Reply to: How will the rumoured pension allowance changes change your approach to contracting?

[hugebrain]

I’ll be putting £180,000 instead of £160,000 into my SIPP this year.

With £20,000 in the ISA it barely leaves enough to live on. Must check if I qualify for any benefits.

[jamesbrown]

meh, but it won't happen,

Because financial products such as mortgages with pensions as the final repayment have been sold for decades... I can see the lifetime allowance been locked down to say £1.5m but the ability to extract 25% up to £250,000 or so as a lump sum will stay.

We’ll see. Labour is already calling it a “bung for the rich” and promising to reverse the changes, which provides an ideal opportunity to do slightly more than reverse them, especially now that the maximum tax free amount is absolute, not relative (“250k bung to the rich”).

[eek]

A judicial review cannot overturn primary legislation, such as a Finance Act. Also, judicial reviews are about process not outcome.

meh, but it won't happen,

Because financial products such as mortgages with pensions as the final repayment have been sold for decades... I can see the lifetime allowance been locked down to say £1.5m but the ability to extract 25% up to £250,000 or so as a lump sum will stay.

[jamesbrown]

Would it? If parliament pass legislation to cut it, how would they lose a judicial review?

A judicial review cannot overturn primary legislation, such as a Finance Act. Also, judicial reviews are about process not outcome.

[electronicfur]

it will be eroded by inflation but can't be cut because that would lose any judicial review which would occur.

Would it? If parliament pass legislation to cut it, how would they lose a judicial review?

[Nava39]

I'm surprised no one is commenting on the 100k to 125k income tax bracket. This is where you effectively pay 65% tax on the 25k earnings over 100k due to the loss of personal allowance .

Some people don't even know they pay 65% and think they are 45%.

The only way for an inside IR35 person to avoid it is by contributing in to a personal pension so it keeps the taxable income below 100k. The increase 20k is very welcome for many and also helps to retain your tax free childcare as you also lose that at 100k plus.

[FIERCE TANK BATTLE]

I don't have a pension, other than state, don't see the point. Would rather enjoy my money now, and my investment in increasing larger houses will probably be my pension.

[eek]

An interesting detail from today. The maximum tax-free cash has been capped at 25% of the current lifetime allowance. That means they've effectively made the maximum tax free amount a fixed cash amount of a little more than £250k. That is going to get gradually eroded by inflation and it's going to look like a rather large "tax-free bung for rich people" for an incoming Labour gov't, to be reduced gradually. In other words, I think today we witnessed the death of the tax free amount.

it will be eroded by inflation but can't be cut because that would lose any judicial review which would occur.

[jamesbrown]

Approach to contracting, not remotely. Approach to pension savings, marginally (in the sense that, by contributing more, it helps to offset the increase in CT at the margins). However, watch out for more significant reforms to come, probably raising the age at which pensions can be accessed (currently due to increase to 57) and reducing the tax free lump sum from 25%. In other words, you may end up with a larger pot, but it may become less attractive in deferring tax because you cannot access it until much later and/or in a less tax-efficient way.

An interesting detail from today. The maximum tax-free cash has been capped at 25% of the current lifetime allowance. That means they've effectively made the maximum tax free amount a fixed cash amount of a little more than £250k. That is going to get gradually eroded by inflation and it's going to look like a rather large "tax-free bung for rich people" for an incoming Labour gov't, to be reduced gradually. In other words, I think today we witnessed the death of the tax free amount.

[d000hg]

I shall ask my IFA for independent financial advice.

[SueEllen]

However, watch out for more significant reforms to come, probably raising the age at which pensions can be accessed (currently due to increase to 57) and reducing the tax free lump sum from 25%. In other words, you may end up with a larger pot, but it may become less attractive in deferring tax because you cannot access it until much later and/or in a less tax-efficient way.

It's increasing to 58 when the pension age increases to 68.

For some reason the government is just stalling on putting the bill through. They have been stalling for years.

[Hairlocks]

Will depend on IR35 status of contract. Inside then I will max out pension and take minimum wage and live of savings dividends. Outside I will plan to work 6 months a year and not put into pension.

[jamesbrown]

Approach to contracting, not remotely. Approach to pension savings, marginally (in the sense that, by contributing more, it helps to offset the increase in CT at the margins). However, watch out for more significant reforms to come, probably raising the age at which pensions can be accessed (currently due to increase to 57) and reducing the tax free lump sum from 25%. In other words, you may end up with a larger pot, but it may become less attractive in deferring tax because you cannot access it until much later and/or in a less tax-efficient way.

[Guy Incognito]

I will be paying the max into my pension whatever that is.

[mattster]

I'm 50 and have been pretty bad about contributing to pensions for a good eight or so years because I wanted to provide experiences for my family.

I am in a position to pay the full tax free amount back dated for three years from my contracting income whilst using a modest inheritance to live on.

This is absolutely the right approach. If you are in IR35 then pension contributions are almost doubled immediately - far better to live on savings and contribute 100% of earnings if poss. I also haven't maximised recently, so potentially could put in £130k+ this year if I was earning enough.