With the upcoming budget (not to get political), anyone been doing anything to potentially alleviate risks/expense?
A couple of people at work who are approaching retirement have taken their max cash lump sums from their pensions, a few seem to have sold shares. Anyone anything else? Must admit if I were 4 years older I'd take my tax free pension cash lump.
I took around 1/3rd of my pension tax free allowance, but only because I will need the money in the upcoming few months to pay for a cruise and a few other things (we just altered our plans slightly and took it 6 months earlier than we initially planned). Mainly in the misguided hope that if anything is altered to the % of tax free money then if you already taken it then it won’t count, but I can’t see me getting away with that.
What is good and unplanned was that this sum was pure profit from our pension fund that we only started to invest in 18 months ago. Won’t need to touch my pension pot for around another 10 years now.
With the upcoming budget (not to get political), anyone been doing anything to potentially alleviate risks/expense?
A couple of people at work who are approaching retirement have taken their max cash lump sums from their pensions, a few seem to have sold shares. Anyone anything else? Must admit if I were 4 years older I'd take my tax free pension cash lump.
Again like you, not to be political, just going on form. The upcoming budget I can see a unpopular one for those of senior years like people approaching retirement or certainly in a position to stop work and take a pension, inheritance tax will also go up as it will seen to be popular with the partisans but will not directly benefit anyone
With the upcoming budget (not to get political), anyone been doing anything to potentially alleviate risks/expense?
A couple of people at work who are approaching retirement have taken their max cash lump sums from their pensions, a few seem to have sold shares. Anyone anything else? Must admit if I were 4 years older I'd take my tax free pension cash lump.
Again like you, not to be political, just going on form. The upcoming budget I can see a unpopular one for those of senior years like people approaching retirement or certainly in a position to stop work and take a pension, inheritance tax will also go up as it will seen to be popular with the partisans but will not directly benefit anyone
Agreed, I can see:
Capital gains tax either having a zero allowance and/or being at marginal rate. I've over the past 5 years taken most capital gains so I have very little left that would attract CGT, in fact probably just some work shares now.
IHT, I can't see the rate increasing, but never say never! But I can see the allowance/threshold being reduced from the £325k/£500k as an easy win as only effects a small number (predominantly those in or around London/SE due to property and the very wealthy). They may even bring CGT into death tax as well as IHT and linking to pensions remove that tax free element at death.
Pensions I think will be the interesting one (for me) - I can see the Tax free lump changing/reducing. Possibly a change to tax relief to a flat rate although that would be more around levelling up as they say rather than a collection of additional tax. Plus as above removing the tax free element on death in certain instances. Hopefully the LTA won't re-appear.
National insurance changes (for employers) since to be being talked about more.
Could be a change to ISA's - whilst the previous incumbents removed the LTA for pensions there are rumours that could be brought in for ISA's as well as potentially reducing the £20k allowance (as 95% of people don't use even half of that).
I did have an interesting chat with a colleague who retires next summer last week. His current plan or thought is to remortgage his own home, take out the cash and pay off his children's mortgages in the hope he lives 7 years, thus avoiding IHT on around £800k - £1m. Thought that was an interesting idea!
I e mailed my IFA re my SIPP tax free lump sum before I transferred it out. She was extremely confident that any possible reduction in the tax free lump sum would not be with immediate effect. I can no longer find the e mail, but she was pretty convincing. Anyway, I’m keeping my fingers crossed that she is correct.
I e mailed my IFA re my SIPP tax free lump sum before I transferred it out. She was extremely confident that any possible reduction in the tax free lump sum would not be with immediate effect. I can no longer find the e mail, but she was pretty convincing. Anyway, I’m keeping my fingers crossed that she is correct.
That’s my assumption ie phased. Or at a minimum until the next tax year.
I've read lots of articles on what changes could be made to Pensions, CGT & IHT in the upcoming budget.
I would like to think that any changes made to pensions wouldn't happened immediately & most likely start from next tax year (25/26). Also, any changes to the tax-free allowance would have protections in place like there was when the LTA was reduced. So if you currently have a pension pot of £500k & so can take £125k as TFC then that would be protected going forward. Also the % amount taken out could be reduced to 20% in line with the current tax relief going in......as I heard that the levelling of tax relief to 25% (or even 30%) that had been a given for months was now under review by the Treasury.
I'm expecting the rate of CGT to be in line with your marginal income tax rate & pensions to be included in your Estate for IHT. Maybe the residential relief (£175k) would be abolished and/or Estates over £2m be charged more.
I cant see the £20k ISA allowance being reduced but I can see a cap being introduced - maybe £250k ?
I just wish they had announced it sooner. All this waiting around is doing my nut in. Can't give any meaningful advice & so I'm in limbo for another 15 days !!!
- reducing tax free lump sum, as it's easy and can be spun to only affect the 'rich' - pensions brought within IHT - again, can be said to only affect the rich - however, the flat rate idea is running into issues for the same reason as re-introducing the LTA: it will generate material tax bills for all those public employees in DB pensions who are being paid much more than 50k/year; so probably needs more work - therefore maybe instead removing employers' NI from tax deduction on pensions (as it's immediate and the government can pick up the bill for its own employees ) - kicking VAT on private school fees down the road a bit, as they've just worked out it will cost billions (the OBR has said the transfer into the state sector will be net negative on its own and now they've realised that the rich schools will be able to go back ten years to claim back VAT on investments)
How, then, to bridge the gap: - they're back to PFI 2.0, so will try to borrow a lot more but keep it off balance sheet by saying it's investment in infra (therefore saying it is asset/liability neutral) - working assumption of 10% budget cuts to many departments, which will be presented/solved as productivity improvements in government spending and by attacking suppliers who deliver poor value
Note, these are rumours. These sources don't know all this, but they are one below perm sec level, so they hear things.
As for the timing, I'm taking no chances and have requested the full lump sum to pay off the mortgage and re-invest what I don't need for that.
Other impacts of the budget - friends and business contacts are: making redundancies now, while they still can; selling businesses to avoid capital gains; not buying businesses or making investments due to potential changes in capital gains tax and employment laws; actively looking to move abroad. That might all quieten down after 30th October, if it's not as bad as feared.
- reducing tax free lump sum, as it's easy and can be spun to only affect the 'rich' - pensions brought within IHT - again, can be said to only affect the rich - however, the flat rate idea is running into issues for the same reason as re-introducing the LTA: it will generate material tax bills for all those public employees in DB pensions who are being paid much more than 50k/year; so probably needs more work - therefore maybe instead removing employers' NI from tax deduction on pensions (as it's immediate and the government can pick up the bill for its own employees ) - kicking VAT on private school fees down the road a bit, as they've just worked out it will cost billions (the OBR has said the transfer into the state sector will be net negative on its own and now they've realised that the rich schools will be able to go back ten years to claim back VAT on investments)
How, then, to bridge the gap: - they're back to PFI 2.0, so will try to borrow a lot more but keep it off balance sheet by saying it's investment in infra (therefore saying it is asset/liability neutral) - working assumption of 10% budget cuts to many departments, which will be presented/solved as productivity improvements in government spending and by attacking suppliers who deliver poor value
Note, these are rumours. These sources don't know all this, but they are one below perm sec level, so they hear things.
As for the timing, I'm taking no chances and have requested the full lump sum to pay off the mortgage and re-invest what I don't need for that.
Other impacts of the budget - friends and business contacts are: making redundancies now, while they still can; selling businesses to avoid capital gains; not buying businesses or making investments due to potential changes in capital gains tax and employment laws; actively looking to move abroad. That might all quieten down after 30th October, if it's not as bad as feared.
I think I'd do the same were I three years older with taking the lump sum now, just not worth taking the risk I'm my view.
- reducing tax free lump sum, as it's easy and can be spun to only affect the 'rich' - pensions brought within IHT - again, can be said to only affect the rich - however, the flat rate idea is running into issues for the same reason as re-introducing the LTA: it will generate material tax bills for all those public employees in DB pensions who are being paid much more than 50k/year; so probably needs more work - therefore maybe instead removing employers' NI from tax deduction on pensions (as it's immediate and the government can pick up the bill for its own employees ) - kicking VAT on private school fees down the road a bit, as they've just worked out it will cost billions (the OBR has said the transfer into the state sector will be net negative on its own and now they've realised that the rich schools will be able to go back ten years to claim back VAT on investments)
How, then, to bridge the gap: - they're back to PFI 2.0, so will try to borrow a lot more but keep it off balance sheet by saying it's investment in infra (therefore saying it is asset/liability neutral) - working assumption of 10% budget cuts to many departments, which will be presented/solved as productivity improvements in government spending and by attacking suppliers who deliver poor value
Note, these are rumours. These sources don't know all this, but they are one below perm sec level, so they hear things.
As for the timing, I'm taking no chances and have requested the full lump sum to pay off the mortgage and re-invest what I don't need for that.
Other impacts of the budget - friends and business contacts are: making redundancies now, while they still can; selling businesses to avoid capital gains; not buying businesses or making investments due to potential changes in capital gains tax and employment laws; actively looking to move abroad. That might all quieten down after 30th October, if it's not as bad as feared.
Interesting, Any rumours about anything affecting ISAs?
With the upcoming budget (not to get political), anyone been doing anything to potentially alleviate risks/expense?
A couple of people at work who are approaching retirement have taken their max cash lump sums from their pensions, a few seem to have sold shares. Anyone anything else? Must admit if I were 4 years older I'd take my tax free pension cash lump.
Again like you, not to be political, just going on form. The upcoming budget I can see a unpopular one for those of senior years like people approaching retirement or certainly in a position to stop work and take a pension, inheritance tax will also go up as it will seen to be popular with the partisans but will not directly benefit anyone
Agreed, I can see:
Capital gains tax either having a zero allowance and/or being at marginal rate. I've over the past 5 years taken most capital gains so I have very little left that would attract CGT, in fact probably just some work shares now.
IHT, I can't see the rate increasing, but never say never! But I can see the allowance/threshold being reduced from the £325k/£500k as an easy win as only effects a small number (predominantly those in or around London/SE due to property and the very wealthy). They may even bring CGT into death tax as well as IHT and linking to pensions remove that tax free element at death.
Pensions I think will be the interesting one (for me) - I can see the Tax free lump changing/reducing. Possibly a change to tax relief to a flat rate although that would be more around levelling up as they say rather than a collection of additional tax. Plus as above removing the tax free element on death in certain instances. Hopefully the LTA won't re-appear.
National insurance changes (for employers) since to be being talked about more.
Could be a change to ISA's - whilst the previous incumbents removed the LTA for pensions there are rumours that could be brought in for ISA's as well as potentially reducing the £20k allowance (as 95% of people don't use even half of that).
I did have an interesting chat with a colleague who retires next summer last week. His current plan or thought is to remortgage his own home, take out the cash and pay off his children's mortgages in the hope he lives 7 years, thus avoiding IHT on around £800k - £1m. Thought that was an interesting idea!
I believe that this has been ruled out, but was my biggest worry as someone who is hopefully about to start seriously contributing to my pension for the first time in my career.
The mortgage idea is a very interesting one indeed!
As someone who has just sent off their NHS AW8 Retirement forms based on taking maximum cash from the pension on 31 March, I'm praying that any decision to reduce the cash figure to £100,000 is effective from the new financial year. It will be interesting to see what allowance they make (if any!) for people who have already started the retirement process before any reduced cash withdrawal entitlement comes into effect. Worst case scenario for me (and likely many others) is that the rules change immediately/on budget day which will leave all those who are in the process of retiring to need to, potentially, reverse the decision to avoid being hit with a massive financial penalty. Needless to say, I'm a bit worried at the moment.
As someone who has just sent off their NHS AW8 Retirement forms based on taking maximum cash from the pension on 31 March, I'm praying that any decision to reduce the cash figure to £100,000 is effective from the new financial year. It will be interesting to see what allowance they make (if any!) for people who have already started the retirement process before any reduced cash withdrawal entitlement comes into effect. Worst case scenario for me (and likely many others) is that the rules change immediately/on budget day which will leave all those who are in the process of retiring to need to, potentially, reverse the decision to avoid being hit with a massive financial penalty. Needless to say, I'm a bit worried at the moment.
I wouldn't worry too much - any changes to pensions (LTA, Tax-free amount, tax relief rates etc...) will almost certainly not take effect until April 2025, and even then there will be transitional arrangements.
With the upcoming budget (not to get political), anyone been doing anything to potentially alleviate risks/expense?
A couple of people at work who are approaching retirement have taken their max cash lump sums from their pensions, a few seem to have sold shares. Anyone anything else? Must admit if I were 4 years older I'd take my tax free pension cash lump.
Again like you, not to be political, just going on form. The upcoming budget I can see a unpopular one for those of senior years like people approaching retirement or certainly in a position to stop work and take a pension, inheritance tax will also go up as it will seen to be popular with the partisans but will not directly benefit anyone
Agreed, I can see:
Capital gains tax either having a zero allowance and/or being at marginal rate. I've over the past 5 years taken most capital gains so I have very little left that would attract CGT, in fact probably just some work shares now.
IHT, I can't see the rate increasing, but never say never! But I can see the allowance/threshold being reduced from the £325k/£500k as an easy win as only effects a small number (predominantly those in or around London/SE due to property and the very wealthy). They may even bring CGT into death tax as well as IHT and linking to pensions remove that tax free element at death.
Pensions I think will be the interesting one (for me) - I can see the Tax free lump changing/reducing. Possibly a change to tax relief to a flat rate although that would be more around levelling up as they say rather than a collection of additional tax. Plus as above removing the tax free element on death in certain instances. Hopefully the LTA won't re-appear.
National insurance changes (for employers) since to be being talked about more.
Could be a change to ISA's - whilst the previous incumbents removed the LTA for pensions there are rumours that could be brought in for ISA's as well as potentially reducing the £20k allowance (as 95% of people don't use even half of that).
I did have an interesting chat with a colleague who retires next summer last week. His current plan or thought is to remortgage his own home, take out the cash and pay off his children's mortgages in the hope he lives 7 years, thus avoiding IHT on around £800k - £1m. Thought that was an interesting idea!
I believe that this has been ruled out, but was my biggest worry as someone who is hopefully about to start seriously contributing to my pension for the first time in my career.
The mortgage idea is a very interesting one indeed!
I'm fairly relaxed on the tax relief for pensions, I've ramped up adding to my wife's (20% tax payer) over the past 6-7 years so a higher rate for her would counter a lower rate for me, although I'm getting to the stage where many more changes and I'll stop paying into mine and load up hers to her salary each year. I did joke with her we should get divorced and then I can pass half my pension to her - but she looked a little too keen, and not about getting half the pension!
At first thought, I thought he was mad, but then the more you look at the potential numbers maybe not soo much. It's basically a cheaper way of equity release and reducing IHT (if he lives the 7 years).
2.5m house (between two) means 600k tax bill on IHT ultimately on last death on that asset alone. Borrow £1m and that reduces to £200k. Of course you have to maintain that debt by interest payments, but again in his view means he's paying £3k a month rather than his kids doing so, so as a family group no worse off per month just saves potentially a lot of IHT.
As someone who has just sent off their NHS AW8 Retirement forms based on taking maximum cash from the pension on 31 March, I'm praying that any decision to reduce the cash figure to £100,000 is effective from the new financial year. It will be interesting to see what allowance they make (if any!) for people who have already started the retirement process before any reduced cash withdrawal entitlement comes into effect. Worst case scenario for me (and likely many others) is that the rules change immediately/on budget day which will leave all those who are in the process of retiring to need to, potentially, reverse the decision to avoid being hit with a massive financial penalty. Needless to say, I'm a bit worried at the moment.
I wouldn't worry too much - any changes to pensions (LTA, Tax-free amount, tax relief rates etc...) will almost certainly not take effect until April 2025, and even then there will be transitional arrangements.
I'm not so sure. Wouldn't a future date mean millions suddenly being withdrawn from pension schemes? There must be many people who have left money in pension pots to protect from IHT whilst living off savings and DB schemes. Could the pension industry even suddenly cope?
As someone who has just sent off their NHS AW8 Retirement forms based on taking maximum cash from the pension on 31 March, I'm praying that any decision to reduce the cash figure to £100,000 is effective from the new financial year. It will be interesting to see what allowance they make (if any!) for people who have already started the retirement process before any reduced cash withdrawal entitlement comes into effect. Worst case scenario for me (and likely many others) is that the rules change immediately/on budget day which will leave all those who are in the process of retiring to need to, potentially, reverse the decision to avoid being hit with a massive financial penalty. Needless to say, I'm a bit worried at the moment.
I wouldn't worry too much - any changes to pensions (LTA, Tax-free amount, tax relief rates etc...) will almost certainly not take effect until April 2025, and even then there will be transitional arrangements.
I'm not so sure. Wouldn't a future date mean millions suddenly being withdrawn from pension schemes? There must be many people who have left money in pension pots to protect from IHT whilst living off savings and DB schemes. Could the pension industry even suddenly cope?
......this is my worry too. If the government give people time to get out, not only does it mean pension funds will take a massive hit, it will also leave a massive gap in staffing which the likes of the NHS and other public sectors will struggle to fill. In my area of Mental Health NHS care, we are already losing the battle to recruit and retain good staff so 'encouraging' a block of extra people to leave early who weren't planning to go but now need to maximise the cash in their pension fund would be disastrous for the patients/population if the vacancy rate explodes. I'm hoping that either (a) they won't be able to implement the changes immediately for practical/legal reasons or (b) they don't see the risk to staffing key services a problem in the way I do and, therefore, that the implementation date is delayed until, at least, the new financial year.
As someone who has just sent off their NHS AW8 Retirement forms based on taking maximum cash from the pension on 31 March, I'm praying that any decision to reduce the cash figure to £100,000 is effective from the new financial year. It will be interesting to see what allowance they make (if any!) for people who have already started the retirement process before any reduced cash withdrawal entitlement comes into effect. Worst case scenario for me (and likely many others) is that the rules change immediately/on budget day which will leave all those who are in the process of retiring to need to, potentially, reverse the decision to avoid being hit with a massive financial penalty. Needless to say, I'm a bit worried at the moment.
I wouldn't worry too much - any changes to pensions (LTA, Tax-free amount, tax relief rates etc...) will almost certainly not take effect until April 2025, and even then there will be transitional arrangements.
I'm not so sure. Wouldn't a future date mean millions suddenly being withdrawn from pension schemes? There must be many people who have left money in pension pots to protect from IHT whilst living off savings and DB schemes. Could the pension industry even suddenly cope?
if no transitional arrangements then yes, but I think the general comment is that transitional arrangements would be put into place. My only negative thought on that is it won't raise additional revenue for some years, something governments don't often to go for.
As someone who has just sent off their NHS AW8 Retirement forms based on taking maximum cash from the pension on 31 March, I'm praying that any decision to reduce the cash figure to £100,000 is effective from the new financial year. It will be interesting to see what allowance they make (if any!) for people who have already started the retirement process before any reduced cash withdrawal entitlement comes into effect. Worst case scenario for me (and likely many others) is that the rules change immediately/on budget day which will leave all those who are in the process of retiring to need to, potentially, reverse the decision to avoid being hit with a massive financial penalty. Needless to say, I'm a bit worried at the moment.
I wouldn't worry too much - any changes to pensions (LTA, Tax-free amount, tax relief rates etc...) will almost certainly not take effect until April 2025, and even then there will be transitional arrangements.
As someone who has just sent off their NHS AW8 Retirement forms based on taking maximum cash from the pension on 31 March, I'm praying that any decision to reduce the cash figure to £100,000 is effective from the new financial year. It will be interesting to see what allowance they make (if any!) for people who have already started the retirement process before any reduced cash withdrawal entitlement comes into effect. Worst case scenario for me (and likely many others) is that the rules change immediately/on budget day which will leave all those who are in the process of retiring to need to, potentially, reverse the decision to avoid being hit with a massive financial penalty. Needless to say, I'm a bit worried at the moment.
I wouldn't worry too much - any changes to pensions (LTA, Tax-free amount, tax relief rates etc...) will almost certainly not take effect until April 2025, and even then there will be transitional arrangements.
I'm not so sure. Wouldn't a future date mean millions suddenly being withdrawn from pension schemes? There must be many people who have left money in pension pots to protect from IHT whilst living off savings and DB schemes. Could the pension industry even suddenly cope?
if no transitional arrangements then yes, but I think the general comment is that transitional arrangements would be put into place. My only negative thought on that is it won't raise additional revenue for some years, something governments don't often to go for.
But most people aren't looking to take their pension lump sums this tax year anyway so there isn't anything to "lose" as such. And with Transitional Protections many don't take them up or the TP have clauses that stop you building up more money otherwise the Protection is lost. I would say a cap on TFC will hurt many more in DB schemes than in DC schemes.
I e mailed my IFA re my SIPP tax free lump sum before I transferred it out. She was extremely confident that any possible reduction in the tax free lump sum would not be with immediate effect. I can no longer find the e mail, but she was pretty convincing. Anyway, I’m keeping my fingers crossed that she is correct.
I messaged her as well. For those interested, this was the response
“We have spoken with the Abrdn technical area, and I’ve set out some commentary we received back from the Pensions Technical Manager there, and her comments are very interesting. I think they provide some reassurance that the general feel from industry is they are unlikely to attack Tax Free Cash, but obviously no one knows for certain:
The sunset clause within Lifetime Allowance legislation, grants any Government the power to change any or all the regulations relating to the lifetime allowance abolition, without the need to consult or go through normal parliamentary process. The intent was, as we understand it, to allow for future changes in the annual allowance (possibly both up and down) and in the new allowances (the inference being for them to increase) but the wording is wide enough that it covers everything contained in the 2023 and 2024 Finance Acts and associated SIs that relate to LTA abolition. Therefore technically they could choose to reduce the LSA (also known as Tax Free Cash) if they wished as that forms part of these.
However, to make such a change overnight without any consultation or transitional rules would be if you excuse my expression 'political suicide'. Looking back at all the big pension changes made over the past 20+ years, the Government of the day has acknowledged that individuals have made payments in good faith based on the rule in force at the time and, where a change has reduced a benefit, they have introduced transitional rules to protect most of those. There have been some occasions where anti-forestalling was introduced such as the introduction of tapering which prevented post 8 July salary sacrifice from being used to meet the threshold requirement, but these have been aimed at high earners/company owners and didn’t impact on the average pension scheme member.
To simply reduce the LSA to say £100K as has been mooted without any form of transitional rights for those who have built up beyond would impact individuals much lower down the pension value chain – many people do still use their TFC to help pay off their mortgage and will have been contributing over the years with that aim in mind. Also it will change peoples’ behaviour and drive more to potentially opt out at a much earlier stage in their career which will affect the amount of pension money available to invest in productive finance and could push more people onto the State in later life once their much smaller pension pot has been exhausted – these are the behaviours Labour don’t want with their key focus on unlocking pension investment and encouraging people to be self-reliant.
We do still anticipate that the LSA will simply not be increased in the future even where the LSDBA is increased. And we do still expect Labour to make any changes in full consultation with the industry giving advisers and clients time to review and amend their strategy.”
Hope that’s of interest to those looking at what to do with their pensions/cash free lump sums.
I e mailed my IFA re my SIPP tax free lump sum before I transferred it out. She was extremely confident that any possible reduction in the tax free lump sum would not be with immediate effect. I can no longer find the e mail, but she was pretty convincing. Anyway, I’m keeping my fingers crossed that she is correct.
I messaged her as well. For those interested, this was the response
“We have spoken with the Abrdn technical area, and I’ve set out some commentary we received back from the Pensions Technical Manager there, and her comments are very interesting. I think they provide some reassurance that the general feel from industry is they are unlikely to attack Tax Free Cash, but obviously no one knows for certain:
The sunset clause within Lifetime Allowance legislation, grants any Government the power to change any or all the regulations relating to the lifetime allowance abolition, without the need to consult or go through normal parliamentary process. The intent was, as we understand it, to allow for future changes in the annual allowance (possibly both up and down) and in the new allowances (the inference being for them to increase) but the wording is wide enough that it covers everything contained in the 2023 and 2024 Finance Acts and associated SIs that relate to LTA abolition. Therefore technically they could choose to reduce the LSA (also known as Tax Free Cash) if they wished as that forms part of these.
However, to make such a change overnight without any consultation or transitional rules would be if you excuse my expression 'political suicide'. Looking back at all the big pension changes made over the past 20+ years, the Government of the day has acknowledged that individuals have made payments in good faith based on the rule in force at the time and, where a change has reduced a benefit, they have introduced transitional rules to protect most of those. There have been some occasions where anti-forestalling was introduced such as the introduction of tapering which prevented post 8 July salary sacrifice from being used to meet the threshold requirement, but these have been aimed at high earners/company owners and didn’t impact on the average pension scheme member.
To simply reduce the LSA to say £100K as has been mooted without any form of transitional rights for those who have built up beyond would impact individuals much lower down the pension value chain – many people do still use their TFC to help pay off their mortgage and will have been contributing over the years with that aim in mind. Also it will change peoples’ behaviour and drive more to potentially opt out at a much earlier stage in their career which will affect the amount of pension money available to invest in productive finance and could push more people onto the State in later life once their much smaller pension pot has been exhausted – these are the behaviours Labour don’t want with their key focus on unlocking pension investment and encouraging people to be self-reliant.
We do still anticipate that the LSA will simply not be increased in the future even where the LSDBA is increased. And we do still expect Labour to make any changes in full consultation with the industry giving advisers and clients time to review and amend their strategy.”
Hope that’s of interest to those looking at what to do with their pensions/cash free lump sums.
Wot I said much much much longer....😅.
What it does say is that Labour are in a pickle because it seems whatever way they turn they cant raise tax without it impacting massively on one section of the public or another.
As someone who has just sent off their NHS AW8 Retirement forms based on taking maximum cash from the pension on 31 March, I'm praying that any decision to reduce the cash figure to £100,000 is effective from the new financial year. It will be interesting to see what allowance they make (if any!) for people who have already started the retirement process before any reduced cash withdrawal entitlement comes into effect. Worst case scenario for me (and likely many others) is that the rules change immediately/on budget day which will leave all those who are in the process of retiring to need to, potentially, reverse the decision to avoid being hit with a massive financial penalty. Needless to say, I'm a bit worried at the moment.
I wouldn't worry too much - any changes to pensions (LTA, Tax-free amount, tax relief rates etc...) will almost certainly not take effect until April 2025, and even then there will be transitional arrangements.
I'm not so sure. Wouldn't a future date mean millions suddenly being withdrawn from pension schemes? There must be many people who have left money in pension pots to protect from IHT whilst living off savings and DB schemes. Could the pension industry even suddenly cope?
if no transitional arrangements then yes, but I think the general comment is that transitional arrangements would be put into place. My only negative thought on that is it won't raise additional revenue for some years, something governments don't often to go for.
What sort of transitional arrangements would you envisage? I'm struggling on this.
Comments
Think we are running around 2.8% for the year so a bit down.
Neither of us are anywhere near maximum holding.
A couple of people at work who are approaching retirement have taken their max cash lump sums from their pensions, a few seem to have sold shares. Anyone anything else? Must admit if I were 4 years older I'd take my tax free pension cash lump.
Capital gains tax either having a zero allowance and/or being at marginal rate. I've over the past 5 years taken most capital gains so I have very little left that would attract CGT, in fact probably just some work shares now.
IHT, I can't see the rate increasing, but never say never! But I can see the allowance/threshold being reduced from the £325k/£500k as an easy win as only effects a small number (predominantly those in or around London/SE due to property and the very wealthy). They may even bring CGT into death tax as well as IHT and linking to pensions remove that tax free element at death.
Pensions I think will be the interesting one (for me) - I can see the Tax free lump changing/reducing. Possibly a change to tax relief to a flat rate although that would be more around levelling up as they say rather than a collection of additional tax. Plus as above removing the tax free element on death in certain instances. Hopefully the LTA won't re-appear.
National insurance changes (for employers) since to be being talked about more.
Could be a change to ISA's - whilst the previous incumbents removed the LTA for pensions there are rumours that could be brought in for ISA's as well as potentially reducing the £20k allowance (as 95% of people don't use even half of that).
I did have an interesting chat with a colleague who retires next summer last week. His current plan or thought is to remortgage his own home, take out the cash and pay off his children's mortgages in the hope he lives 7 years, thus avoiding IHT on around £800k - £1m. Thought that was an interesting idea!
She was extremely confident that any possible reduction in the tax free lump sum would not be with immediate effect.
I can no longer find the e mail, but she was pretty convincing.
Anyway, I’m keeping my fingers crossed that she is correct.
I would like to think that any changes made to pensions wouldn't happened immediately & most likely start from next tax year (25/26). Also, any changes to the tax-free allowance would have protections in place like there was when the LTA was reduced. So if you currently have a pension pot of £500k & so can take £125k as TFC then that would be protected going forward. Also the % amount taken out could be reduced to 20% in line with the current tax relief going in......as I heard that the levelling of tax relief to 25% (or even 30%) that had been a given for months was now under review by the Treasury.
I'm expecting the rate of CGT to be in line with your marginal income tax rate & pensions to be included in your Estate for IHT. Maybe the residential relief (£175k) would be abolished and/or Estates over £2m be charged more.
I cant see the £20k ISA allowance being reduced but I can see a cap being introduced - maybe £250k ?
I just wish they had announced it sooner. All this waiting around is doing my nut in. Can't give any meaningful advice & so I'm in limbo for another 15 days !!!
- reducing tax free lump sum, as it's easy and can be spun to only affect the 'rich'
- pensions brought within IHT - again, can be said to only affect the rich
- however, the flat rate idea is running into issues for the same reason as re-introducing the LTA: it will generate material tax bills for all those public employees in DB pensions who are being paid much more than 50k/year; so probably needs more work
- therefore maybe instead removing employers' NI from tax deduction on pensions (as it's immediate and the government can pick up the bill for its own employees )
- kicking VAT on private school fees down the road a bit, as they've just worked out it will cost billions (the OBR has said the transfer into the state sector will be net negative on its own and now they've realised that the rich schools will be able to go back ten years to claim back VAT on investments)
How, then, to bridge the gap:
- they're back to PFI 2.0, so will try to borrow a lot more but keep it off balance sheet by saying it's investment in infra (therefore saying it is asset/liability neutral)
- working assumption of 10% budget cuts to many departments, which will be presented/solved as productivity improvements in government spending and by attacking suppliers who deliver poor value
Note, these are rumours. These sources don't know all this, but they are one below perm sec level, so they hear things.
As for the timing, I'm taking no chances and have requested the full lump sum to pay off the mortgage and re-invest what I don't need for that.
Other impacts of the budget - friends and business contacts are: making redundancies now, while they still can; selling businesses to avoid capital gains; not buying businesses or making investments due to potential changes in capital gains tax and employment laws; actively looking to move abroad. That might all quieten down after 30th October, if it's not as bad as feared.
The mortgage idea is a very interesting one indeed!
I wouldn't worry too much - any changes to pensions (LTA, Tax-free amount, tax relief rates etc...) will almost certainly not take effect until April 2025, and even then there will be transitional arrangements.
At first thought, I thought he was mad, but then the more you look at the potential numbers maybe not soo much. It's basically a cheaper way of equity release and reducing IHT (if he lives the 7 years).
2.5m house (between two) means 600k tax bill on IHT ultimately on last death on that asset alone. Borrow £1m and that reduces to £200k. Of course you have to maintain that debt by interest payments, but again in his view means he's paying £3k a month rather than his kids doing so, so as a family group no worse off per month just saves potentially a lot of IHT.
As I said Steve......don't worry.
“We have spoken with the Abrdn technical area, and I’ve set out some commentary we received back from the Pensions Technical Manager there, and her comments are very interesting. I think they provide some reassurance that the general feel from industry is they are unlikely to attack Tax Free Cash, but obviously no one knows for certain:
The sunset clause within Lifetime Allowance legislation, grants any Government the power to change any or all the regulations relating to the lifetime allowance abolition, without the need to consult or go through normal parliamentary process. The intent was, as we understand it, to allow for future changes in the annual allowance (possibly both up and down) and in the new allowances (the inference being for them to increase) but the wording is wide enough that it covers everything contained in the 2023 and 2024 Finance Acts and associated SIs that relate to LTA abolition. Therefore technically they could choose to reduce the LSA (also known as Tax Free Cash) if they wished as that forms part of these.
However, to make such a change overnight without any consultation or transitional rules would be if you excuse my expression 'political suicide'. Looking back at all the big pension changes made over the past 20+ years, the Government of the day has acknowledged that individuals have made payments in good faith based on the rule in force at the time and, where a change has reduced a benefit, they have introduced transitional rules to protect most of those. There have been some occasions where anti-forestalling was introduced such as the introduction of tapering which prevented post 8 July salary sacrifice from being used to meet the threshold requirement, but these have been aimed at high earners/company owners and didn’t impact on the average pension scheme member.
To simply reduce the LSA to say £100K as has been mooted without any form of transitional rights for those who have built up beyond would impact individuals much lower down the pension value chain – many people do still use their TFC to help pay off their mortgage and will have been contributing over the years with that aim in mind. Also it will change peoples’ behaviour and drive more to potentially opt out at a much earlier stage in their career which will affect the amount of pension money available to invest in productive finance and could push more people onto the State in later life once their much smaller pension pot has been exhausted – these are the behaviours Labour don’t want with their key focus on unlocking pension investment and encouraging people to be self-reliant.
We do still anticipate that the LSA will simply not be increased in the future even where the LSDBA is increased. And we do still expect Labour to make any changes in full consultation with the industry giving advisers and clients time to review and amend their strategy.”
Hope that’s of interest to those looking at what to do with their pensions/cash free lump sums.
What it does say is that Labour are in a pickle because it seems whatever way they turn they cant raise tax without it impacting massively on one section of the public or another.