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

Yet that is precisely what they did with the vat on school fees

Yet that is precisely what they did with the vat on school fees

But charging VAT is different. @SlipperyLizard has explained why the pensions can't be a quick (let alone instant) change, due to the processes and systems involved.

Exactly- governments need to be aware of unintended consequences of anything which may stop people preparing financially for their own retirement, although cynically as the impacts are unlikely to be felt for a decade or so they probably aren't that bothered.

As a result of Scottish government having such a low higher tax rate, I decided not to stress myself over promotion and kept a reduced hours working pattern. Governments need to understand that you can't continually expect the middle earners to want to earn more if majority of it goes in taxation.

Thanks @pd339 I’ll be “celebrating” 25 years of working in pensions later this year (it has actually given me a great career, but who thinks they’ll end up working in pensions when they’re imagining their future?).

Probably be more likely from next April if it's tax relief on contributions as I don't think it's that easy to do immediately, they will have to sort out how to administer it with some pensions

edit, just see @SlipperyLizard explained this excellently upthread

No. You're not being let off tax at all, it's just deferred until you actually get the income.

Otherwise, you end up paying tax now on money you won't get for another 30 years.... and then taxed on it again when you actually get it. How can that possibly be fair?

The reason high tax payers see pension as a good thing isn't because they're unfairly getting more from the government: it's because they already pay so much more than their share.

Tax isn't taken evenly from the population. If we all paid the same percentage of our income, higher earners would already pay more than lower earners simply because 20% of £100k is more than 20% of £40k

But in addition, we have progressive taxation. Which means that if you earn more, you actually contribute a higher percentage of your money as well. But people don't earn the same amount throughout our lifetime - and pensions are a way of recognising that in tax.

It would be incredibly unfair to make someone contribute the higher percentage of their income which is demanded for earning more money... when they don't actually get that money for 30 years! (at which point they earn much less)

When we eventually get the money (in retirement) we already pay the same tax on that money as everyone else with the same income.

I'm likewise thinking that if the pension tax relief goes then unless they also get rid of the £100k cliff edge I'll reduce my hours.

I'm almost coming round to thinking that's not a terrible thing in the long run.

I was very against Brexit, but now although as predicted it's made every single one of us much poorer, I can see that there will be some benefits eventually in terms of UK autonomy.

Similarly, disincentivising the middle classes from ever breaching the £100k cliff edge will make everyone in the country poorer and result in worse public services. But I - and others like me - will have a much nicer work/life balance, spend more time with my family and live longer. That's actually OK.

Not sure it's the rebalancing and fixing society Keir Starmer had in mind, but maybe it is.

Similarly, disincentivising the middle classes from ever breaching the £100k cliff edge will make everyone in the country poorer and result in worse public services. But I - and others like me - will have a much nicer work/life balance, spend more time with my family and live longer. That's actually OK.

Yeah, this is my thinking too. Maybe I was working towards the wrong goal. I thought that earning a lot was a good thing because I could support my own family, and felt quite proud of my tax contribution. But there is such hatred towards higher earners that I am actually coming around to the idea that maybe I did have it the wrong way round. I could just stop. Much healthier for me.

I somehow suspected you might also work in pensions!

But you could choose not to pay in 60k to your pension (spend it on a car or whatever), and you'd be required to pay tax on it, so it's a (generous) tax break for the wealthy which allows them to reduce their current tax liability 🤷‍♂️ (you may dispute the fairness of wealth redistribution policies, but it's a tax break nonetheless).

Please explain how it’s a tax break. I’m not following your logic. As explained many times of the thread, it’s deferring tax until the income is drawn down. It’s not eliminating tax. What is the “break”?

Most people, outside the MN bubble of 'big jobs' where £100k+ 'isn't that much', will pay tax at a lower rate in retirement than when they earned the money.

Hence it being a tax break.

You're being disingenuous, I think, if you're implying that there's no tax advantage to stashing the 60k in your pension now.

Anyway... I'm obviously on the wrong thread, so I will bow out this time - before I start to get arsey with people who seem blind to the fact that having the ability to save 60k in a pension actually makes you somewhat privileged (60k! Almost twice the average salary! In your pension!).

How would it not hit public sector pensions in the same way? Of course it would!

No it doesn’t. Public sector schemes are either defined benefit or career average. You get an amount of money guaranteed based on your salary and length of service

This is the money board where individuals want to discuss their circumstances and possible impact and should be able to do so without judgement.

There are any number of other threads on MN at the moment all about the rights and wrongs of what might happen in the autumn statement . I don’t understand why you would choose this one.

Oh, please @AuntieJoyce . The OP wasn't exactly politically neutral (Labour's planned pension raid) and a significant number of other posts were also bemoaning the proposed policy and not simply discussing the impact on personal finances. Is the discussion only for those with one particular viewpoint on the policy? 🙄 But I do agree with you about one thing... I need to stop posting on this thread 😆

The break is getting 40% tax relief going in & very likely only paying 20% tax on the way out.

If you didn't pay it into your pension now, you'd get the money now and pay income tax on it now. And you'd buy the car with it. You have the car. And no more tax to pay.

If you pay it into your pension, you don't get the income now and so you don't pay the income tax now. You wait. In 30 years time when you're retired, you get the money. At that time, you pay the income tax on the money. You buy the car with it. You have the car.

You've paid income tax either way. When you get the income. No tax break.

The only difference is that since you don't have so much income when you're retired, if you wait until then to get the income, you pay the rate of income tax which everyone with the same amount of income pays. Instead of paying at the rate which matches how much you earned 30 years previously.

Not sure why you don't understand that.

Or why you can't see how crazy it would be to tax money going into your pension, and then tax it again as you take it out. Why on earth would you put it in a pension?!?

You could change the rules so that you only tax it on the way in: like an ISA.

But if you've already paid the income tax, there's really no way the government can insist that you wait until retirement to get the money. So human nature being what it is, people are more likely to spend it. And that's what the government is trying to avoid. They want people to save money to support themselves in old age.

Why on earth would you put it in a pension.

You wouldn't! You'd keep it out because there's no incentive to put it in, so it'll be taxed.

Not sure why you don't understand that 🙄

There has been a lot of talk of renoval of 25% tax free lump sum, and yes it has large ramifications for many. Best prepare if you have anything to lose.

I think this is just appealing to core voters while rejecting the old school "trickle down economics". You don't get to vote based on your earnings, more people don't pay 40% tax than do, so democratically it makes more sense to help lower earners as it helps more people.
To be honest no one is going to volunteer for higher taxes but ultimately things need paying for, ie rejecting the magic money tree.

To all those threatening part time, I think going part time is a great idea, why do people feel it's virtuous to work full time when you could have shorter days/a day off every week or two.

I will hide and move as much as I can for as long as I can, before that deluded ginger idiot gets to decide what happens with MY money. Shock horror, having a baby at 15, then working for a bloody union teaches you NOTHING about running a small business in the UK or about building houses. Which she is now responsible for. Lovely. Keep titting about in Ibiza Ang and stop trying to make policies on things you know NOTHING about.