Rachel Reeves to announce £20 billion cuts today

So for those paying 40% tax now who might see their pension relief reduced , should they not also be crying foul that their 40% tax band is too high and should also be reduced ?or is it always screwing those ?
 
1finny said:
I’m stuck on this 😳
I can’t get past the fact one person gets £40 back and one person gets £20 back on £100 invested in a pension.

The only reason that happens is one is paid more than the other.

Change it so the nurses and teachers get the £40😂
Only joking of course - but they need more help to save.

I’d equalise if so everyone gets the same amount back
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The reason it happens is that one pays more tax than the other.
 
Nano said:
I'm in two minds on this. Pension contribution is essentially a defferal of income. You aren't really getting tax relief, you are just getting your income and paying tax on it at a later date instead (which will probably be a lower rate). If you take away the benefit of not paying tax at current rate on pension contributions then people won't contribute to pensions and will take it now. Who will that benefit in the long run if people have smaller pensions?
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I think they should only get 20% relief max (or whatever the lowest tax band is), it's still a big positive over the alternative of taking out the cash which is taxed fully at 40% and investing that yourself. Everything they're getting relief on would still be growing/ compounding, the benefit would be massive. The 20% relief is probably going to double in value in 10 years, at standard growth rates.

Don't forget this lot are probably maxing out their ISA to 20k per year also, and are getting 25% of their pension back as a tax free lump, so they're only ever really paying 30%, and that's if they're daft enough to draw their pension in the higher rate band, which is probably 4k per month. Who needs that much money when their house is paid off?

Pension with 20% relief would still be a big positive to a higher rate payer I think, if they're not planning on retiring before they can get access to it.
 
Andy_W said:
I think they should only get 20% relief max (or whatever the lowest tax band is), it's still a big positive over the alternative of taking out the cash which is taxed fully at 40% and investing that yourself. Everything they're getting relief on would still be growing/ compounding, the benefit would be massive. The 20% relief is probably going to double in value in 10 years, at standard growth rates.

Don't forget this lot are probably maxing out their ISA to 20k per year also, and are getting 25% of their pension back as a tax free lump, so they're only ever really paying 30%, and that's if they're daft enough to draw their pension in the higher rate band, which is probably 4k per month. Who needs that much money when their house is paid off?

Pension with 20% relief would still be a big positive to a higher rate payer I think, if they're not planning on retiring before they can get access to it.
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If by this lot, you mean 40% taxpayers, I can assure you I am not maxing out my ISA annually.
 
Matt said:
exactly this

don't think of it as the higher rate getting additional relief, think of it as everyone getting tax on pension savings reduced to 0
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I’m thinking if it as the wealthy getting a leg up (again) - and I’m ok with that 😂
I’ve personally benefitted and always wanted it changing
 
Matt said:
How do you determine which "pot" the contributions come out of? You have to use the 40% pot first and then then 20% pot if necessary.

I guess it depends how you look at it, either the higher rate payers are getting more relief (40% vs 20%), or everyone is paying the same amount of tax on pension savings (0%)
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You have hit the nail on the head and that’s why there is disagreement on this.

Which ‘pot’ ?

A higher rate payer would say it was coming out of their 40% pot.

However if you were being strictly fair, you would acknowledge that it could come out of the 20% pot, albeit that would mean you were paying more tax at 40% on your current earnings.
 
gramercy said:
Is my maths correct in my thinking that if you cap the pensions tax relief at 20%, people who are subject to 40% tax are essentially getting taxed at 20% on money going in, and possibly again at 20% on the way out depending on how much they manage to put away in a career?
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Yeah, but that 20% relief they get is still going to compound, that's the bit most seem to miss, it's compounding money which you would otherwise not have, for a very long time. Every £1 in is probably worth £2 in 10 years or £4 in 20 years etc.
 
1finny said:
I’m thinking if it as the wealthy getting a leg up (again) - and I’m ok with that 😂
I’ve personally benefitted and always wanted it changing
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Interesting use of the word wealthy

I am in the higher tax bracket (40%) and certainly don't feel wealthy. I will admit that I am certainly more comfortable than some.

I also certainly don't feel like "I am getting a leg up" as I pay more tax (as a percentage), am not eligible for child benefit or childcare, am not eligible to use some of my wifes tax allowance, and my wife is not eligible to claim for some health benefits (that she would otherwise be entitled to) due to my salary.

Now I am not saying that the above is unfair, I believe in progressive tax and reducing benefits available to those who are more fortunate (and I am more fortunate, I agree with that). But where exactly do you believe I am getting a leg up?
 
Andy_W said:
Yeah, but that 20% relief they get is still going to compound, that's the bit most seem to miss, it's compounding money which you would otherwise not have, for a very long time. Every £1 in is probably worth £2 in 10 years or £4 in 20 years etc.
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I don't think anyone is missing that, that's just how it works. The point is that higher rate earners would be paying 20% more tax on their pension contributions, surely?
 
40% tax seems quite high if you are earning £60k a year - but its only on the marginal amount above £50k i.e. on £10k.

Also Nat Insurance drops to 2% on any earning above £49k a year is total direct taxes are 42%.

Until recently people on just the living wage were paying 32% marginal rates on direct taxes.

We are quite a high tax country on a global scale, but people do gain free health care, free schooling up the age of 19. We do provide quite a bit for the weakest in society see posts by the Lodger and Sherlock on how much is spent to support special needs.
 
HolgateCorner said:
You have hit the nail on the head and that’s why there is disagreement on this.

Which ‘pot’ ?

A higher rate payer would say it was coming out of their 40% pot.

However if you were being strictly fair, you would acknowledge that it could come out of the 20% pot, albeit that would mean you were paying more tax at 40% on your current earnings.
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Yes but if someone earned £50271, meaning £1 of their income was subject to 40% tax, if they put £1000 into a pension they don’t get 40% tax relief on the full amount. There’s no ability for anyone to pick which “pot” it comes from.

They’d get 40% relief on £1 and 20% relief on £999.
 
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Matt said:
Interesting use of the word wealthy

I am in the higher tax bracket (40%) and certainly don't feel wealthy. I will admit that I am certainly more comfortable than some.

I also certainly don't feel like "I am getting a leg up" as I pay more tax (as a percentage), am not eligible for child benefit or childcare, am not eligible to use some of my wifes tax allowance, and my wife is not eligible to claim for some health benefits (that she would otherwise be entitled to) due to my salary.

Now I am not saying that the above is unfair, I believe in progressive tax and reducing benefits available to those who are more fortunate (and I am more fortunate, I agree with that). But where exactly do you believe I am getting a leg up?
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Matt

I would guess 1Finny is referring to tax relief at 40%, if you claim this.

The issue the country faces is do we spend more on health and social care to meet growing demands and if so where does this extra money come from.
 
BaronSmoggie said:
If by this lot, you mean 40% taxpayers, I can assure you I am not maxing out my ISA annually.
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I'm in that band myself, I'm basically talking in the 3rd person, looking forwards.

Some will, some won't but it depends what they're deferring into their pension as well as what else they're paying etc. Also depends what they're earning, the band is 50k-125k etc. Someone earning 60k isn't likely to be maxing an ISA, might not even have one, but they won't be paying 40% when they get their pension back out either, it will be coming out at low or maybe even no tax (especially when you factor in the 25% lump sum, and slow withdrawal rate).

Someone on 100k will probably be chucking some into a pension and some into an ISA instead, to maybe retire earlier than 60 or cover their bases so all the cash isn't locked into a pension they can't get at. So as there's less going in their pension and what is in there is paid out over a long time, so they won't be getting it back out at 40% either, probably same again low/ no tax. All the time there's money in there it's still compounding also, their bills are probably low, probably downsize the house etc.

The only people who will be getting a pension back out taxed at 40% or whatever are those who are absolutely buckled, and even then they will will be avoiding that rate like the plague.
 
Under PAYE tax is calculated after deductions, and that's right. It's insane to suggest that one person would have to pay 20% tax on their pension contributions whilst another pays 0%. For a great deal of people here, it's not about 'getting money back' it's about just not paying some tax.

We're doing exactly what the people we really should be targeting want. Working people arguing amongst themselves rather than clawing it back from the super rich who are offshoring the lot.

40% tax payers in general pay their share
 
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Some
Redwurzel said:
40% tax seems quite high if you are earning £60k a year - but its only on the marginal amount above £50k i.e. on £10k.

Also Nat Insurance drops to 2% on any earning above £49k a year is total direct taxes are 42%.

Until recently people on just the living wage were paying 32% marginal rates on direct taxes.

We are quite a high tax country on a global scale, but people do gain free health care, free schooling up the age of 19. We do provide quite a bit for the weakest in society see posts by the Lodger and Sherlock on how much is spent to support special needs.
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some fair points there for sure . It does still stick in your throat , rightly or wrongly , that having worked so hard and sacrificed to get to the higher threshold that the government whips 40% off you not 20% and even worse you cross into the loss of your tax free element , will feel like your working more for nothing
 
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