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

So you pay %20-40% tax when you're putting it in (higher rate vs additional rate/100k trap), then another 20%-40% when you take it out, depending on the tax band you're in when withdrawing (for example, if someone is withdrawing 50k a year, which isn't a huge amount if that's to cover 2 people - assuming one has little/no pension for example)? Or have I got this completely wrong?

Hopefully you'll have decent returns on your investment during the period, but it depends where your money is invested. And your money is locked up for a long time, with the age you can withdraw it gradually increasing (was 55, now 57). Plus - as this move shows - pension rules are up to be changed at any time.

The tax free lump sum is significantly reduced.

If I'm reading this correctly, it really will make pension investing a lot less attractive for higer and additional rate tax payers.

It will be interesting to see what effect it has on behaviour and what financial advice will be given. I'm late 30s, so not willing to reduce hours yet. However, the idea of moving/working abroad in a place with low taxes - for a few years to save up - is becoming more and more attractive. I just need to find that place 🤣

This sums it up. In younger years it makes sense to move abroad (e.g. check Spain Beckham law).

Closer to retirement age it makes all sense to reduce hours/retire earlier.

Both options are mostly open to higher earners - exactly the group which generates most of tax.

Slow clap

@SnowBeagle Money you put into a pension is free of tax at your normal marginal rate so it accumulates without any tax being paid going in; tax is paid as the pension is withdrawn.

One of the IFS' suggestions is that tax relief is given at 30% across the board. So even if you are a 20% tax-payer, you're credited with 30%. This would be likely to deter higher rate tax payers but attract more lower-tax money into pensions, and that could end up costing the Treasury.

That’s an interesting idea. I wonder if it would apply also to those who pay no tax? Maybe DH and I wouldn’t have to get a temporary divorce after all!

30% flat rate would appeal to labours redistribution of wealth philosophy. Quite why the taxpayer should subsidise someone else’s personal pension though is beyond me when we can’t even afford the state pension.

My husband is retired he isn't drawing on his pension yet. Truth is no one knows what's likely to happen. He's hedging his bets and taking half his tax free lump sum now and putting it into ISAs and investments. I'm earning £68K and saving everything in the 40% bracket into my company pension via salary sacrifice to benefit from higher rate tax relief (been doing that for a few years since paying off our mortgage). I'm expecting a small inheritance shortly which I was planning to drip feed into my pension as an AVC otherwise I'll put it into an ISA.

Times front page reporting today that changes to tax relief on contributions unlikely as it will hit public sector workers. Steve Webb saying something similar a couple of weeks ago.

fingers crossed

'Gray ousted' and 'Israel remembers' https://www.bbc.com/news/articles/cly2g189pn0o

I saw that - some hope - I do wonder what labour thinks it's rhetoric is doing to private sector staff though, we seem not to exist in their narrative.

It's incredibly damaging to public confidence and yes absolutely makes private sector workers feel that they are not important to Labour. I fear they could simply seek to exclude public sector pensions from any changes (although that would be outrageous).

Yes I saw this in the daily mail too 😅

https://www.dailymail.co.uk/news/article-13932589/Inheritance-taxes-Budget-Rachel-Reeves-pension-reliefs-NHS-raid-private-schools.html

I haven't really been worried about contributions going in, because any government of any political stripe wants people to make provision for their own future, and that can really only be incentivised via tax mechanisms. I remain concerned that there will be a massive clamp down on the value of tax free sums. Anecdotally, my SIPP's customer services says their call volumes are through the roof right now as everyone tries to establish their right to fix the value before Oct 29, after which the current rules say you need to draw the money or crystallise the value within 12 months. Fortunately or unfortunately, we're in the process of changing providers, but it won't change the income earned which is not subject to interest rates. However, it is commercial property which has it's ups and downs too.

Just coming back to this thread, as far as I can tell there are zero changes to pensions tax in the budget, so it looks like Reeves is the latest in a long line of chancellors to think she’s got a nice pension cash cow to milk, only to come face to face with the reality that any changes would be very difficult to implement and not raise much tax.

s far as I can tell there are zero changes to pensions tax in the budget,

Pensions are going to be subject to inheritance tax which matters if you are married because you are going to be taxed

You won't be taxed when your spouse dies since the spousal exemption exists. The money will however form part of the eventual estate for IHT purposes when the second spouse dies. It's a significant change for those in the private sector. It will push so many more people's estates into the IHT category.

So its completely untrue to say no changes to pensions (but it wasn't as bad as it could have been)

Perfectly reasonable that pension pots are subject to IHT, about time that loophole was closed

Let me guess, you have a defined benefit pension?

No, I have a Defined Contribution pension, and it is a decent sized pot. However all contributions have made free from income tax, so I it seems perfectly reasonable for it to form part of the estate on death

Agreed

Why should £100,000 in a bank account get inheritance tax and £100,000 in a pension fund not do?

But for many people this has no effect because they will not have significant money left in their pension fund by the time they die anyway, or they will have an annuity or DB pension that can’t be passed on at all.

Apologies, I missed the IHT change. I agree that pensions should be potentially subject to IHT, and I say that as someone with a sizeable DC pot that might otherwise pass tax free to my kids.

All the more reason to spend it enjoying my retirement!

I think it will change the tax advice to delay spending your pension savings as long as possible. Now, it won't make much difference whether you spend savings or your pension.

Generally, I agree with SlipperyLizard that RR has decided it's in the too difficult box.

DH has been in a full-on flat-out panic since September. He's calmed down a bit after the announcements.

Is the IHT change even that important? I mean, before this budget DC pension funds sat outside your estate and were exempt from IHT if you died before 75. But after 75 they were taxed. I expect most people with any meaningful DC pension live beyond 75, and so are in exactly the same position as before the budget. As I recall the distinction was to make sure that those who died young were able to continue to support their families from beyond the grave, so to speak.

edited to add, and so presumably means it’ll raise next to no tax at all. And therefore is just a ‘politics of envy’ attack on anyone with assets to appease the unions, the left and the low paid. Levelling down not up so to speak.

It may not raise much tax as presumably few people will be affected, but it was an anomaly in the system (especially after the abolition of the lifetime allowance) and so do I think RR was right to make the change. It isn’t the politics of envy to close loopholes exploited by the rich!

It wasn't a 'loophole'.