was 'in charge of the SP increase', wasn't he? :?

Who said politics has nothing to do with pensions? (Perhaps in the UK that IS the problem?)

Also, from the time, I remember how - given the existing system of SP 'increases' (Mrs. T!) - the best real actual numerical outcome for pensioners would be to have a 0p (Zero %) 'increase' in the SP! But personally I wouldn't have volunteered to try and sell that one to the electorate* - Gordon didn't even try. :lol:


* "A man's got to know his limitations" - C. Eastwood

Urbandreamer
Lemon Quarter
Posts: 3122
Joined: December 7th, 2016, 9:09 pm
Has thanked: 347 times
Been thanked: 1025 times

Re: Could the Lifetime Pension Allowance be Abolished?

#441710

Postby Urbandreamer » September 12th, 2021, 7:08 pm

Alaric wrote:They are protected to an extent by the 20 times multiplier understanding the value of their benefits, but even so, there are stories of shortages of experienced staff because of the tax avoiding incentives given to such individuals to avoid overtime, cut their working hours or even to retire early.


I have to confess that my wife is a Tax accountant. As such the aspect of those with a vocation to help people being forced to retire is not unknown. There is actually a PENALTY for working in the NHS beyond a certain point. Likewise we use to claim "working family tax credit". I had to avoid overtime because of the complications inherent in earning more money!

Of course there is now an "Office of tax simplification". Then again, since it's introduction I can only think that tax has got more complicated.

Ps ideologically I am opposed to tax. I'm quite happy if those who earn more than me get to keep it. I shall be taking advantage of pension rules to pass wealth (if it's left) down to my children and see nothing wrong with trying to do best for my children. If others feel that I should not be allowed to do so I would ask that they question their values.

ayshfm1
Lemon Slice
Posts: 290
Joined: November 5th, 2016, 9:43 am
Has thanked: 1 time
Been thanked: 154 times

Re: Could the Lifetime Pension Allowance be Abolished?

#441730

Postby ayshfm1 » September 12th, 2021, 9:43 pm

I was surprised it was frozen, I expected it to be abolished, probably along with reduction to 30K limit on what could be invested in a year.

Why?

It is too easy to get to 1 million + 70K at 55 (57 is even easier) and the tax treatment is so shocking it near mandates anyone who does mange it, to retire. These people are the one paying lots of taxes, it's akin to killing the golden geese.

Force transition high earners into retirement. Brilliant plan! The LTA made sense historically, today it looks lethal.

AsleepInYorkshire
Lemon Half
Posts: 7383
Joined: February 7th, 2017, 9:36 pm
Has thanked: 10514 times
Been thanked: 4659 times

Re: Could the Lifetime Pension Allowance be Abolished?

#441732

Postby AsleepInYorkshire » September 12th, 2021, 9:52 pm

If the UK government were really shrewd they'd offer better tax incentives for those investing their pensions in UK stocks and shares?

AiY


Return to “Retirement Investing (inc FIRE)”

Who is online

Users browsing this forum: terminal7 and 13 guests