Possible pension changes in the budget

[Smartie]

There has been much talk of the Chancellor reducing the 'tax free' allowances for pension contributions at the budget in March.
For example, reducing the 40% rate to a basic rate of 20% or a compromise rate of 30% for everyone.

Obviously this would be a big hit for higher rate tax payers making significant personal contributions to their pension.

However, I've seen nothing that mentions changes to company contributions.

At the moment we save 40% by using company contributions but 42.5% for personal contributions (higher rate tax payers). Obviously personal is a bit better at the moment, though limited by our often small salaries. (Calculations here: Pension Contributions: You or the Company? | Taxcafe)

In the future though, if the changes go through as currently touted, will it be better to use company contributions for everything and will it remain at 40%?

[zoomfwd]

I can't see employers contributions in their current form being left untouched

How tax relief reform will affect pension schemes - Retirement Planner

Wilson believes employer contributions will also need to go through payroll under a single rate system to ensure the tax relief is applied at the correct rate and to make sure individuals can’t get around the rules by using salary sacrifice or getting employers to make additional contributions on their behalf.

Currently, all employer contributions get paid into the pension scheme on a gross basis – no matter whether the scheme uses a net pay or relief at source arrangement.

Pensions and Lifetime Savings Association head of policy and research Jackie Wells agrees. She says: “The way we think this will work in practice would be that all contributions will have to be paid into the pension scheme net of the individual’s marginal income tax rate, which means putting them through payroll.

“That has a number of implications – not least that payroll systems will have to be adjusted to take tax from the employer contribution as well as the employee contribution, something which has implications for both employers who operate net pay arrangements and relief at source.”

[Fred Bloggs]

I would consider it prudent to maximise you SIPP contribution. Any change can only be for the worse in my olinion.

[mudskipper]

I would consider it prudent to maximise you SIPP contribution. Any change can only be for the worse in my olinion.

Agreed - I'm intending to top up a few K before April.

[mudskipper]

One puzzle is that if it's taxed before it goes in, is it going to be taxed when you take it out? If so, you could end up worse off with your money in a pension.

[Fred Bloggs]

One puzzle is that if it's taxed before it goes in, is it going to be taxed when you take it out? If so, you could end up worse off with your money in a pension.

Details yet to be released. One idea was to align SIPPs and ISAs so that money was taxed on the way in, but tax free on the way out. Problem is, governments often change theirmind and in the case of pensions very often too.

[Smartie]

I don't see much incentive for him to change the tax on pension income to be honest. Maybe we'll get it taxed at the basic rate if we're very lucky.

People often forget that pensions aren't tax free, just tax deferred. Better if you're a higher earner while working then a basic rate payer in retirement.

Anyway, the main dilemma is how to split pension savings and dividend withdrawals (which could be ISA'd) before the budget/end of the tax year. Divs are definitely getting taxed more, pensions are very likely to lose some benefits.

Obviously that's down to personal circumstance such as age.

[WordIsBond]

Just one thing to note. If you are staying below the higher rate band (perhaps because your spouse is a shareholder), you might get HIGHER tax relief by waiting. One of the rumours is that pension relief will be set at a flat 25 or 30%. If so, higher rate payers will do worse but basic rate payers will do better.

[DallasDad]

Where does NI come into the equation?
Any changes looming there which I appreciate may not be relevant to those of you outside of IR35 but what about those of you within or I guess where it gets even messier with some contracts in and and some out?

[jpdw]

The likely changes to employers contributions is something I've been following in news/online articles etc. (taking a keen interest as it would affect me!!)

Some reports/rumours suggest that any changes to make employers contributions less attractive could take affect from budget day - to prevent people suddenly decided to top lots of cash into their pension pots before April 5th.

So anyone intent on topping up may want to get a shift on.