The proposed Pension workaround

[baggy1]

I don't disagree with the sentiment CC, however I do think that the government, being risk averse, wouldn't go down that route and instead give someone the option to do that. Imagine the press and faux outrage if they did that and the market crashed wiping out everyone's pension. And before you say that wouldn't happen based on the past 40 year trend, you have to consider if you would have considered a global pandemic at all possible a few years ago with all those ramifications.

[Protheroe]

And how are they means testing the State Pension by the back door?

Reeves' Budget has created a two-tier tax system where those who have their own savings have to pay tax on the State Pension, whereas those who rely on the State Pension don't. 

What this means is that people drawing an annuity (however small) will see their own annual retirement income reduced every year that the Triple Lock drives up the State Pension and increases their tax liability. The value of fixed annuity payments will continue to be eroded by inflation, and the income reduced by the new State Pension tax.

Once again - like last years IHT raid, Reeves has disincentivised pension savings. The vindictive Salary Sacrifice changes make things even worse.

Labour is literally driving people who understand the implications away from pension savings towards ISAs and Offshore Bonds. 

They're not just deluded, they're dangerous.

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I don't disagree with the sentiment CC, however I do think that the government, being risk averse, wouldn't go down that route and instead give someone the option to do that. Imagine the press and faux outrage if they did that and the market crashed wiping out everyone's pension. And before you say that wouldn't happen based on the past 40 year trend, you have to consider if you would have considered a global pandemic at all possible a few years ago with all those ramifications.

Auto enrolment has been missold for the vast majority of earners. Investment performance ought to be the least of the governments worries.

[baggy1]

I've got to say the bitterness in that post is quite unsurprising. There are so many inaccuracies in there that it does make me wonder when you might ever build in any balance to those posts.

The budget hasn't created any two tier tax system at all. What has happened is that the pension amount payable will rise above the frozen personal allowance causing it to be taxable. As the thresholds were frozen anyway this budget has not created the problem (a problem that people are getting more money and will have to pay tax on some of it).

Anybody that has any other income (not certain why you reference savings as it is only the interest on the savings that attracts tax) and the state pension pushes them above the PA is due to pay taxes - this has always been the case. Your reference to savings appears to indicate a means test situation, have i missed something or if you just mean interest on savings then see above.

State Pension tax - arf, that is right out of the Torygraph twist on pensioners getting more money. You appear to be complaining that people who are in receipt of the triple lock pension will be unhappy that they are now getting more which will mean they have a tax liability. They are getting extra income before any tax is due which has always been the case. The thought process of not taxing people if they only receive State Pension is daft and open to future claims of discrimination.

Last years IHT 'raid' will only impact those that have put money into pension pots to avoid IHT in the 1st place, the moaning is not coming from those that put money into pensions to protect themselves in old age by drawing said pension. And the 'vindictive' salary sacrifice scheme isn't as bad as painted - you will still get IT relief, it's just the NI that gets reduced, you can still pay as much as possible. I've said before I don't understand the £2k limit, I'd have gone for £12k but the vast majority of people won't be affected by that at all.

Like I've said, I'd increase the PA in line with the State Pension to avoid some of these problems but as BB points out that is unaffordable.

[CarlosCorbewrong]

I don't disagree with the sentiment CC, however I do think that the government, being risk averse, wouldn't go down that route and instead give someone the option to do that. Imagine the press and faux outrage if they did that and the market crashed wiping out everyone's pension. And before you say that wouldn't happen based on the past 40 year trend, you have to consider if you would have considered a global pandemic at all possible a few years ago with all those ramifications.

The global pandemic dip in stocks lasted less than 9 months before losses were recovered - those stocks are now worth almost double the Febriary 2020 price.

The GFC took 4ish years to recover.

That's precisely why BB is advocating risk in early years but steady Eddie in the last years. The ones who need their money tomorrow have low growth but capital is protected whereas those who have 40 years to ride out the volatility can benefit from the growth the stock market has consistently provided, longitudinally, for 80 odd years.

[baggy1]

I understand the process CC (I'm at the end of it) but my point is that the government are unlikely to make it a default position due to the risk, no matter how small. It makes sense to allow the individual to choose the level of risk and pot to go into but if the government gamble, and lose, then there will be litigation and class action AOTS. One thing that isn't being considered is the impact on the markets of a global war situation , which hopefully won't occur but the 80 odd years of consistent growth is comparable to the 100 odd years without a global pandemic (that would never happen either).

[Protheroe]

I've got to say the bitterness in that post is quite unsurprising. There are so many inaccuracies in there that it does make me wonder when you might ever build in any balance to those posts.

The budget hasn't created any two tier tax system at all. What has happened is that the pension amount payable will rise above the frozen personal allowance causing it to be taxable. As the thresholds were frozen anyway this budget has not created the problem (a problem that people are getting more money and will have to pay tax on some of it).

Anybody that has any other income (not certain why you reference savings as it is only the interest on the savings that attracts tax) and the state pension pushes them above the PA is due to pay taxes - this has always been the case. Your reference to savings appears to indicate a means test situation, have i missed something or if you just mean interest on savings then see above.

State Pension tax - arf, that is right out of the Torygraph twist on pensioners getting more money. You appear to be complaining that people who are in receipt of the triple lock pension will be unhappy that they are now getting more which will mean they have a tax liability. They are getting extra income before any tax is due which has always been the case. The thought process of not taxing people if they only receive State Pension is daft and open to future claims of discrimination.

Last years IHT 'raid' will only impact those that have put money into pension pots to avoid IHT in the 1st place, the moaning is not coming from those that put money into pensions to protect themselves in old age by drawing said pension. And the 'vindictive' salary sacrifice scheme isn't as bad as painted - you will still get IT relief, it's just the NI that gets reduced, you can still pay as much as possible. I've said before I don't understand the £2k limit, I'd have gone for £12k but the vast majority of people won't be affected by that at all.

Like I've said, I'd increase the PA in line with the State Pension to avoid some of these problems but as BB points out that is unaffordable.

There are none so blind. 

There is now de facto - a two tier taxation system for pensioner households. There is no debate about that.

When I refer to savings I'm referring to Retirement Savings (mostly Pensions) which are mostly drawn in annuities - those in the public sector will suffer from additional taxation the most as they have no choice but to draw a DB pension. I apologise if that wasn't clear.

The IHT raid could hit anyone with an average value home and undrawn pension savings as little as 50K - let alone any other assets or savings.

If you want to address the affordabilty of the State Pension then link it to inflation. The Triple Lock served a purpose, is anachronisitic and unaffordable. But no, Labour construct yet another distortion in the taxation system to disincentivise what they absolutely should be incentivising.

[CarlosCorbewrong]

I understand the process CC (I'm at the end of it) but my point is that the government are unlikely to make it a default position due to the risk, no matter how small. It makes sense to allow the individual to choose the level of risk and pot to go into but if the government gamble, and lose, then there will be litigation and class action AOTS. One thing that isn't being considered is the impact on the markets of a global war situation , which hopefully won't occur but the 80 odd years of consistent growth is comparable to the 100 odd years without a global pandemic (that would never happen either).

We have more to worry about than our pension funds if global war breaks out. That’s literally my thinking on it all. 

I think a government should be more ambitious with their ability to affect the future. Other governments think the same and skandi countries have consciously and sustainably taken those risks, for great gain too. Some would say it’s neglectful not to. You and I have vastly different opinions on government ambition/risk taking.

[baggy1]

There isn't a de facto two tier taxation system as nothing has been proposed or legislated for. Reeves has suggested something but that has turned into anything 'de facto'.

Got ya - with retirement savings / pots this has always been the case, the fact that the state pension gives more money now which puts them over the PA hasn't changed anything apart from them having more money due to the triple lock. Having more money isn't a punishment, pensioners always have had the same PA as everyone, nothing has change there.

And yes the IHT raid could hit anyone but you need to have a balanced approach - generally a house would belong to two people who would also have the extra IHT allowance from being married, you don't need to highlight the limited worst case scenario to get a point across. The average house price (£270k) and the average pension pot at retirement (£300k) would take you just over the £500k if you are passing it onto your kids. If you happen to spend any of that pension pot on, lets say, your retirement then it will soon get under that threshold. The main thing with a pension pot is that you are incentivised to put into it to provide yourself with an income, not to put into it as a vehicle to pass money tax free onto your kids.

Agreed on the last paragraph.

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I understand the process CC (I'm at the end of it) but my point is that the government are unlikely to make it a default position due to the risk, no matter how small. It makes sense to allow the individual to choose the level of risk and pot to go into but if the government gamble, and lose, then there will be litigation and class action AOTS. One thing that isn't being considered is the impact on the markets of a global war situation , which hopefully won't occur but the 80 odd years of consistent growth is comparable to the 100 odd years without a global pandemic (that would never happen either).

We have more to worry about than our pension funds if global war breaks out. That’s literally my thinking on it all. 

I think a government should be more ambitious with their ability to affect the future. Other governments think the same and skandi countries have consciously and sustainably taken those risks, for great gain too. Some would say it’s neglectful not to. You and I have vastly different opinions on government ambition/risk taking.

Agreed and we may have but I would put it slightly differently - I would allow the individual to choose their level of risk and not have the government decide for them. I guarantee that in todays world if something goes wrong those same people will be blaming the government for losing their money.

[Malcolm Tucker]

I don't see the need to invest in a higher risk funds if, as they are younger, they will have compound (safer) returns over a longer period. The higher risk returns are needed when you are near the end and your pot is short.

And with auto-enrolment is place then it is unlikely that the future pensioners will have just the State Pension and puts a limited time benefit on the PAYE proposal, as everyone will have more than one income and need to do a return in the future. Plus there is the added administration around that as there is with any PAYE system. Running a PAYE system for 20m pensioners would be a nightmare.

By focussing on the issue and not the reason you will get into a death loop - the focus needs to be on that dependant ratio and increasing those paying in as opposed to the ones taking out. Having said that though maybe Nigel really does have the solution by reducing the NHS it should stop supporting the elderly and hep them on their way earlier therefore reducing the pension bill.

I hope to god you’re not a financial advisor of any sort.

[baggy1]

I'm not Malc, but thanks for your input.