Planned tax raid on private pensions by the government

[Oldbean1965]

I have read a few articles about how the government plans to raid private pensions in their budgets in order to raise money. Of course it could all be stirring by the media.
How could they get their hands on our private pension money? We'll pay tax on it when we start receiving it anyway, which galls me as it's our savings. Why should you pay tax on money you've already been taxed on throughout your working life and saved?
I hate this government already, but the previous government were a shit show too 😡

You mean middle earners are getting stung again? Quelle suprise.

Sorry, it was just a general conversation about pensions. That person works abroad and is saving hard to retire by mid 50's.

I volunteered that I was working under the assumption that I'd need a bare minimum of £1 million to retire and was immediately corrected with "£1.3 million".

Interest rates were a lot lower at the time, so annuity rates were also much lower. If you're retiring now, it might be a good idea to lock in the current annuity rates before interest rates start to fall, but I'm not a financial advisor.

This thread has a lot of interesting points made by all political and non political sides. Why not contribute something more beneficial yourself than your tired one liner

When interest rates were at their lowest, £1.3 million would have provided around £30 to £35k a year as an annuity with some inflation protection built in.

It obviously does depend on what age you retire, as well as what kind of retirement you're aiming for. If they were planning to retire in their mid-fifties they would need much more than someone planning to retire mid-sixties.

If you've got a substantial pension like that, you probably want some of it as an index-linked annuity, and some of it taken as drawdown (ie just taking the money as you need it rather than buying an annuity which gives an income for life). Most people expect to spend more in early retirement, when they're still active and perhaps want to travel more.

You should definitely get financial advice to get the best outcome for your own circumstances.

Pensions are a massive tax break for the highest earners. Its a huge source of inequality in old age. We are happy to let children grow up in poverty and poorer pensioners freeze rather than tax some of the wealthiest people in society

Delaying tax by saving for a pension isn't a hand-out. The government isn't giving us anything.

People earn every penny of that money through the work they do, but they're spreading out when they take the income over their lifetime.

@echt are you blind? Did you not see my screenshots on my post?

The entitlement of some people to other people's money never ceases to amaze me.

Their starting position is that 100% of your earnings belong to me, via the state, and you're lucky that you're allowed to keep any of it.

Their starting position is that 100% of your earnings belong to me, via the state, and you're lucky that you're allowed to keep any of it.

t's so strange isn't it? You've absolutely hit the nail on the head that people see all our earnings as belonging to the state. As if we were slaves, and everything we do and create belongs to the state not to ourselves as autonomous human beings.

They genuinely don't see a difference between the state giving someone £x and the state not taking £x which someone has earned. Weird.

It depends - I expect to end up hugely advantaged by deferring the tax. I’m an additional rate tax payer now (prior to pension deductions). I pay 60k a year into my pension taking advantage of the 45% saving then I can get 25% tax free. The remaining amount when used as income in retirement is wildly unlikely to be enough to be taxed at even higher rate. So even without the 25% leakage I’m absolutely quids in.

There are loads of excellent arguments as to why this is a good policy but it not being a hand out is not one of them. You’re correct I’ve earned every penny but I am paying much less tax overall than if I was taxed on it as earnings now rather than when I’ve retired.

But why should you be taxed on the income at your marginal rate at the time you earn it rather than your marginal rate at the time you take it?

The whole concept of progressive taxation is pretty artificial, and arguably using the rate at the time you get the income is more consistent and fairer.

Not paying cgt on the amount your pension grows in the meantime is the only bit which I think you could argue is genuinely an extra advantage - and is the incentive the government is giving to encourage saving in order to reduce dependency on the state in old age.

How do you figure that? You do realise that without these investment funds: our economy collapses.

Exactly. They will gradually kill the goose that laid the golden egg.

I agree with you both. And I think Blair avoided doing this last time Labour were in power

Although other issues, boom and bust etc

@Cangar I expect to end up hugely advantaged by deferring the tax

You're not being advantaged, you're just being less gouged for tax than you would be if the government changed the system. A completely arbitrary, made-up system of tax and benefits.

You're still paying much, much more than the per-capita share of the cost of running the country (ie the shared cost of state-run services, including your risk of getting seriously ill/incapacitated/unemployed and needing benefits)

I'm fine with paying more than my share to cover helping-other-people. But only up to a certain point. And not if it's continuously increased under a narrative that me keeping my diminishing percentage is unfair and everything I earn and build through my own ability and work actually belongs to the state and to other people.

Oh, the 25% tax free is also inconsistent and simply an incentive. But as a pp has said, removing it would need to be phased over time since people have made plans which depend on it and it's not very fair to move the goalposts.

Worth bearing in mind though that withdrawing the tax free 25% if you don't have an immediate need is also foolish, as you are taking £268k from a completely tax sheltered envirnonment to a completely tax exposed one. If you have a use for the cash or actually need it to live on, then fair enough. And of course depending on your view of the risk that the government is going to move the goal posts!!

How is working for 40+ years, paying into a pension, paying tax, paying off a mortgage “wealth hoarding”?

It really is the politics of envy.

Everything flows from jealousy.

I sometimes wonder how many of my former classmates at the 'thick is cool' / 'working's for mugs' so-called Comprehensive that I attended are now moaning about how 'unfair' and 'unequal' things are.

My 25% was nothing like £268k! I took it out to pay for the front loaded expenditure of retirement. There’s a limited time window for long haul travel and adventure, if you want to do it you need to be relatively fit and healthy so the money’s put to best use in the first years of retirement. Of course some of us don’t see tax as robbery.

Many of us can’t afford to take out a lump sum as it would leave not enough for ongoing payments to live on.

Especially now WFA is due to be abolished.

Most people don't have anywhere near £268k to take out as tax free, average is more likely about £50-£100k

Oh yes, if you have a use for it then it makes sense to take it. But for some (many?) it might not be the right thing to do.

Though, I think my parents, who are almost 80, might take exception to your comment that there is a limited window for long haul travel. They are still going, and have been retired for almost 30 years now 😂

Oh yes of course, I am sure that's right. But, if you can take £50k or £100k out of a tax free environment but have no need for it other that to stick it somewhere to generate income it might not be the smartest move.

At lower pension levels, taking the 25% with drawdown effectively means you can take out nearly £17k a year tax free (£16,760, of which 25% - £4,190 - is tax free and the remaining £12,570 uses up your personal allowance) So whether you have a large pension fund or a small one, sensible tax plannnig is important