Planned tax raid on private pensions by the government

I agree with you that people who earn more should pay more tax - I just think there are some very weird and unfair pinch points at certain income levels at the moment. Cliff-edges never make good policy.

I don’t understand why they bothered taking the personal allowance away - just keep it and adjust the tax rates accordingly.

Also what’s the average rate of tax for lower earners whilst we are at it? A lot higher than 20% with not such a generous PA.

62% marginal. Where?

Thank you for that clarification. You don't pay 62% on your whole income though, do you?

In principle I don't see why people who earn above 100K shouldn't pay substantial amounts of tax. There are a good few countries in Europe where the top tax rate is higher than the UK.

Yes I agree. I think often public sector workers don’t realize the huge value of their pensions.

tbf - the average nurse wouldn’t now have a pension pot worth £1.5m but the old scheme was very generous

It’s funny. I’m actually pleased they’re doing it. The Tories were terrified to piss off the pensioners incase they lost their vote but were also terrified at causing unrest by taking too many benefits away from those most in need. This lot are just ‘to fuck with you all’ 🤣

It is, but you start losing your personal allowance once you get to £100k. So for every £1 you earn in the band the PP quoted, you only keep 38p, making an effective tax rate of 62%.

You can be even worse off in that band if you have children in childcare as you lose the free hours and tax-free childcare (I believe) So effectively you could be worse off earning £120k than £99k.

I thought the top rate of income tax was less than that.

https://www.gov.uk/income-tax-rates

The people you are talking about are paying way and above their fair share of tax for themselves and everyone else. It’s an incentive for them to save and help the government investment pot: alongside huge marginal tax rates. You’re looking at the wrong people and you’ve been blinded by the jealousy of those who earn a good salary. Common in the UK it appears. Many who will now have less wealth than those sitting on housing pots and final salary pensions.

@ilovesooty what do you think about people paying 62% tax within that £100k to £125k band? Because at that percentage it’s not really surprising that people are trying to avoid it. Do you think that’s a reasonable tax rate for anyone to be paying?

No I don't suppose it will, but I'm sick of seeing people finding ways to avoid paying the tax they owe.

Do it now! There's a massive push by thousands of folk all doing the same. The pension providers are overwhelmed. They are taking anything up to three months to process! What the effect of a mass reduction of value in these funds will be, who knows. DH has been trying to get his meagre 25% from an old job in the NHS out if the fund. They are not being efficient or timely. Everything needs to be paper copies, certified by a lawyer, and sent by snail mail.

Thanks. I wasn't aware that the withholding tax had been scrapped. That certainly makes dividend shares more attractive within an ISA or SIPP.

Indeed.

Perhaps public sector pensions should be valued at fair market rates? When the average nurse realises that their pension is worth £1.5+ million on the open market, and is taxed accordingly, we might see some sanity.

The implications of this for not especially well renumerated public sector workers in particular make me think it'll probably be tinkering round the sides. Maybe reduce the amount that can be withdrawn tax free from 25% to lower. Perhaps stop people from being able to pass the pension tax free if unclaimed, even if just above a certain age.

They aren’t.

Why that emoji?

Tax relief is a way to incentivise pension saving

There is a hilarious amount of wrong info on this thread - as a pp said above much of it easily checked in seconds.

I think they are just stopping some tax relief currently available for contributing to a private pension. 🤷‍♀️

The change to be made though is to reduce your salary and pay more to junior doctors. I thought the limit in annual pension contributions is £40k? That’s a crazy amount for the state (and your 12.5% which is chicken feed btw. Try getting the same benefits from a DC scheme). You go into the career knowing that the pension is good, but if it’s so good it breaks the tax rules, the level of your pension needs to be reduced.

Also many of these people will be horrified when they realize that they (as public sector workers) are the ones who are going to be taxed as they are the ones with the relatively huge pension pots. We can see how keen they are that the “rich” should pay more tax when they realise that’s them.

I'm sceptical that making tax reliefs less generous is a good idea, unless and until it goes along with tackling our cliff edges and bottlenecks. At present, it's quite common for people to deal with those by paying more into their pensions, rather than by working less. This is a good thing, because we it means we still get the benefit of these people's labour. If we remove the option to keep working and being paid the same but putting more into a pension, that means some of the people who do that now are likely to work less instead.

You get 25% of your pension draw down tax free. Which you can either take as a tax free lump sum, or apply to regular draw down income.

So: you get your tax back when you pay into a pension,
That sum grows (hopefully)
You are taxed on only 75% of what you take back out.

So a net gain.

Im not going to write out here what you can find in 30 seconds on Google but you are not correct.

If public sector workers have to pay tax on money going into their pension (when they won’t get the money in the pension funds for years) they will be worse off. Many will stop paying into pensions in return.