Is anyone else making a pension contribution before the budget?

[MotherOfDragonflies]

Am I worrying over nothing? I’m self employed and generally wait until the end of the tax year to put money into my pension since I can then see what I can afford to put in but reading about labours planned pension raid and the chances that they will remove the 25 percent tax free sum for new contributions and also reduce tax relief on contributions has me worried. My pension isn’t amazing and I’d been planning on increasing contributions.

is it worth putting in a lump sum or could I be tying up money for no real tax advantage

Your worry might go down if you stop reading scare stories.

Realistically how much difference would the reasonable worst case make in ££ this year?

If you can avoid that by making an early payment, what's the downside?

And then wait for the budget to see what actually happens.

'Planned pension raid' is the sort of stuff the media churn out, but what is the actual ££ difference you anticipate?

yes, many of my friends and family are saying they are thinking of doing this!

off topic, but what self employed pension do you have?? I’m about to be self employed and don’t know which one to choose

I’m worried because I’m in my early 50s and our financial planning has always been based on being able to take 25 percent tax free from our pensions. Changes to that will have big ramifications

Mine is actually an old workplace group that personal pension that I was able to keep making payments into so it was a simple step for me. It might not have been the best option but it was the easiest.

Small changes won't have big ramifications.

What change are you anticipating in ££?

If you keep reading anti-Labour stories about 'tax raids' you will be worried, but if the difference is £4 it is nothing, whereas if the difference is £1000 it is a big thing.

What level of change are you imagining?

I don’t understand what you are saying. I am a 40 percent tax payer. If they reduce the tax relief on pensions to 20 percent I’ve lost 20 percent on all future contributions. If they take away the ability to take a 25 percent tax free lump sum that could cost me tens of thousands

Will the changes be immediate from 30th October, does anyone know?

I’m also in higher rate tax bracket and thinking of making a payment earlier to make sure I get the 20%.

I would put a lump sum in now. OP is reasonable to be worried about this imo. They just took winter fuel payments off pensioners, if the tories did this there would have been howls of outrage. That was very unexpected, changes to pensions was expected so I can’t see why reeves won’t do it, Starmers been spreading the doom and gloom so someone is facing a tax hike/reduction in allowances.

If if if is my point.

Where is the statement from labour that they will 'take away' the 25%?

Do you consider that, genuinely, to be the reasonable worst case scenario?

They intend to initiate a pension review. But they could reduce the 25% to 20%, or impose a slightly higher or lower cap in £.

You seem convinced it will all go - where have you got your info from?

well Nobody knows for sure but there has been masses of political and economic commentary on it in the past few days. Many experts are predicting a reduction in pension contribution tax relief as part of the general levelling down philosophy and because it doesn’t hit public sector pensions in the same way. Likewise there is general consensus that the 25 percent would be a quick win. It doesn’t hit “workers” so doesn’t go against the pledges that have been made to avoid changes to income tax NI and vat

I considered doing this but since all the tax thresholds are based on your income in a tax year, I can’t see how they could change the rules in the middle of a tax year. How could they tax a pension contribution made in November after the budget differently to one made now before the budget? Surely any change will have to be in 25/26? I am not an accountant though, would be interested to hear if anyone who’s actually qualified knows.

I obviously can't claim to know what will happen, but articles in certain papers about 'pension tax raids' are intended to scare, not inform.

As others say you can make additional contributions this year if it gives a sense of greater control. Ultimately we all exist in a state of uncertainty until the details are known.

My understanding is that they can do this with the tax relief on pension contributions. They simply change the relief rate on any contributions from a particular date. I’m not an expert though (hence creating the thread)

I think they will do this. It's relatively low hanging fruit and the left leaning think tanks have been banging on about it for a while. So I would make any contribution you were planning to make this tax year now. If they can stick it to the pensioners they will come for private pensions - even though none of this was in the manifesto. I hate lying politicians of all colours.

Despite being the fastest growing economy in the G7, with 2% inflation and low unemployment, Sir Keir is laying the groundwork for a raid on the private sector with his doom laden speech, to pay for the £12 billion going to other countries for climate change, the pay deals for public sector workers (who then announced they intended to strike again in the future, and other unions joined in (FBU and Border) and his so called black hole. Oh and you in the garden, put your cigarette out

If anything they will reduce the amount you can put in each year because let's face it, if you have £60k spare money each year you don't need free money from the tax payer.

The current system is set up to allow high earners to massively boost their pensions and avoid a lot of tax which is clearly not a priority for the current government.

They might also reinstate the lifetime allowance which was removed to prevent doctors breaching it, which wasn't the right way to address the issue, they could have just made it that the theoretical value of approved defined benefit pension schemes was disregarded in relation to the lifetime allowance.

As an illustration, I've been in the civil service and similar pension schemes for 30 years and potentially have another 16 years to go and the actuarial value of my pension is already about 55% of the old lifetime allowance despite 'only' earning £52k currently but its only the last couple of years that it's been that much, I was stuck on £40k for over a decade.

So I've earned a lot less than a doctor yet due to the way these pensions are valued I would probably be at risk of breaching the lifetime allowance if it still exists and face paying tax on money that I wouldn't see unless I lived to about 90.

So I think it's far more likely that there will be limits on tax relief on paying in rather than cutting the tax free lump sum for low to middle earners.

Are you sure you won't need it between now and retirement? Have you access to a decent amount of emergency money? I'd probably use up my ISA allowance first.

Read the i rather than the daily fail. there is a good article in it

If they do change the rules on the tax free lump sum and you are currently under 55 then there’s nothing you can do about that.

With regard to contributions I think it makes sense to shovel as much as you can into them in case they change the tax relief rules.

I pay 45% tax so if the tax relief changes to 30% it will cost me £9,000 every year in lost contributions. As you can imagine I think it is a disgraceful idea.

They won’t change it to 20% as that would decimate pension funds because what’s the pointing of giving 20% tax relief on the way in and then taxing the bulk of it at 20% on the way out. People won’t bother.

The whole policy is shortsighted and will have a raft of unintended consequences not least of which is that the 100k cliff edge becomes even worse if people can only get 30% tax relief instead of 60%. They need to reintroduce the personal allowance for all but Labour will never do that.

Yes, I'm maxing out at the moment however not entirely for that reason.

I'm likely to leave my corporate job and remain self employed for the long forseeable so want to know I've got enough in pension that it doesn't matter if I don't contribute to it again. Also wanted to wait for childcare hours.

60k a year plus carry forward is generous and I think they'll cut this. You need to make a decision based on your circumstances as who knows what they'll change in the future. I wouldn't overload unless you can comfortably afford it.

here it is the i article the i article the i article

I think it’s really unlikely that they’ll cut the existing 25% tax-free cash entitlement. They might change it so that it’s not earned on future contributions.

I hope that the scaremongering about reducing tax relief on contribution is just that. If that comes in again it would not be possible to do it on day one, payroll adjustments would need to be set up for it and it’s very easy to avoid by switching to employer contribution so they would need to be some anti-avoidance around it. And a lot of thinking about how it would work for the government schemes.

Planning to use all of my unused allowance to pay in a lump sum. Yes the changes will be from Budget date. Currently weighing up whether to take Dh’s lump sum now (he’s 56 but still working). Good financial advisers seem to have closed their books to new clients this year due to the amount of work going on (and still to come post uk budget/US election).

I feel you pain. Last March I realised my overtime moved me in the 40% tax bracket. So I borrowed money for a year at 4% and shifted a few thousands into a SIPP with AJBell. I was planning to do the same this financial year. If I had the spare cash I would have made my pension contribution before the end of October. Unfortunately I don't. Also I don't know if the new rules (if they are introduced) will apply to 2024-2025 financial year, 2025-2026 or after the October 2024. Please be aware if you take 25% tax free lump sum you won't be able to contribute more. All the intelligence I am getting Labour MIGHT take away higher tax payer tax relief and fiddle with the inheritance side of things (i.e. pension will be counted as inheritance which is fair enough in my opinion). My intelligence gathering (from various financial news outlets) hasn't come across banning 25% tax free lump sum. My gut feeling this last bit won't happen as the economy is still in the doldrums

I agree that the 25% lump sum change is far less likely as that impacts previous actions whereas tax relief changes impact future actions.

Many people plan their retirement in part using the tax free lump sum to pay off mortgages or other large debts. You can’t suddenly pull the rug from under those people with no notice.

If you have the cash now OP then I don’t see why you wouldn’t, but realistically I cannot see a change to pensions tax relief happening in October, or at all for a while.

Every budget for the last few years or more there has been speculation that it will be cut, especially as it disproportionately benefits higher earners so wouldn’t be unpopular with the masses.

So why hasn’t it? Firstly, because some schemes (mostly defined benefit schemes which are predominantly now in the public sector) deduct contributions from members before deducting income tax. So employees get instant tax relief at their marginal rate. To change this method would require employers and pensions administrators to set up new systems to deduct from net pay, and then add/reclaim tax relief from HMRC. The occupational pensions industry is slow to change & so this cannot be done overnight.

Secondly, many employers use “salary sacrifice”, whereby the employee gives up the right to salary and the employer makes an equivalent pension contribution. Employer pension contributions are not subject to income tax, so full tax relief is gained up front (and it saves on NICs). Yes, Govt could ban salary sacrifice, but what if some employers just became more generous with their pension contributions? Are higher rate tax payers going to be taxed 20% (or more!) on all employer pension contributions? If so, how? Payroll? Tax return?

I’m sure Rachel Reeves is looking at this, like all recent chancellors, but if she’s found a solution that can take effect in October without causing chaos then I’d be very surprised.

If they cut tax relief AND restricted future tax free cash (there is zero chance they will remove current tax free cash entitlements) then it will make more sense for anyone not in a defined benefit scheme (and not saving more than 20k a year) to use a stocks & shares ISA. Why tie your money up until retirement age (which keeps going up) for no/minimal tax benefit (especially if they make pensions subject to IHT)?

I was also going to wait until the end of the tax year to contribute to my pension as my earnings are variable so I don’t know now what I will earn/what I can spare.

I won’t be bringing the contribution forward as I can’t risk tying money up and don’t have enough “spare” to make much difference in the long run.