[Misc] Retirement

Mr Smggles · Mar 14, 2023

nicko31 said:
Some good news for the top 5% of earners. An extra cruise looks possible ...

Budget: Pensions to get boost as tax-free limit to rise

Persuading workers to work longer is part of plans to boost growth, but critics say very few will benefit.

www.bbc.co.uk

Whilst I am by no means a Tory, I can see the logic here. What's the point in working past the age of 55 if your pension is already full to the Lifetime Allowance and you'll be hit with tapering past £100k (which presumably you've been avoiding up until now by topping up your pension and bringing taxable earnings to below £100k). If you're earning over £100k then I'd suggest there is a good chance you're a pretty high skilled worker.

The policy will keep a high skilled worker plying their trade, earning their employer profits that are taxable via corporation tax, as well as continuing to pay more than £30k in personal taxes a year.

Weststander · Mar 14, 2023

Mr Smggles said:
Whilst I am by no means a Tory, I can see the logic here. What's the point in working past the age of 55 if your pension is already full to the Lifetime Allowance and you'll be hit with tapering past £100k (which presumably you've been avoiding up until now by topping up your pension and bringing taxable earnings to below £100k). If you're earning over £100k then I'd suggest there is a good chance you're a pretty high skilled worker.

The policy will keep a high skilled worker plying their trade, earning their employer profits that are taxable via corporation tax, as well as continuing to pay more than £30k in personal taxes a year.

Doctors and hospital consultants/surgeons are also affected by this. In recent years, in the press, saying that it caused them to leave the NHS very early.

Shropshire Seagull · Mar 14, 2023

papachris said:
They really don't live in the real world do they! They are talking about this will get people back to work. But with pension pots this size you are basically a millionaire. It's not ordinary people at all!

Getting £1m into a pension pot if you start young and make reasonable contributions for your [40 year] working life - with some good investment growth and maybe an employer contribution.

Whilst this new change may have and inheritance tax saving, anyone drawing it out [as a pensioner] will likely be paying more back in income tax during retirement.

nicko31 · Mar 14, 2023

Weststander said:
Doctors and hospital consultants/surgeons are also affected by this. In recent years, in the press, saying that it caused them to leave the NHS very early.

Seems like a pretty blunt tool to get doctors out of retirement. If the pot size does increase to £1.8m this is a pretty big tax giveaway for a lot of high earners

Infact, to be allowed to put in £60k in a year you'd need to be in the top 2% of earners

A mex eyecan · Mar 14, 2023

nicko31 said:
Seems like a pretty blunt tool to get doctors out of retirement. If the pot size does increase to £1.8m this is a pretty big tax giveaway for a lot of high earners

Infact, to be allowed to put in £60k in a year you'd need to be in the top 2% of earners

but don’t forget as they draw it they will be paying tax on it then ….

East Staffs Gull · Mar 14, 2023

I’m not convinced by the argument that loads of high earners retire early to avoid their pension exceeding the lifetime allowance. This could be a massive tax giveaway and not achieve the stated aim. In other words, tax cuts for higher earners under the guise of “assisting economic growth”.

East Staffs Gull · Mar 14, 2023

A mex eyecan said:
but don’t forget as they draw it they will be paying tax on it then ….

Apart from the 25% taken tax free.

nicko31 · Mar 14, 2023

A mex eyecan said:
but don’t forget as they draw it they will be paying tax on it then ….

And as things stand anything left over at death will be free of inheritance tax.

40% tax avoided but nothing like that will ever be repaid.

Don't get me wrong, folks need to be encouraged to pay into pensions, but this pretty generous to all but 98% of the earners

Doonhamer7 · Mar 14, 2023

It doesn’t take as much as you think to be in a £1million pot especially if you have any legacy final salary bits which are calculated at yearly x20. I know a number of my work colleagues who are earning good money (by that I mean a professional >£75k) but aren’t what I’d call rich at all who have issues with pension pot size and we were one of the first to shut our final salary scheme to existing members in c2005 (new members were shut out of DB in the late 90s). Add to this our pension mgt has been very good which has seen mine has grown considerably more than contributions (apart from last year).

ive met a lot of people putting 20+% into their pension from an earlyish age (early 40s) and it all starts to add up

Carlos BC · Mar 14, 2023

nicko31 said:
And as things stand anything left over at death will be free of inheritance tax.

40% tax avoided but nothing like that will ever be repaid.

Don't get me wrong, folks need to be encouraged to pay into pensions, but this pretty generous to all but 98% of the earners

Defined contributions pensions passed on at death are only free of tax if death occurs before age 75. If it happens after 75 then upon accessing the recipient will pay tax at their marginal rate.

Also, pensions are not normally part of someone's estate for inheritance tax purposes.

nicko31 · Mar 14, 2023

Carlos BC said:
Defined contributions pensions passed on at death are only free of tax if death occurs before age 75. If it happens after 75 then upon accessing the recipient will pay tax at their marginal rate.

Also, pensions are not normally part of someone's estate for inheritance tax purposes.

Exactly, pension pots fall outside estates and are not taxed upon your death. Just seems bizarre when no tax was levied on it in the first place.

Carlos BC · Mar 14, 2023

nicko31 said:
Exactly, pension pots fall outside estates and are not taxed upon your death. Just seems bizarre when no tax was levied on it in the first place.

The money will be taxed when the recipient of the pension starts drawing an income from it. Unless of course the original owner dies before they are aged 75 and I shouldn't imagine that idea will form part of many people's long term financial plan.

If you were to tax a pension at 40% through the IHT system then it is conceivable that a basic rate tax payer could receive tax relief at 20% upon paying into a pension only for it to be subject to 40% inheritance tax upon death. Particularly given current home values, the IHT threshold is £325k with another £175k residence nil rate band if passing on a property to a direct descendant.

A mex eyecan · Mar 14, 2023

nicko31 said:
Exactly, pension pots fall outside estates and are not taxed upon your death. Just seems bizarre when no tax was levied on it in the first place.

i thought they were only outside estates until such time as they were touched, or, the owner reaches 75 so it’s going to be taxed at some point

Weststander · Mar 14, 2023

nicko31 said:
Seems like a pretty blunt tool to get doctors out of retirement. If the pot size does increase to £1.8m this is a pretty big tax giveaway for a lot of high earners

Infact, to be allowed to put in £60k in a year you'd need to be in the top 2% of earners

Medics have been relentless on TV/radio/press in plugging this for 3 or 4 years, with the entire press on their side. A hardship case.

I know exactly where you're coming from, the lifetime limit was heavily cut by several governments for a very good reason.

To counter this I think we should:
1. Limit pension relief to basic rate for everyone.
2. At present vast pension plans such as doctors fall outside an IHT estate on death, up to age 75. Passed on tax free. Why?

nicko31 · Mar 14, 2023

Weststander said:
Medics have been relentless on TV/radio/press in plugging this for 3 or 4 years, with the entire press on their side. A hardship case.

I know exactly where you're coming from, the lifetime limit was heavily cut by several governments for a very good reason.

To counter this I think we should:
1. Limit pension relief to basic rate for everyone.
2. At present vast pension plans such as doctors fall outside an IHT estate on death, up to age 75. Passing on tax free. Why?

Maybe standard rate relief on the way in, tax free on the way out. They do something similar in Australia

Pension pots outside of IHT at death seems ridiculous, the money was never taxed at all. If Labour win they need to get rid of this, with pension freedoms a lot of people are not taking annuities and passing away with significant pots.

The country is broke, tax the dead more

Weststander · Mar 14, 2023

nicko31 said:
Maybe standard rate relief on the way in, tax free on the way out. They do something similar in Australia

Pension pots outside of IHT at death seems ridiculous, the money was never taxed at all. If Labour win they need to get rid of this, with pension freedoms a lot of people are not taking annuities and passing away with significant pots.

The country is broke, tax the dead more

It’s far worse than that (or better if you’re a wealthy doctor, footballer, TV presenter or executive).

They receive 45% immediate tax relief as pension contributions are paid, one way or another.

So, assuming just for this purpose there’s no investment growth (which does not negate the point), 30 years x £40,000 in contributions = £1.2m, only costs the individual a net £660,000 in cash terms, the public purse either directly to the pot or by immediately reducing their annual tax bill picking up the £540,000.

To summarise, the IHT free pot of up to £1.8m if these plans go ahead, includes a vast sum of tax relief gifted by the state to the wealthy individual.

sparkie · Mar 14, 2023

East Staffs Gull said:
Apart from the 25% taken tax free.

Can't wait for this tbh. Not long now.

Arkwright · Mar 14, 2023

I'm going to talk to the bank but always good to get advice.
Looking at trying to save about £750 pm (paid off mortgage) is it best to stick in an ISA or put in my pension?
I've got a draw down pension but reluctant to pay too much tax pa. I'm 59 and wanting to go part time in two years or so.
Any advice is welcome before I speak to the bank.

sparkie · Mar 14, 2023

Arkwright said:
I'm going to talk to the bank but always good to get advice.
Looking at trying to save about £750 pm (paid off mortgage) is it best to stick in an ISA or put in my pension?
I've got a draw down pension but reluctant to pay too much tax pa. I'm 59 and wanting to go part time in two years or so.
Any advice is welcome before I speak to the bank.

Probably best wait to see what Mr Hunt says tomorrow.

Weststander · Mar 14, 2023

Arkwright said:
I'm going to talk to the bank but always good to get advice.
Looking at trying to save about £750 pm (paid off mortgage) is it best to stick in an ISA or put in my pension?
I've got a draw down pension but reluctant to pay too much tax pa. I'm 59 and wanting to go part time in two years or so.
Any advice is welcome before I speak to the bank.

Pension plan will give you immediate tax relief, assuming you’re an employed basic rate taxpayer, so if you pay £750 into a plan the government will immediately pay £187.50 into it too. A no brainer. The one negative, when you come to draw it other than the 25% tax free lump sum, further drawdowns will be taxed at your marginal rate at the time. ISA’s are 100% tax free.

Separately, with either, choice of funds depends on your view of risk and when you’ll need to draw on the money. Risk averse, stick to cash funds or a cash ISA. With high inflation your fund value will effectively devalue in real terms.

Willing to take some risk and give it at least 5 years, invest in funds or similar, following expert advice unless you are confident in your own research abilities. This applies to pensions or stocks and shares ISA’s.

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[Misc] Retirement

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