The Lemon Fool

Hi all,

In today's Torygraph (Business, Front Page, Ryan Bourne (R Evan Scharf Chair for the Public Understanding of Economics at the Cato Institute) was disscussing Sajid Javid's new replacement Rishi Sunak. The bulk of the piece was a very thorough logical destruction of a flat pension-tax-relief policy. What he then proposed was the most overt criticism of the TFLS that I recall reading.

"Rather than all this absurdity, why not focus on the aspect of pensions taxation that defies economic reasoning? The current 25pc tax-free pension lump sum at retirement has no logical basis, given the whole point of pensions is to obtain a regular retirement income stream"

I'm already 1/3 through my TFLS release. I was going to defer until the remainder until the new tax-year - now I'm thinking I may just do it all ASAP

Regards

Pheid

https://www.telegraph.co.uk/business/20 ... forgotten/

Pheidippides wrote:The current 25pc tax-free pension lump sum at retirement has no logical basis, given the whole point of pensions is to obtain a regular retirement income stream"

It's a benefit at retirement. What's wrong with that?

Employment related retirement provision goes back a hundred years or more. I think those employed by the Government have always been entitled to a lump sum as well as an income for life. So why not allow it for all employers?

I shot this bolt a little while back within days of my 55th birthday.

I thought then the likely outcome was that the 25% TFLS would be capped, to a figure that sounds like a lot to the man in the street - anything above that "must be a rich person who ought to pay more for the NHS".
Wouldn't surprise me if this was capped at £25k or so. Cue howls from people who were banking on it to pay off their mortgage.
Pension rules and tax have long been incomprehensible, and logic seems to have little sway in the whole mess

Ryan is clearly a HRT payer. He starts arguing that pensions need an incentive over ISAs, then ends proposing to remove the only incentive a BRT payer has to use a pension.

If you want to help with tax smoothing for those with variable incomes, you could do it with a HRT allowance that could be carried forward a few years, much like pension limits can be.

But the fairest thing would be give people a pension boost allowance, say £4k a year starting at 18, index linked and never expiring payable as £1 for every £4 put in. People could use it up during their career, and no-one could get more than 4*50=£200k of bonus. That would roughly equate to the £1m LTA level thought fair at present, and remove the horrid complexity of lifetime and annual allowances.

JohnB wrote:Ryan is clearly a HRT payer. He starts arguing that pensions need an incentive over ISAs, then ends proposing to remove the only incentive a BRT payer has to use a pension.

If you want to help with tax smoothing for those with variable incomes, you could do it with a HRT allowance that could be carried forward a few years, much like pension limits can be.

But the fairest thing would be give people a pension boost allowance, say £4k a year starting at 18, index linked and never expiring payable as £1 for every £4 put in. People could use it up during their career, and no-one could get more than 4*50=£200k of bonus. That would roughly equate to the £1m LTA level thought fair at present, and remove the horrid complexity of lifetime and annual allowances.

JohnB,
please can you apply for employment at the Treasury.
they desperately need your clarity of thought
tuk020

A £25k capped lump sum would mean no BRT taxpayer would bother amassing more than £100k in their pension, they might as well put it in an ISA. And these people, not the HRT payers, are the ones the government most want to save, as they are most likely to fall back on the welfare state.

I reach 55 in 10 days, I have already sent the forms off to get my 25% TFLS as don't trust any government with pensions, particularly if you have a sizeable pension pot, it will be targeted somehow to boost the tax coffers, as 43% of the adult population pay no tax at all....

JohnB wrote:A £25k capped lump sum would mean no BRT taxpayer would bother amassing more than £100k in their pension, they might as well put it in an ISA. And these people, not the HRT payers, are the ones the government most want to save, as they are most likely to fall back on the welfare state.

again, this can either be looked at from a logical perspective, or from the political optics refracted through Treasury think.

SoBo65 wrote:I reach 55 in 10 days, I have already sent the forms off to get my 25% TFLS as don't trust any government with pensions, particularly if you have a sizeable pension pot, it will be targeted somehow to boost the tax coffers, as 43% of the adult population pay no tax at all....

I turned 55 in June 2018 and also took the 25% TFLS as soon as possible for the same reason that it appears to be a bit of 'low hanging fruit' for any Chancellor who needs a soft target to balance the books.

Incidentally, the HL customer service was, as usual, exemplary in facilitating this.

Gostevie

Pheidippides wrote:I'm already 1/3 through my TFLS release. I was going to defer until the remainder until the new tax-year - now I'm thinking I may just do it all ASAP.

My guess is that if/when this goes, it will ebb away slowly over time.

In fact, since the lifetime allowance is a de facto limit on the TFLS, you could argue that this process has already started. In 2011/12 the LTA stood at £1.8m, meaning a TFLS of £450k was achievable. By 2016/17 this had dropped to £1m, allowing a TFLS of £250k. Since then it has risen a bit, as the LTA rises with inflation, but today it stands at just over £263k, so not a huge amount above its 2016/17 value.

Rather than sweep it away in one go then, my guess is that the government will first restrict it to some arbitrary amount that is lower than the current limit set by the LTA, then whittle it away in successive years. Perhaps also with more 'protection regimes' for people who are already over the limits or who will accept the restrictions of protection, such as making no future pension contributions ever.

Could be wrong, of course. Governments of all stripes are not noted for their careful and considered thinking when it comes to pensions.

JohnB wrote:Ryan is clearly a HRT payer. He starts arguing that pensions need an incentive over ISAs, then ends proposing to remove the only incentive a BRT payer has to use a pension.

It's not the only incentive. If you retire before you reach state pension age, your pension uses the personal allowance, so that's £12,500 a year without paying tax. Even after the state pension starts, it doesn't use the full personal allowance, so there's still some income you get from it that can benefit from the initial tax relief.

EthicsGradient wrote:It's not the only incentive. If you retire before you reach state pension age, your pension uses the personal allowance, so that's £12,500 a year without paying tax. Even after the state pension starts, it doesn't use the full personal allowance, so there's still some income you get from it that can benefit from the initial tax relief.

Don't take the Tax Free Lump Sum and between 55 and normal pension age if you don't have other taxable income you can have £16666.66 per year from the pension without paying take using the Uncrystallised Funds Pension Lump Sums 25% is tax free, the balance being £12499.995 just under the allowance I think my sums are right.

kempiejon wrote:
Don't take the Tax Free Lump Sum and between 55 and normal pension age if you don't have other taxable income you can have £16666.66 per year from the pension without paying take using the Uncrystallised Funds Pension Lump Sums 25% is tax free, the balance being £12499.995 just under the allowance I think my sums are right.

Or take the TFLS, reinvest in an ISA and get the same outcome, even if you DO have any other taxable income

Regards

Pheid

I too took the max PCLS at 55 purely on the 'a bird in the hand...' principle, and bought a basket of ITs, taking the natural yield only, and Bed and ISA the max every year.

Nobody knows what future Governments will do, but we can probably safely assume they won't improve on this one aspect of pension legislation so why wait?

One problem any government has with pension changes is how to avoid cliff-edges. Changes like state pensions or annual allowances.LTAs are done with changes going forward and transitional arrangements. The political storm over the rise in state pension age for women means retrospective tax grabs are much less likely, and TFLS falls into that.

Also while the government controls the TFLS rules for SIPPs, are the DC public and private pension lump sums a contractual issue between employer and employee. If so there will be a wave of strikes, and we've seen those already across a range of organisations over much more minor pension changes.

BTW, as the Telegraph article was not paywalled, I made the mistake of reading the comments. Its surprising how many Daily Mail readers also subscribe to the Telegraph.

JohnB wrote:....Its surprising how many Daily Mail readers also subscribe to the Telegraph.

It doesn't surprise me. Now if it were Guardian readers that might be different.

JohnB wrote:Its surprising how many Daily Mail readers also subscribe to the Telegraph.

Not really surprising at all, the DT editorial and reporting is fast converging with the Daily Wail on content and outlook.
Outraged opinion dressed up as news.
I am going to cancel my subscription, and switch to the FT