The ConDems have announced new limits on pension contributions a person can make in the UK this morning:
High earners will see the amount of money they can save into a pension drastically reduced next year, after the Treasury confirmed on Thursday a package of cuts to pension tax relief.
From next April, people will be able to save only £50,000 a year into a pension with tax relief, down from a current annual limit of £255,000.
The limit is higher than expected. Many pension consultants had predicted the government would set a cap of £40,000 a year. Its initial consultation this year suggested the cap would be between £30,000 and £45,000.
Higher-rate taxpayers will also be allowed to keep tax relief at their marginal rate on pension contributions up to the £50,000 limit. There had been fears the government would restrict tax relief to 20 per cent for everyone.
This is extremely welcome. It limits abuse of the 50% tax rate — and that is something I have called for. But note that they have not had the courage to carry through on their convictions and as a result a person on the 50% tax rate can still get tax relief worth £25,000 a year for their own savings to be used for their own personal gain. This is about UK national average income.
And rather oddly — that £25,000 is exactly the limit to the benefits that they have said they will pay to any family in the UK in the future.
So, in a time of national austerity subsidising the savings of the rich is apparently worth as much as supplying a whole family with their basis needs when they will have been made redundant through no fault of their own as a result of ConDem economic policy.
Where is the fairness in that?
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Just heard this on the news. It truly makes the blood boil. I cannot understand why any tax incentive is needed for saving fullstop. This needs to be spelt out clearly to the general public who cannot imagine having £50k pa spare cash. Let’s get the letter writers out in force on this one.
So, in a time of national austerity subsidising the savings of the rich is apparently worth as much as supplying a whole family with their basis needs when they will have been made redundant through no fault of their own as a result of ConDem economic policy.
According to you, it seems they get the same benefit, so what is unfair about that?
Although of course your claim that there is a £25,000 benefit neglects the fact that the pension will be taxed in full on receipt so the benefit is only a timing benefit not a permanent saving, unlike the welfare benfits that are not clawed back ata later date.
@Alex
Your complete antipathy to most in the human population is evident, as ever.
I guess it’s because without any incentive the population can’t be trusted to save for their retirement.
In both public sector and private sector schemes in recent years the distortions created by the few at the top end taking out totally disproportionate sums has been a significant factor in their troubles. Moreover, in respect of the “paying in” in these ranges that has rarely been done by the individual but by other direct and indirect means to avoid tax liabilites.
Let’s not forget that the tax saving now, reinvested is worth a lot more than the future tax on the pension. Furthermore, many of the people getting tax relief at 40% or 50% will only be paying 20% when they are retired. It’s not quite swings and roundabouts.
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Claims made were so grossly misleading it did not add to debate
In many ways its not a timing issue as for many foreign high earners in London’s banks and law firms its a way of squirreling away money tax free and then leaving the country and using QROPS to crack open the pension and take tax free cash out, I once met an ozzie who claimed to have put most of his earnings for 5 years into a pension and cashed it all out as soon as he left the uk thus paying no tax on it, it seems the UK always offers the best deals to the non British …. time to end qrops and the non dom scam while they are at it …
Greg – There is a serious pensions crisi as you say but you seem to misunderstand it. There isn’t a pensions problem affecting those who can pay £50,000 per annum. The pensions problem – lack of real provision for old age is a problem for those who maybe should be contributing say £5000 per annum and are in fact unable to afford to contribute anything. reducing the annual threshold to £50,000 won’t worsen this problem at all. You could bring the threshold down to £10,000 without worsening the problem.
You really need to get your head round the real issues before commenting!
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How many children would a family have in order to require tax-free benefits of £25k (which is over £35k pre-tax income).
I don’t see why we need to give tax relief on £50k of pension contributions to the richest, but that doesn’t make the cap on benefits wrong.
It makes my blood boil (to use Carol Wilcox’s phrase) that a family can be in receipt of tens of thousands of pounds of benefits. And I speak from experience because my cousin in Derby has 17 children between two wives and gets £164k a year in benefits. He even turned up to my mother’s funeral in a red Ferrari. He has never done a day’s work in his life. That makes my blood boil.
@James from Durham
Excellent point
@Simon French
If I am honest I have real problems believing elements of your story
I do not dispute there is an issue here – there are large families
But what do you propose for those children – who are real people? Starvation?
And for the unemployed – compulsory sterilisation?
Society can afford some aberrant behaviour – live with it
@catsick
Good point
@Greg
No – surely not – market failure can be corrected by state action – can this be true? 😆
Greg
Every system produces a few anomalous results. I agree that I would be pissed off with your cousin, but in the real world, if the people who need help are to be helped there will be a few people working the system and that won’t be preventable.
A related point is that nobody believes the tax gap can be reduced to zero.
Or as Ben Goldacre puts it, “the plural of ‘anecdote’ is not ‘data'”.
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@ James, Richard has deleted my previous post. So perhaps you could explain your comment “You really need to get your head round the real issues before commenting!”
Especially when I was purely responding to Carol’s comment and nothing at all to do with any limits.
Perhaps you are meaning to aim this at Simon French?