Increase to the LTA

[Nowisthesummerofourdiscontent]

It is widely reported today that Jeremy Hunt is considering increasing the LTA. I suspect he’s testing voter reaction but I’d be surprised if he doesn’t go through with it due to the labour force gains and increased tax take (as higher earners will continue to pay tax and add to their pension pot). An exodus of highly skilled over 50s from the job market follows the law of unintended consequences. Who is with me thinking this is welcome news?

I also think there is a problem sending the message that £1m is an excessive size for a pension. It equates to an income of £40k pa, which is enough to live comfortably on (more or less so depending on where you live), but is hardly an extravagant lifestyle. And depending on continued market performance / inflation might be very uncomfortable 20 years into retirement.

@Labraradabrador exactly. You can't rely on state pension still being there. Can't save enough in private pension for decent retirement taking into account inflation and future cost of living. BTL is too much hassle.

We're retiring to a country where the cost of living is 80% lower than the UK so will be able to live on what we have but we have family connections there. Otherwise we'd stay here and live a very frugal life.

I’m really sorry but I don’t understand the point about my role in protecting (or not protecting) the LTA at the higher level. And I’ve been paying for public services (along with all other taxpayers) as a higher rate taxpayer. The tax relief is ‘only’ on £40k pa of pension contributions so I also don’t understand that point.

You mentioned you probably paid 50% tax at one point.

I am not talking about you in particular here, but people in the same position as you who were (and still are) able to massively benefit from pensions/tax relief in a way that people cannot do now.

At the time of 50% tax rates, the annual allowance was £255,000 and the lifetime allowance was £1.8m.

People were able to protect their increased lta on the condition they did not contribute further. Nobody will go back to work and contribute only for their allowance to be cut.

I think it’s silly to have the LTA and the annual allowance. I get that pensions should be restricted in some way to avoid it being a vehicle to avoid tax on a massive scale but if they already have a limit on annual contributions, it just seems a headache to also have a total limit which is much more likely to be affected by growth.

The counter to that is I don’t think pensions should be inheritance tax free - i find it illogical that an isa would be subject to inheritance tax but a pension not.

Over a certain wage (250,000) the allowable permitted annual pension contribution is only £4000 so on the flip side how do you ever save for retirement? You can only use ISAS or buy investment properties. That increase property prices but how else do you get a return? If they raise the LTA they should also make it fairer for high earners to at least have some form of pension investment. People with these types of earning I guess won’t retire and keep working until 70 plus or work as consultants from aged late 60s and dump into pensions then. The whole system needs an overhaul.

I'd rather they increased the annual allowance

Quite agree Noras.

There is no incentive for very high earners to continue to work once the mortgage is paid and the pension is full, any money made has no 'home'. The people affected are not looking for sympathy on the subject, they have just made a sensible decision to enjoy their time instead of spending it earning. However, the current govt's latest chastising of senior early retirees is odd given it is, in a large part, down to the govt's own policies.

I think the LTA should be abolished entirely for DC schemes, since the annual allowance avoids it being abused (you can only put 40k per year in) and investment returns mean its out of your control whether the LTA will be breached.

However, I think having an LTA for DB schemes makes sense. It isn't reasonable to allow people to have an unlimited tax-free lump sum (for example) and tax-efficient pensions in the multi-millions. It was originally supposed to start at £1.5 million and increase in line with inflation. If it had done it would be more like £2.5 million now and that would be a much more sensible level.

The greedy governments have set it too low to grab more tax.

I don't agree with the way these allowances taper off at higher earnings levels. The personal tax allowance is lost entirely at about £113k and the pension annual allowance is tiny after £250k.

The allowances should be the same for everyone.

The higher earners are already taxed on those higher earnings above the allowances.

It's not about helping people earning over 250k (they don't need it) but more about a principle of simplicity and fairness.

I don’t really agree that without tax incentives people in the exceptionally fortunate position of reaching the LTA will stop working and saving. I understand PP’s point about investing in housing, but there is still ISAs (tax free when drawn down) and/or other investments (unit trusts and the like). I know they’ll be subject to tax but - again - I don’t see why wealthy people paying tax is inherently bad.

It's not 'just paying tax', it's the marginal rate of tax and the principle of encouraging people to save for their retirement through tax relief (introduced in 1921) will be lost.

It's not only principles, it's lost revenue as people retire and skills in the workforce are reduced.

It's not that paying tax is bad, it is more than when people feel they have enough pension and savings to last the rest of their lives and additional savings are taxed highly (outside ISA or 55% on pension above LTA), they are choosing to stop work early.

If you don't mind people stopping work early, then there is no issue that needs addressing but for some reason the govt are currently pursuing the 'economically inactive' 50somethings.

The government need the old skilled workforce to return as they are now finding they have not invested and trained enough people especially in the NHS. It takes years to train more doctors and nurses and a very high percentage are dropping out as they can earn more doing something less stressful.
Currently they still seem to prefer to import skills than invest in their own people. I have met a couple of nurses who came from India about two years ago and thought they had hit the jackpot with £25k. They soon realised that you can‘t live on that so one moved somewhere north and the other went back.

@Chewbecca very much agree. There does come a point where working just isn't worth it if a large percentage gets taken in tax and what you are left with for your efforts is less than half of what you actually earned.