Pensions - take 25% now, before Labour can tax it?

[missinglalaland]

I can see Labour are preparing the ground for tax rises. With promises not to raise income tax or national insurance, I think they will have to come after pensions.

My DH is 55, and still working with no plans to retire. He has not saved enough to hit the maximum tax free ceiling on a lump sum.

Should he take out 25% of what he dies have and crystalise that pot? Bung the money in ISA’s and against the mortgage, and keep saving into his pension?

Idea is to do it now before the October budget, when the tax free lump sum could disappear.

I cannot see any downside. What might I be missing?

Check whether it affects how much he can pay into pensions in future.

Here's the info. So you need to be careful how you take it out. www.which.co.uk/money/pensions-and-retirement/personal-pensions/contributing-to-a-private-pension-explained/how-the-pensions-annual-allowance-works-aLVQc5R7PEnC#what-is-the-money-purchase-annual-allowance-in-202425

I will be preparing to take mine in the near future. I think there will need to be notice given before they stop it. Possible wait for the next big rise in the market.

From what I understand it wouldn’t happen for a while.

I don’t think they will stop that to be honest. More likely to include pension funds in inheritance tax calculations and limit tax reliefs.

We are pensioners that have a few different pensions scattered about. We are currently trying to take our 25%s out. All I can say it takes ages so start early.

Why don’t you consolidate them first?

We did do with a couple to reduce management charges but they are very different pensions and not having them all in one place gives us options. We hope not to take them all. I appreciate inheritance laws will probably change but at the moment you can pass tax free to your children. I am not saying I agree with it but if we can legally avoid inheritance tax we will.

I’ve worked in pensions for many years and I can’t think of a change like this that would impact entitlements already built up, such as a cash lump sum. It would be far far more likely that future pension saving would just not have any entitlement to a lump sum attached to it, if this was the route that Reeves chose to go down. There is other low hanging fruit in pensions to go after though

Or just keep reducing the overall cap

Downside I can see is that you have a pile of money, not invested, not inside a tax wrapper. So it loses to inflation, if you find a place to put it where you get interest that interest is taxed.

I would avoid taking action based on a WhatIf, speculation. Sure you may call it right but you could call it wrong. Could a Government make changes, yes, but I don't see that being done overnight, so there would be some period of time to make adjustments to a pre and post retirement planning.

I think you just need to be prepared rather than rush and take it out, something like this would be huge and there would surely be mention of it beforehand like they mentioned the VAT on private schools, anyone over 55 (57 in 2028) then would then have chance to do something.

I think it likely the government will change pensions tax relief (ignoring the warnings as to how difficult that will be in practice, particularly for defined benefit schemes which are now mostly in the public sector) and put pensions within inheritance tax.

They won’t do anything that affects entitlement already built up, eg current right to tax free cash, so I wouldn’t be crystallising my entitlement if I was over 55. They might reduce or limit tax free cash from future contributions, although abolishing it for future and reducing tax relief would potentially make pensions less attractive than currently compared to ISAs so may disincentivise saving for retirement.

Higher rate taxpayers may want to consider bringing forward planned contributions to gain full tax relief.

I agree with @SlipperyLizard most likely things for budget will be putting pensions within inheritance tax, and some unwieldy tinkering of the pensions tax relief.

Hopefully it takes time and they will be out in 4 years. They are taking a lot for granted and will pay for it.

I am 57, so 10 years to state pension. I wouldn't take the 25% at this stage due to the limit on how much you can pay in. If you have no intention of paying more than £10k in person year, you might want to?

You can carry on paying up to £60k in a pension after you've taking your tax-free lump sum. It's only if you then start drawing down as well that you're restricted to £10k.

I would have thought removjng the inheritance.tax exeption and reinstating the LTA would be more likely than a lump.sum tax. Possibly removing higher rate tax relief on contributions, or making it a flat 30% to increase the saving incentive for lower-rate taxpayers while slightly reducing the benefit to higher-rate ones.

But it's all guesswork, and as nannynick says you have at least as much chance.of.guessing wrong as right.

They’re not going to be able to do anything overnight with the tax relief on contributions. It would take months for businesses to make the necessary changes to payroll for net pay schemes and it would need a lot of anti-avoidance legislation around it as well.

I thought Labour were supposed to be socialists who looked after ordinary people but it seems not to be the case. It seems to be if you don’t work and you don’t save then you will be ok. Wonder what they will go after next? I bet they will remove the cap on inheritance to pay for social care and kids will be left with nothing when their parents pass away.

That’s been scrapped.

Well thank goodness for that. Unfortunately we are now stuck with them for the next 4 years and 11 months to do even more damage. Wonder if they will still be giving away £11.6bn of our money to other countries in ‘climate aid’. Meanwhile pensioners are being pushed into poverty and many won’t even be able to afford to put their heating on this winter. It’s wicked and shameful.

It definitely will affect how much he can pay into pensions in the future. Once you've taken some pension there is an annual amount you are restricted to on paying in more pension.

Technically, the proposed start date has been scrapped. The policy as a whole I think is being reviewed and some form of it may be reintroduced later.

@AuntieJoyce i think that’s why it hasn’t been done already, every budget there is speculation of a cut, and it sounds like an easy win, but when the reality of net pay schemes, salary sacrifice etc hits home it isn’t so simple.

Selfishly, I hope it takes a while as I was planning on deciding how much to contribute to my pension in March next year as my income is variable.

Theres no rational reason why pensions should be outside of inheritance tax, so I think that’s a likely change.