Labours plans re taxing pensions

[Catlover1705]

Does anyone know what these plans are please? Planning to retire next year at 60 with a moderate Local Government monthly pension and lump sum under 100k.

You crack on then. You might want to cross your fingers that income tax rates don’t increase between now and retirement, and there are no future changes that bring in restrictions over when you can take it and in what form

OK let's imagine that investment returns will double my money between now and retirement. I could be paid £1,000 (less tax) or I could put it in my pension.

If I draw it now, and then put it in an ISA until retirement, I would get this:

1000 x 0.6 x 2 = 1200 at retirement

If I put it in a pension in your "20% relief" world I get this:

1000 x 0.8 x 2 x 0.8 = 1280 i.e. almost the same as drawing it out now, but losing the flexibility to dip into it earlier if i needed it

(This ignores the tax-free PCLS but since we are talking about high earners and the PCLS is limited many of them will have already hit their PCLS limit anyway).

Compare it now where I would get:

1000 x 2 x 0.8 = 1600 i.e. pension is almost a no-brainer. But the benefit to me drops from £400 to £80 at which point, as I said, the benefit of tax efficiency begins to be overtaken by the loss of flexibility

So living longer wasn't an issue for these schemes? i think you re wrong about that,
Our FS (defined benefit) scheme went from 90% Final salary to 2/3rd Final salary in the early 90s, long before Brown, down to scheme members living longer and spousal benefits

You have a few misapprehensions here. Yes people living longer was an issue for scheme funding but largely used as justification for employers for closing schemes down as it was simple for members to understand and hard to argue with. The big issues in the 1990s were the introduction of additional benefits for schemes and falling interest rates, pushing up the cost significantly.

Your pension scheme could never have provided 90% of final salaries and been a tax approved scheme back at that time. Maximum benefits were set at two thirds of final salaries.

FS schemes were (in some cases) sustainable only because the tax payer funded a 20% credit on dividends. DC schemes don't and never had had this advantage, again, why should people without a FS scheme pay out for this???

All pension funds benefited from tax-free returns, DC and DB, until Brown decided otherwise.

A more measured response for once! And labour aren't signing up to remove the frozen threshold either they are going to keep them as they are.