Another Idiotic NHS reform on Pensions

[SirGalahad]

https://www.bbc.co.uk/news/health-48903913

Either the people who think up these schemes are thick or they really do not give a damn.

When your marginal rate of tax shoots past 70% it makes more sense to not work than work.

So a Tory Government has incentivised people to work less - bloody socialists!!!

 

[motorbiking]

I'm in the same boat, the government expects me to save for my retirement but will tax me if I put more than £10k per year in.

 

[JohnD]

Is that because your income treated as "earnings" and subject to National Insurance is only £10,000?

Or is it because there are other contributions from another source, such as Employer's contributions of £30,000?

Or is it one of the other, less common, reasons, such as unusually high income or lifetime allowance already reached over a million?

in most of those cases the government doesn't "expect" you to get the tax advantages of saving even more into a pension, because it thinks you've already done well. It won't tax or penalise you for saving more into some other kind of scheme that doesn't have the tax benefits of a pension scheme. It's just trying to rein in the overly generous tax benefits that the very wealthy formerly used.

I'd be interested to know of a different reason that is unfair.

 

[motorbiking]

option 3.

https://www.pensionsadvisoryservice...pension/pensions-and-tax/the-annual-allowance

Its why I am now semi retired.

 

[SirGalahad]

option 3.

https://www.pensionsadvisoryservice...pension/pensions-and-tax/the-annual-allowance

Its why I am now semi retired.

It's silly - your only option is to work less or take income in other ways.

 

[JohnD]

you mean?

Or is it one of the other, less common, reasons, such as unusually high income or lifetime allowance already reached over a million?

In that case, the government doesn't "expect" you to put more into a scheme that has the tax advantages of pension contributions, it thinks you've already provided well enough not to need added incentives.

 

[JohnD]

AIUI, the problem with the NHS consultants is that their NHS pension scheme has not been designed to take account of the limitations that now apply. I don't know what proportion of NHS workers, as a whole, are caught in this net. I imagine it is small.

The current tax rules were intended to recognise that low-paid people often have insufficient resources for their retirement years, therefore they are given additional inducements and assistance to build up a fund so that they can live in tolerable conditions once retired (and so that they will not be a drain on the public purse in their old age). However these reasons do not apply to people who already have a much larger than normal pension fund (well over a £million) or who are in the top 1.2% of income tax payers. In both cases they are seemingly thought sufficiently well-off not to need additional tax benefits to encourage them to put something aside for their old age.

 

[motorbiking]

It doesn't buy you much when you look at index linked annuity. Not that I plan to do that.

 

[JohnD]

With the average person looking forward to a pension pot at retirement worth in the region of £140,000 there will not be much sympathy for the man who already has more than a million.

Do the prosperous need tax breaks to encourage them to tuck away even more?

 

[motorbiking]

Plenty of people with Defined benefits schemes, who have paid very little in and earn significantly less than those who've saved for their own, will have significantly higher pensions. Plenty in the public sector, funded, no doubt by those who don't have £100k in their pot.

I don't mind paying tax. I think its a clunky method. Why not assess the lifetime contributions and the total pot value at retirement. Not everyone has fixed income year after year, gradually growing from start to end. Some have good years and bad, those will pay a lot more tax on the pot than someone who's income was flatter.

 

[JohnD]

Some have good years and bad, those will pay a lot more tax on the pot than someone who's income was flatter.

You mean, if their income in the good years is, say, £150,000?

 

[motorbiking]

Should it matter how they have earned it over their working life? Compare their pension to say a head teacher on final salary of 120k with a 1/4 final salary scheme.

The person with the define contributions pot will have paid significantly more tax both in earnings and pension contributions and get a lower pension.

 

[JohnD]

The limitations on the highest-paid 1.2% of the population are quite recent, so I don't believe they will have applied to anybody throughout their working life. They will have been able to use Carry Forward and Carry Back to balance the good and bad years.

Once you hit the lifetime allowance of over a million pounds in your pot (or defined benefit equivalent) you can turn to other methods of saving for your old age and your beneficiaries.

The current tax benefits on pension contributions are intended to help the more typical working or non-working person, rather than the richest layer who until recently could game the system.

I haven't seen the calculations you describe, have you got a link of worked examples?

 

[motorbiking]

£1M will get you around £30k. taking it to extremes Someone earning say 220k per year (yes I get this is a lot) will be capped at about 10k a year tops, irrelevant of the value of their pot. So.. extrapolating it out.

rough numbers (not accounting for inflation etc):
Person A avg £220K - ~90k goes in tax and NI anyway - max untaxed pension contribution £10K
Person B avg £120K - 45k tax / NI

Person A ~ max untaxed pension pot after say 30 years roughly 500k at the end = <20K pension.
head teacher on £120k = £45K pension.

live for another 20 years:
A paid in tax: 2.7M
B paid in tax: 1.35M

A total net disposable over working life £3.9M
B total net disposable over working life £2.25M

For A to get the same pension as B, you can see despite being a higher earner, there is bugger all in it.

 

[JohnD]

£1M will get you around £30k. taking it to extremes

Or double that.

in your example the £220k person has been subject to the £10k cap for 30 years, which is not the case, it is a recent introduction.

Curiously, in your example, he went onto a starting salary of £220k. Must have joined his daddy's firm.