Lifetime allowance possibly frozen.

[Al R]

This possible measure alone
https://cimg7.ibsrv.net/gimg/pprune.org-vbulletin/1580x2000/e1c1490d_c8d4_43dc_a748_95bebcabd55d_6f077b6cba92183282d0a31 8c3307d5c9b3eb8b9.jpeg
could pull a lot more senior officers into the frame.

[Asturias56]

its a been a great deal for the better off - but like all great deals its about to come to an end................ :{

[Party Animal]

What’s the deal here Al in simple terms? Do you only need to worry if 20 x your annual pension plus your lump sum is greater than the ‘just over £1,000,000’ level? I.e, £45k pa plus £100,000 lump sum = ok. £46k pa plus £120,000 = bugger?

[Al R]

If we get creeping inflation, and why wouldn’t we, if a pension that is linked to a final salary in increased, then more will topple over the cliff edge. Other more insidious risks are discount rates and valuation factors. This 2010 document is interesting.

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/259732/GAD_report_on_flat_factor_version_14_October.pdf

[pasta]

The unforseen consequence of this is that people in danger of breaching the threshold have less incentive to work. At the moment, anyone taxed at 40% obtains tax relief on anything they put into a pension plan. Once they reach the ~$1MM threshold that tax relief is no longer available, and some of those people will decide to take early retirement. Unfortunately, many of these people are quite useful to society (which is how they come to be earning those sums). For example I know a GP in his 40s who works a 3-day week because he'd rather spend the other 2 days pursuing his hobbies than paying tax at a marginal rate of 40%. This is someone who will have cost the country a lot to train, is undoubtedly doing an important job, but the amount of work he does is effectively throttled by taxation policy.

As with any tax raid, not only do you have to figure out what rate will maximise revenue (see Laffer Curve) but also what the impact will be on society.

[Asturias56]

It affects people in the City and who work for National newspapers - 95% of the population aren't affected as they don't have the cash to pour into a pension pot

[Bob Viking]

If your only input is to pour scorn on the plight of those that fall foul of this rule maybe it’d be better to stay out of the conversation?

I’m guessing you are not affected so by continuing to comment, in a rather smug way, it reflects poorly on your personality.

All of this is just my opinion of course.

BV

[charliegolf]

Comes to something when you read the article and wonder whether it's worth it for a measly 1/4 billion a year. But I suppose you need to start somewhere. They'll have to act this year and next, so they can do a giveaway in the election run up.

CG

[Lima Juliet]

I am so glad that I “crystallised’ my AFPS75 when the LTA was £1.8M and I went FTRS. That means I will have a £55k pension combined when I retire and will have had a combined tax free lump sum of £140k - no LTA issues. I knew it would pay off doing my pension homework when the LTA lowering was being rumoured :ok:

[Richard Dangle]

In fairness to Asturias, pension threads on here are usually high on self interest and low on altruistic perspective. People (whoever they are) with big pensions talking about marginal differences ignite my jets too. That said, it is forum for us miltary folk and any thread that brings in ALR's expertise is valuable so perhaps the "diverts" should be gentle to moderate???

Personally I think now is the time more than ever for the better off to support the worse off...and if that means a little more tax here and there, fine by me.

[Asturias56]

Agreed - you get what you pay for in this life. It's fine to aim for tax minimisation but things like the pension scheme seemed designed originally to benefit the well off and the City types rather than the mass of people

[Party Animal]

Noting that those ‘city types’ now includes flt lt PAS aircrew who have dedicated their lives for a career of public service to the age of 55 or even 60. If you would like some perspective, I’ll give you Falklands War, Cold War, Northern Ireland, GW1, Kosovo, Afghanistan, GW2, Libya, Syria....

[Easy Street]

"City folk" tend to benefit from a great deal more flexibility in how they are paid, even if IR35 has ended the worst excesses of personal services consultancies. For many who have taken often long-past decisions to remain in public service, with its rigid pay structure, it's the pension that will have swung it so there is an element of natural justice to be considered. This is particularly so in the civil service, where senior salaries are modest by equivalent private sector standards. The combination of public sector remuneration structures with the lack of long-term stability in pension taxation (owing to the fact that Chancellors have discovered they can fiddle with it at low "up-front" political risk) has already bitten the government hard once with its impact on doctors, and it disincetivises the best lawyers from becoming judges. These are both areas of greater political salience than the military and were it not for those groups I'm sure we'd have been hit harder already. We have the BMA to thank for the recent relaxation of annual allowance tapering so it'll be interesting to see whether it decides to stay quiet or to weaponise doctors' role in the pandemic response to protest any further pension tax changes.

[Uplinker]

The (legally) rich have got their money through being intelligent, or clever, or taking educated risks, or working hard, (or their families have). They already pay more through income tax - why should they pay even more just because they have more money? The Beatles and the Rolling Stones were charged something like 98% tax in total. What the hell?

Ditto someone who might not have bought the big house, or run the big car, or taken the expensive holidays, but put all their money into their pension? Why should they now pay more tax for being prudent?

Obviously we should help the poor, but everyone else should pay their fair share, not just the rich.

[Al R]

Not to worry. I see that former pensions minister, Ros Altmann, is now calling for employers to be able to take a one year freeze from contributing to DB scheme accrual. 🤦🏼‍♂️

[Al R]

I am so glad that I “crystallised’ my AFPS75 when the LTA was £1.8M and I went FTRS. That means I will have a £55k pension combined when I retire and will have had a combined tax free lump sum of £140k - no LTA issues. I knew it would pay off doing my pension homework when the LTA lowering was being rumoured :ok:

It may be said that this intended measure is unfair because it penalises those who are saving at the expense of those who have already saved. It creates a lottery.

[SARF]

20 times leaving salary was the default setting for final salary schemes for years. Some of these are worth 50 times plus now. Easily putting a lot of lifers on merely a decent wage thru the barrier should they want to realise the pot and manage it themselves. Freezing allowances is the stealthy way to extract more loot

[SirToppamHat]

Yes the flight lieutenant PAS and in danger of being hit by the Lifetime Allowance, but this will mainly affect wg cdrs and above, but it will begin to imact others over the next few years. I have done 32 years and, classifying myself as middle management, I don't quite meet the whole-life value yet, but will be hit if they remove the index linking of the allowance. It's an extremely regressive tax, which was brought in to stop people taking huge amounts of remuneration in a very tax efficient way. I am talking here about people who might take £1M in salary in a year and another £1M into the pension pot, avoiding a huge amount of income tax in the process. However, it has the impact of reducing the amount of time people want to work as has been raised earlier.

Within the regular RAF, it is difficult to imagine a situation where people reduce hours to 2 or 3 days a week (personally, I have always considered us to be a 24/7 organisation), but ASTRA and the Whole Force construct are moving us in that direction, and the more extensive use of reservists is allowing some very odd arrangements indeed, which allow us to tick boxes along the lines of 'yes we have person responsible for X or covering the requirement to do Y', when practically that might mean one person for one day per week or even fortnight. However, if that's what people have to do to reduce their tax liabilities, then I guess that's what they will do.

What I don't think we have seen in the article below, or in the discussion here, is anything to do with the Annual Allowance on pensions. Covered in some detail in another thread, the annual increase in the value of your pension (currently £40K) usually hits people hard on promotion (in my case I reckon on a tax bill of about 6-months net pay - to be paid in one or 2 instalments*!). If I have someone working for me in that position, should I be surprised if their dedication to the cause is not quite what it was the previous year? If the Whole Life amount is remaining the same, then I would be amazed if the 40K annual allowance (which has never been index linked) changes.

STH

*Yes there is an option to go for 'Scheme Pays', but the 'Scheme' simply removes the liability in return for reducing your actual pension when it is due.

[Al R]

Yikes. Lifetime Allowance frozen until April 2026.

[heights good]

The (legally) rich have got their money through being intelligent, or clever, or taking educated risks, or working hard, (or their families have). They already pay more through income tax - why should they pay even more just because they have more money? The Beatles and the Rolling Stones were charged something like 98% tax in total. What the hell?

Ditto someone who might not have bought the big house, or run the big car, or taken the expensive holidays, but put all their money into their pension? Why should they now pay more tax for being prudent?

Obviously we should help the poor, but everyone else should pay their fair share, not just the rich.

Wholeheartedly agree, everyone has the opportunity to become rich.

[beardy]

Wholeheartedly agree, everyone has the opportunity to become rich.
Probably true. But not everyone has an equal opportunity.

[Lima Juliet]

Yikes. Lifetime Allowance frozen until April 2026.

Not great, but not the end of the world either? As I understand it, the LTA is set at £1,073,100. So that will see any pensionable income above 20x your annual pension and any tax-free lump sum combined above that figure will be taxed at 25% for the annual pension and 55% for the lump sum. So to exceed that, then you would need an annual pension of £53,655 - or say £48K per year plus a £113,100 tax-free lump sum - to get to that threshold, and then it is only the EXCESS that is taxed above those sorts of figures. So this really is a 1st world problem and even then, if your pension is above that, you will still see (according to Baldrick) “some beans” but it won’t be “no beans”.

Personally, if any of mine gets taxed above that at 25%, before the 40% income tax is taken, then I will be OK with that. As I say, not great, but if it helps pay off the Country’s debts then so be it. :ok:

[Al R]

Not great, but not the end of the world either? As I understand it, the LTA is set at £1,073,100. So that will see any pensionable income above 20x your annual pension and any tax-free lump sum combined above that figure will be taxed at 25% for the annual pension and 55% for the lump sum. So to exceed that, then you would need an annual pension of £53,655 - or say £48K per year plus a £113,100 tax-free lump sum - to get to that threshold, and then it is only the EXCESS that is taxed above those sorts of figures. So this really is a 1st world problem and even then, if your pension is above that, you will still see (according to Baldrick) “some beans” but it won’t be “no beans”.

Personally, if any of mine gets taxed above that at 25%, before the 40% income tax is taken, then I will be OK with that. As I say, not great, but if it helps pay off the Country’s debts then so be it. :ok:

You’re right, but the LTA is frozen until April 2026, so it’s not just the current situation that’s an issue - in five years time, many more currently in affected will be within scope.

Added to that, many impacted or likely to be imminently impacted, will leave AFPS either tipping just over it or nudging it, and will still have ten years of working life left, presumably continuing to accrue in some corporate DC scheme - it’s not just DB accrual which is the issue.

Or, in two or three years, income in retirement gets subject to either NIC or rather more likely, a harmonised taxation rate which includes Income Tax and NIC. This measure impacts those still saving and those not in retirement. It seems to be unfair in that respect.