Pensions and the budget

[BasketOfBubbles]

I am due to retire on 1st November ie a couple of days after the Budget. I have put-in for a 25% lump sum. The paperwork is going through.

I'm now panicking that the tax rules might be changed with immediate effect on October Budget day and I'll be screwed.

That couldn't happen could it? We'd need a bit of notice??

All sorts of reasons @Floofydawg . Pensions are taxable income vs drawing on other assets. Unknown future investment returns mean most people draw down less than they need to. People don’t know when they will die. If your assets will be over £500k when you die it made sense to have the excess IHT free….

That is exactly the same as any other inheritance outside of a pension. The money will be taxed as income on the way in, then taxed as inheritance. It is no more double taxation than regular IHT

100% agree

Pension underspend is actually an issue: people either hold on to their pots and don't spend enough on themselves because they don't want to run down the capital, or people of course die in early retirement.

The first case is quite difficult to manage because you don't want a 'wahey, take out your pot and spend it all on a cruise in your first month of retirement' message or attitude to get out there.

The first case is quite difficult to manage because you don't want a 'wahey, take out your pot and spend it all on a cruise in your first month of retirement' message or attitude to get out there.

Otherwise known as the Steve Webb Lamborghini messagjng

So what is the benefit to locking your money away for decades, especially for a basic rate taxpayer?

With thresholds frozen for years we will all eventually be higher rate tax payers.

Do you understand what a pension is for?

You are asking the wrong question.

It should be: What is the best way to provide me with an income when I stop working and has the flexibility to take changing circumstances over a long period into account?

I am afraid that the answer is no longer pensions, at least not exclusively.

Agreed. And the reality is that it will be rare for a person to have timed their pension to such perfection that it runs out exactly when they die. It is very common for people to die unexpectedly leaving their pension unused.

I'm sure you're right, I have not doubt tax advisers are providing adjusted advice on what to do now for those who did use the pension as a way to pass it down

A pension is for you to live on whilst not able to work, generally due to age or ill health. It's not a savings scheme for your descendents.

I said to my Ds , looks like you won't get as much when we die.
His comment was " That's not a problem. I didn't earn the money or your pension pot.
It is there for you to enjoy life after years or hard work".
Got to admit that made me feel proud.

Trouble is that successive governments (of BOTH colours) made pensions into that by forever changing the rules and actively bringing in changes/exemptions that made pensions into a "savings scheme" as an option for IHT planning.

It's not the people using it as such who are the problem, it's the incompetent/incoherent politicians who've embraced "tax planning" into legislation for a few decades.

Look at Brown - he changed the pension rules, he brought in tax-free ISA, he reduced basic rate income tax, etc etc. He, too, was a tax saving Chancellor.

Both colours of politician have brought in all kinds of tax incentives such as venture capital trusts, enterprise investment schemes, bonded warehouses, enterprise parks, Freeports, film partnership tax relief, etc. They've actively brought in new IHT and CGT exemptions and reliefs. All of these "drive" behaviour.

So you really can't blame people for using pensions as a IHT planning tool, as the politicians have expressly brought in exemptions and reliefs for them to do just that!

Most tax planning isn't using "loopholes", it's using schemes specifically brought in by politicians to encourage certain behaviours. Of course, those same politicians cry foul when these schemes are used in a way they didn't expect, but they've only themselves to blame for that!!

The thing with pensions is, once you‘ve put your money in, that’s it until you reach the minimum age.

As advisers we are looking for the best solution to a problem. When a pension is no longer the best solution to our clients‘ problems, we will of course recommend something else. With pensions we can‘t unwind what we have done already even when the goal posts get moved. Again and again.