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

I cannot see any practical way that they could make a major change to pensions tax relief treatment DURING A TAX YEAR without chaos. No HR systems - or the self assessment tax system - would be able to cope.

If they are making a sweeping change it would be much more likely to start from 6 April 2025 or even 6 April 2026.

When the Pensions Act 2004 introduced the Annual and Lifetime Allowances that didn't start until 6 April 2006, for example.

When the Pensions Act 2004 introduced the Annual and Lifetime Allowances that didn't start until 6 April 2006, for example

And the consultation for that act started in 2002!

I don’t think you understand the huge impact this would have on many. It would be tens of thousands for me. People are right to be worried and take action where they can.

I don't think any changes will be immediate personally. Payrolls will need time to implement any changes to treatment of pension contributions, it's reasonable to think that the earliest will be 6 April 2025 for any changes.

I understand the impact it could have, depending on what changes are proposed.

The problem is none of us know yet what is going to be proposed, so making additional payments now is fine if people want to - it could end up pointless, or a great idea depending on what happens.

I kept asking the op what ££ figure they imagine they are going to be impacted by - and of course no one can answer.

If there were a small percentage change, that's a very different impact than if there's a big percentage change, or a complete removal of e.g. the 25%. However I've read articles saying the removal of the 25% tax free advance is very unlikely, but again - what do I know?

So it isn't that I don't understand the possible impact, just that it is currently unknown.

Yes this.

The Mail and the Express are screaming about this for political reasons but have no details.

DH is an actuarial contractor. We’re working on the basis that it will be a change next tax year if it happens.

Surely most changes to pensions tax relief or commencement lump sum directly hit workers? Because those that have already retired are not impacted or, have time to take out their 25% if they want to and haven't already

I reckon a reasonable worst case is the difference between 45% (or whatever your marginal tax rate is) and 30% which is being mooted. So 15% of £60k, which is £9k, times however many more years you planned on working. But if you only pay tax at 20% I wouldn't worry - if anything there's upside

Changing the 25% tax free amount with no notice would be short term, gesture politics that will further discourage private pension provision, much as the last Labour government did. So, it'll probably happen, and will cost anyone in that boat up to £120k - or more if they planned on taking their 25% as part of a monthly drawdown

it will cost me £9000 a year in lost contributions.

I'm not very knowledgeable about pensions. Is this £9000 contribution effectively paid by the tax payer? Jeez, that is low-hanging fruit!

Or do you mean that you would need to pay tax on £9k that you wouldn't previously have had to pay tax on? (still seems a generous and unnecessary tax break). 🤷‍♂️

All pension contributions are tax free when you pay into the fund and are taxed at the point when you withdraw so no the £9k I referred to is not paid by the taxpayer.

Pensions simply allow you to effectively spread out receipt of your income over a longer period and as a result defer tax paid until a later date.

The suggested system would tax contributions for higher earners on the way in and on the way out so essentially double taxation. It’ll make pension savings far less attractive for higher earners.

If tax relief is standardised at 30% it’ll mean higher earners would effectively be taxed to fund private pensions for lower earners. It would make other more flexible
investments such as ISA’s far more attractive for additional rate tax payers.

Do you suggest OP should wait till it's announced and implemented on the same date? If she's planning to put 60k with 45% relief and then it's changed to 20% she will lose 15k. I think it's big enough to act now

If there is no tax benefit then nobody would invest in pensions as they are inflexible compared with other investments.

I pay in 60k each year and have a marginal income tax rate of 45% meaning a tax reduction of 27k each year. If they change the rate to 30% I only save 18k each year meaning I’ll be 9k worse off every year.

As explained above this isn’t a saving as such, it’s simply deferred taxation as tax is paid at withdrawal.

All I’d say is, don’t assume the government will give a notice period or even wait until an official budget.

Last month there was an ad-hoc speech from the chancellor where she announced that all private school fees paid (in advance for future years) from “today” onwards are subject to VAT.

Anyone who paid their school fees before that speech was fine; others are down £4k per year per child.

But you could do that today and literally every invoice sent out from the day it gets announced would go out with VAT on it. Every school is going to be already registered for VAT.

What people are saying on this thread is that a company payroll cannot be amended overnight to collect a bespoke rate of tax when it doesn’t collect tax on pension contributions at all. The schemes that are receiving these funds have no existing mechanism for granting additional tax relief at the point of investment. And that’s without thinking about the easy solution of changing people’s employment contracts so that the salary is reduced and the employer pays more which could also be done overnight and would simply avoid the problem.

They might want to collect it via tax self assessments. Agree it will be chaotic but this government can't surprise me.

If pension relief is reduced it won't just lead to reduction in pension savings, higher earners will reduce their hours or retire earlier than planned, especially the ones in over 50 group. Exactly what RR needs

So you pay in 60k (🤯) and your tax gets reduced by 27k, but if they change it to 30k max, your tax "only" gets reduced by 18k (you have to pay 9k more tax)? If we look at it from another perspective, could we not consider that the government is currently giving you a 9k annual benefit that the country now can't afford?

Someone paying additional rate tax already pays nearly 50 grand in tax and NICs by the time they reach the bottom of that tax band. Exactly how much tax do you think the country should collect?

NRTFT but thought I'd answer this one.

Its is very rare, if unheard of, that any changes in a Budget happen immediately and even if they do they wont be retrospective. So in this case if Labour changed the 25% TFC rule (which I very much doubt) then the amount you already have but up would be protected - like they did with the Lifetime Allowance.

I would imagine that any changes would be effective from the new tax year - ie, April next year.

The problem stems from the Budget changing from March to The Autumn. In days gone by the Budget was always late March so any changes were only a week or two away. Now we might have 5 months to act on any changes planned.

I really wouldn't worry too much about it at this stage OP. As a FA of 30 years I'm pretty confident any major changes wont come into force on October 30th.

This week I met with three senior managers to plan potential pension communications if something comes out of the budget. All of us agreed that we would be asking for part-time hours if the tax relief goes. We were only semi joking

That’s not correct. As explained previously the money is taxed when you withdraw it.

If I pay into an ISA I get taxed on income before I pay cash into the ISA but in return pay no tax on withdrawal. A pension does the opposite ie no tax on deposit and then tax becomes due on withdrawal.

The pension proposal is akin to taxing people on ISA withdrawals which would make the whole point of the product completely redundant.

As the poster above suggested such a move with pensions will ensure many higher earners either work less or retire earlier. It is such a ridiculous short sighted policy.

Exactly how much tax do you think the country should collect.

Enough? Currently, the country is a shambles, is that because some wealthy folk are paying too much tax? My sympathies tend to lie with those on lower incomes, so I have more sympathy for someone on state pension losing their winter fuel allowance, than with someone who's able to put 60k in a pension so that they pay less tax. I suppose I'm "middle-income" level, I'd be adversely affected if they cut the 25% tax free sum, so have some skin in the game. But I'd get by just fine, don't mind paying more if it means better nhs, public services, etc. And I'd like to see people's salaries reflect their value to society, rather than be determined purely on capitalist supply and demand principles - are you really worth 300k to society (rhetorical)? Anyway, I'll bow out now, didn't mean to derail the thread.

Or you could look at it through the lens that it was never the government’s money in the first place, so they are not giving anyone anything!! They are letting people keep more of their own money…

The unpalatable truth is that to raise significant amounts of tax, you need to tax a lot of taxpayers by more. You won’t achieve it by focussing on 45% tax payers. It’s just the government throwing pandering to the unions who all think its people who earn more than there members that should be taxed more. . Most of Europe has higher tax rates we do for the £30k to £70k earners, because that’s were the largest numbers of people Are at that’s how you raise the most money.

I have worked in pensions for 20 years. This is the best response in this thread.

I've no idea whether that's correct, but even if it is, it won't be like Rachel Reeves reads it out in the budget and then yells "starting from right now!"

If you're really worried, calculate the impact on you of a variety of potential changes, and work out what you would do. And then you're ready to go once any change is announced.